Friday, June 27, 2014


“The common denominator in all cases is – or rather was in the case of Ireland and the Netherlands – fast-rising house prices, causing households as a whole to take on ever larger mortgage debt. Rising house prices are also used as justification or collateral for loans to finance ordinary expenditure. Britain may have just experienced the longest-ever recorded peacetime squeeze in real incomes, but thanks to debt, we are again spending with all the abandon of drunken sailors. Sales of new cars, for instance, are at record levels, many bought with easy credit.

This propensity to spend beyond our means finds its macroeconomic embodiment in Britain’s burgeoning current account deficit, which in recent quarters has widened to record levels. It is only because Britain is seen as an attractive home for foreign capital – witness Pfizer’s blockbuster bid for AstraZeneca and the frenzy of foreign buying in London’s high-end property market – that these deficits are remotely sustainable.”

Household debt is Britain’s hidden timebomb

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