Debt unlimited

The mainstream media is starting to face up to how deeply screwed we are by the bursting debt bubble.

Sez Jeff Randall in the Telegraph:

The debt trap time bomb

“According to [the Office for Budget Responsibility], UK personal debt will grow by nearly 50 per cent between now and the end of this parliament. Come 2015, it is forecast to reach £2.12 trillion pounds. How can this be right? The average British adult already owes £29,500, about 123 per cent of average earnings.”

“Is the OBR expecting a sudden burst in take-home pay to offset a massive expansion of household debt? No, quite the reverse.

“It explains: ‘We forecast that income growth will be constrained by a relatively weak wage response to higher-than-expected inflation. But we expect households to seek to protect their standard of living … this requires households to borrow throughout the forecast period [2011-2015]’.”

Governments have only one answer to too much debt. More debt. In fact, they depend on it because more debt is the only way to get more money, since money is loaned into existence and the banks have a de facto monopoly on money creation.

So the Office of Budget Wishful Thinking “requires” Brits to plunge themselves into 50% more debt over the next four years.

Let’s see. Which way are people going at the moment? Credit Action noted in March 2009, just as the recession was biting, that the average UK adult owed £4,870 on credit cards, motor and retail finance deals, overdrafts and unsecured personal loans. After two-and-a-half years of stagnant wages and low growth, that figure has fallen by 12% to £4,257.

So much for the Government’s hopes that Brits will immolate themselves on the altar of debt slavery merely to keep the tills ringing merrily.

Credit Action also reports:

“Figures released by the Finance & Leasing Association (FLA) show that consumer credit lending was down by 1% in July 2011, compared with last year. Retail store credit was down by 13% and credit cards and personal loans by 2% compared with July 2010.”

Millions of Brits are already struggling to service their debts. Neither they nor those who still can afford to borrow are not in any hurry to take on more. But the Government MUST HAVE MORE DEBT! What’s a poor Chancellor to do?

Well, borrowing more isn’t the only way to get people deeper into debt. Raising interest rates would have the same effect on the biggest chunk of outstanding debt, the £1.24 trillion owed on mortgages. But higher mortgage payments would finish off many of the families who are just keeping their heads above water. Perhaps George Osborne actually hopes that they will turn to extortionately-costly unsecured loans to ‘maintain their lifestyles’ (aka being able to feed and clothe themselves and their children).

The UK is not alone here. All the so-called Western economies are going along the same route of doubling down on debt. The euro zone makes up stories about a trillion euro rescue fund for itself, paid for by the Chinese (who didn’t even pretend to say ‘no’ politely).

They’re all hoping that the Growth Fairy will come back so they can pay off all this debt. Some of them are becoming dimly aware that she is never coming back – at least not without a return to energy at low, low prices that will remain a tantalising memory now that the peak of oil production is sliding by beneath us like a killer whale gliding under an ice flow.

This worries Dmitry Orlov. He’d hoped that governments would have the sense to throw in the towel and start organising an orderly retreat from dreams of endless debt-fuelled growth. But today he looks back at his Five Stages of Collapse and writes:

Stages of Collapse Revised: “Joined at the Wallet”

“I wished for an orderly cascade of collapsing institutions, with enough of a gap between them for public psychology and behavior to adjust to the new reality. But almost four lost years of both government and finance betting on a future that cannot exist, doubling down every time they lose again, have dashed those hopes. The effect, I think, will be to compress financial and political collapse into a single chaotic episode. Commercial collapse will not be far behind, because global commerce is dependent on global finance, and once international credit locks up the tankers and the container ships won’t sail. Shortly thereafter it will be lights out.”

If that sounds doomerish, just keep an eye on the euro area story as it unfolds over the coming days and weeks. Greece, Italy, Spain and Portugal all run the risk of financial or political collapse (or both) unless they receive huge additional bailouts. And no-one has any idea where the money will come from.

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