Comments: Debt strains

"debt is biting, though from a low base"

I don't think that this is what you meant. Debt is high, not low,, although the problems caused by it (bankrupcy, mortgage arrears, etc.) are rising from a low base.

However, I suspect that the rise in problems servicing debt are not the big issue. Historically low interest rates have allowed people to increase the amount of debt they have taken on, as servicing costs are lower - and the resulting spending has provded a huge boost to the economy. But this is no free lunch - interest rates are low because inflation is low and this means that the value of the debt is more slowly eroded than in the past, so people are stuck with debts for longer. Because people are stuck with the value of the debt for longer, this means that there is less scope for increasing borrowing again, so spending will be constrained for a long time. This will act as a drag on the economy.

The government has not banished the 'boom-bust cycle' as it would have us believe. The cycle has just been flattened and extended in time.

Posted by HJ at February 3, 2006 05:50 PM

Yes, precisely, excuse the short-cut in my use of language. Debt problems - repossessions, arrears, etc - are rising but from a low base. I agree with the point about a prolonged drag on spending.

Posted by David Smith at February 4, 2006 10:32 AM
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