Over the past year household incomes in the UK grew by just 1.5% but outstanding car loans, credit card balances and personal loans rose by 10%.
That 8.5% gap is one measure of the increasingly difficult task most people face of putting food on the table, keeping warm in winter, paying for rent and travel. Every day.
It doesn’t include student loans or mortgages.
The average total debt per household – including mortgages (but not student debt) – was £56,731 in May. That’s an average debt of £29,698, around 113.5% of average earnings for every adult in the UK.
Neither does it include every household’s share in government debt. That adds another £65,000 you are responsible for but maybe didn’t know about. And despite the strongest of the government’s intentions the national debt just keeps on growing.
The Bank of England is getting increasingly worried that its limited powers over lending won’t stop what it calls a “spiral of complacency” brought on by low interest rates and lenders eager for business.
The spiral works just fine until interest rates rise and the music stops.
With inflation threatening to take hold, three external members of the Bank’s Monetary Policy Committee voted for a rate increase at its recent meeting. Ian McCafferty, Michael Saunders and Kristin Forbes wanted to raise rates by a quarter of a point to 0.5% but were outvoted by four full-time Bank staff members, including Governor Mark Carney.
The Bank doesn’t want to be responsible for tipping the economy into recession.
The Office for Budget Responsibility which watches the government’s back on money matters, last week warned that Britain’s public finances are in worse shape to withstand a recession than they were on the eve of the financial crash – almost exactly ten years ago.
The OBR says a new recession is inevitable. This, the fall-out from Brexit, and the growing pressure from people who have had enough of austerity will add to the need for even more debt.
But don’t expect much generosity from chancellor Philip Hammond in the autumn budget. Like every government of every country caught up on the capitalist global economy, the UK is subject to forces much more powerful.
Driven by soaring levels of credit and debt essential to keep production on track – like those car loans the BofE is so worried about – and the profits flowing from the 99.9% to the 0.1%, the global economy is careering towards the abyss.
And there is the problem – reduce the debt and people can’t borrow to buy cars. All those car companies who are threatening to leave the UK might be blaming Brexit, but there’s a bigger story. If the credit lines tighten and the cars aren’t sold, the production has to cease altogether.
So that’s why the proportion of global debt to levels of global production (GDP) are 40% higher than they were on the eve of the 2008-2009 global meltdown.
The fact is, the capitalist economy can’t exist without debt, but whilst the profits flow to the already super-rich, the repayments are down to the rest of us.
Nobody knows that better than the impossibly-indebted Greeks, where the Syriza government, forced by the European Union to deepen and lengthen its brutal programme of austerity, is now turning to the international bond markets for more, as it hangs on for another gruelling year.
The IMF has consistently called on the EU to write off or restructure at least some of the Greek debt but the EU won’t relent. Without that relief, the IMF has estimated that Greece’s public debt to GDP ratio will rise from an already excessively high 180% today to an even more staggering 275% by 2060.
The Institute of International Finance latest report on “financial leverage” was the most troubling of all yet, says financial bloggers ZeroHedge. It is reminiscent of the situation on the eve of the last financial crash when the house of cards collapsed.
What it found was that in a period of so-called “coordinated growth”, global debt hit a new all time high of $217 trillion, or over 327% of global GDP, up from $149 trillion and 276% of GDP over the past decade.
With central banks already acknowledging they don’t have the funds for another bail-out, the warning signs are ominous. Remaking the economy on a co-operative foundation is fast becoming a practical necessity because the burden of another crash will be too much for the 99% to carry.