Think tank warns “obsession” with national debt is threatening to “bring down” the economy
A LEADING Scottish economics thinktank has spoken out over fears that creating private and household debt through a slowing economy threatens a re-run of the 2008 economic crisis.
The comments come amid mounting evidence of dangerously high levels of private debt in the UK and global economies.
A decade ago, in the summer of 2007, the first signs of the weakness in the global economy emerged. One of the signs was growing household indebtedness.
In the UK, the symptoms of a heavily indebted economy have returned, with high unsecured consumer debt and high mortgage debt at the same time. The Bank of England and the International Monetary Fund (IMF) have warned of the dangerous combination of credit bubbles.
Discussion of private debt appears only twice in the 2015 Scottish Conservative manifesto. Both times it is discussed as a problem related to “addictions” including “drug and alcohol dependency”.
The Conservative parties in the UK and Scotland have repeatedly stressed that the national debts held by the state represent the gravest danger to the UK economy. However, slow recovery since the 2008 banking crash, further slowed by austerity measures that reduce demand in the economy and have shrunk wages, forces consumers to increase their debt to maintain payments to long-term commitments like mortgages.
Wages have fallen by 10.4 per cent in real terms since 2007, a historic fall in incomes.
Ben Wray, head of policy at the pro-independence Common Weal thinktank said: “The Tories obsession with the government deficit means they ignore the deficit that is actually much more likely to bring down the UK economy again: the rising household debt in the UK. Since the crash, households have been making up for falling wages with rising debt to maintain living standards.
“Now with inflation running ahead of wage growth, the Bank of England has indicated that it is worried about the growth of household debt and has tightened access to consumer credit for the first time in six years.
“If interest rates rise it would likely tip many into mortgage defaults, and that could trigger problems for Britain’s overly leveraged banks. It’s about time we started talking about household debt with at least as much breathlessness as the government deficit.”
In mid-2016 the IMF warned that private and household debt was undermining the economy, saying that the patterns on indebtedness typically “end abruptly in recessions, as for example in both 2001 and 2008.”
In the US, the biggest problem is corporate debt, with bad (difficult or impossible to recover) corporate debts reaching $4trn, similar levels to those reached in 2008, when the world economy crashed spectacularly.
CommonSpace repeatedly contacted the Scottish Conservatives to ask what policies they were advocating to deal with the growth of private and household debt. They did not respond.
In the 2015 Scottish Conservative manifesto, discussion of private debt appears only twice. Both times it is discussed as a problem related to “addictions” including “drug and alcohol dependency”. It is not discussed as a major feature of the modern UK economy, threatening profound instability.
There are 15 separate mentions of the national debt.
Prime Minister Theresa May has repeatedly said she represents “strong and stable” leadership for the UK.
When she launched the General Election campaign on Tuesday 11 April at Downing Street, she made economic stability a key plank of her campaign.
The UK General Election will be held on 8 June.
Read more – Jargon Buster: Debt, deficit and economics
Picture courtesy of Jonny White
Check out what people are saying about how important CommonSpace is: Pledge your support today.