Monday, June 18, 2007

Private Debt, the Governor of the Bank of England's warning

Last week the governor of the Bank of England, Mervyn King gave a speech suggesting that people were borrowing to much, and ought not to be borrowing on the basis that borrowing will remain cheap.

In many ways it was an understated way of stating the obvious. The issue is that private debt now amounts to £1,300,000,000,000. That is a lot of zeros. £1.3 trillion. Hmm.. Quite a lot of that is tied up in housing and quite a lot in unsecured debt.

If the economy runs in a stable fashion and nothing rocks the boat then fine, the problem is what happens if something does rock the boat? Public borrowing is also high, whilst the tax take always seems lower than Gordon Brown expects. This level of debt reduces the flexibility of the economy to respond to a crisis or a change. We need to stop borrowing at these levels.

It is also one very good reason why George Osborne insists that the stability of the economy will come before tax cuts. There are an awful lot of people in an awful lot of debt and they won't be happy with risk takers.

The Telegraph has this.

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