Public borrowing bad, household borrowing good?

Following on from yesterday’s post about the unspoken assumptions needed to get us to a budget surplus by 2019, here’s another chart from the OBR’s report on the Autumn Statement:

It shows the ratio of household debt to GDP. This peaked just prior to the crash in 2008 at around 170% of GDP after which time, households started to ‘deleverage’ and the ratio fell to around 145% today. For the reasons I gave in yesterday’s post, in order for the government’s deficit to disappear and then go into surplus, household borrowing will have to rise. The OBR forecast it will rise to over 180% of GDP by 2020. Remember that the crash coincided with a ratio of just under 170%, but it is now assumed we can go way beyond that seemingly without any problems.

I have hardly seen this mentioned in the commentary surrounding the Autumn Statement, but it’s a huge elephant in the room. If public debt is such an evil, burdening our grandkids for years to come, why is household debt (where the interest rates will be much higher) not similarly bad? I would suggest that rising household debt presents a much greater systemic risk to the economy than government debt, and no Chancellor with a serious #longtermeconomicplan would put rising household debt at it’s centre. It’s seriously unwise and is setting a timebomb waiting to go off. I reckon Osborne realises the chances of a Tory Government next May are pretty slim, so doesn’t really care what problems he is creating if it means he can retain his reputation for ‘fiscal responsibility’ and someone who can take ‘tough decisions in the national interest’.

All the media comment has been around marginal changes like on stamp duty or on the nightmare of cuts still to come, but to me this issue of household debt is one journalists should be hammering away at hard. We need to be asking if replacing government deficits with household deficits is another other than a recipe for disaster.

10 thoughts on “Public borrowing bad, household borrowing good?

  1. Plus either Ed Balls is lying through his teeth, or he’s going to go down exactly the same road.

    I don’t know which scenario is more depressing.

  2. “Long term economic plan” roughly translates as, “I haven’t a clue what I’m supposed to do yet, but give me an unlimited allocation of time, and I suppose by default I’ll accidentally get it right eventually, and then you can thank me for it.”

  3. It’s amazing that public debt is seen as a burden we put on our kids and yet student loans, escalating house prices, poor job opportunities and security and underfunded and/or privatized infrastructure are not! A twisted political agenda at work.

    1. Also, typically from Oborne, he religiously recites all the usual horlicks about the country being on the edge of insolvency, which apparently it was in 2010 when the Debt was only a little more than half what it is now.

  4. Right, for the UK is going to run out of keystrokes on the computers with which to credit and debit accounts . . . no such thing as a sovereign issuer of its own nonconvertible, floating, fiat currency that does not borrow in any other currency that is insolvent, except by choice or via stupidity/ignorance.

  5. The Tories with tax, benefit and pension ‘reforms’ just put the nation deeper into debt and will continue to do so.

    But then so are all the parties who believe in the failed political theorty of austerity.

    The cuts are killing people now. How long before we get an uprising?

    Then the economy will go into a nose-dive with social unrest.

    Happens throughout history again and again.

    Even The Times, the paper of the super rich, realises this.

    There are tens of millions of people like me who, if The Greens would widely advertise their unique 2015 manifesto pledges, who can only vote Green or die with any other party in power in 2015:

    – universal, automatic Citizen Income, non-withdrawable
    means nil benefits admin costs and the end of the starvation causing Jobcentres

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