26 Jul 2012


There are two ways to deal with debt. Pay it off and go bankrupt. The image below comes from the Insolvency Service and shows personal insolvency from 2002-2012.

Source: Insolvency Services
vertical axis in 1000's

Note that personal insolvency was already rising by 2002-3; that it rises exponentially to a peak in 2006--before the credit crunch. After the peak there is an easing, but another peak in 2009-10.

There is a gradual downward trend.

Levels of personal debt were obviously becoming problematic before the credit crunch and housing market collapse. This was noted in the Daily Mail in Feb 2007, which quotes Liberal Democrat Treasury spokesman Vince Cable:
"We have warned the Chancellor for years about the seriousness of the personal debt problem and the need for a concerted plan of action involving better financial advice and education, debt data pooling and action on irresponsible lending."

The trend for companies is quite different. Bankruptcy was trending downwards until mid-2007, rose dramatically to a peak in 2009, eased, but the began a slow climb.

Source: Insolvency Services
vertical axis in 1000s

I think what we see here is businesses staying afloat on easy credit, then a large number of over indebted businesses going bust quite quickly. Then more recently we see the impact of low demand and a credit squeeze longer term. Businesses that are viable are struggling to get credit from banks who are unwilling to lend. The burden of debt repayments is most likely a significant factor.

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Keep is seemly & on-topic. Thanks.