private sector debt (mp3)
The gist will be familiar to people who read this blog: private sector debt is very much larger than public debt, and choking demand in the UK generally. Though I did not say that the same holds for much of the industrialised world. I pointed out that our situation is much like Japan near the beginning of their 15 year recessions and has some of the same features, particularly the phenomenon of minimising debt taking precedence over maximising profit (a quote from Richard Koo).
Deleveraging (paying off debt or going bankrupt) will take a long time, ten years might be optimistic. And this does not factor in the Euro-Zone crisis, the Chinese Property Bubble, the USA Fiscal cliff, soaring food prices, and surging energy prices. All of which threaten to reduce our prosperity.
I also did not say that this is the true legacy of the free market experiment pursued by UK governments since the 1970s. That New Labour's toxic residue after allowing private debt to expand by 700% during their time in government ranks on a par with the Thatcher and Major governments.
I did not point out that the best idea I have ever heard for dealing with this problem is Steve Keen's Modern Debt Jubilee. The idea that we print money (aka Quantitative Easing) and give it to ordinary people with the single proviso that they must pay off debt before spending. If we gave, say, £5000 to each of 50 million adults = £250 billion, then it would make a substantial dent in the levels of personal indebtedness and allow people to spend more. Those who're not in debt will also spend more. That spending will increase demand generally, which will stimulate growth and improve the government's tax revenue. The latter would drastically improve the budget deficit without any budget cuts. The banks would suffer in the short term because they make money from debt and if it's paid off they don't get interest payments. The answer for them would be to lend more - precisely what we need them to do.
But we won't do this because it's not in the standard economic textbooks. And politicians are afraid of any innovation. On the whole economists are educated in economic paradigms that are divorced from the real world and do not understand the real economy.
*I use my Buddhist Order name, Jayarava, under most circumstances