I've been having an extended Twitter debate with a Gordon Brown acolyte. This person started off by referring to me as an ignoramus in that wonderfully oblique way that the English have of insulting someone. But a few figures have emerged from this that I'll spell out here.
According to government figures private debt peaked in Q1 of 2010 at 475% of GDP.
At the time GDP was about £1500 billion so total debt was £7125 billion.
2010 Networth was is ~ £6000 billion, but government indebtedness reduces this by ~ £600 billion. So our actual net worth is £5200 billion. (ONS Figures)
2010 debt/asset ratio is £7125 bn/£5200bn = 135%
That is to say that in 2010 our borrowing totalled 135% of our assets. The UK was 135% mortgaged. This is known as highly leveraged.
Back in 1990 UK private debt was just ~ 180% of GDP (this is still higher than the peak of the Great Depression in the USA). GDP then was £570 billion so debt was £1026 billion. Total net worth was about £2500 billion. So in 1990 asset/debt ratio was about 55%.
Over the 20 years from 1990 - 2010 GDP increased by about 260%; net worth increased by about 210%; while debt increased by about 700%. This is the legacy of the Blair Government with Brown as Chancellor, and the Brown Govt with Darling as Chancellor. The succumbed to lobbyists from the finance and business sectors who were given free range to mortgage the entire country. Our debts are now about £7 trillion and goodness only knows what the interest payments are on that! But if Travelodge is anything to go by then the interest is about £1.4 trillion or about 90% of GDP.
Is anyone still surprised that we have low demand?
You allude to it at the end but in my view such ratios are an incomplete measure of the burden of debt without average expected maturity and the cost of interest.
ReplyDeleteYes. Certainly. I've not figured out how to assess the burden of interest payments that might apply to private debt. If Travelodge is anything to go by then 20% interest is not out of the question. If I conservatively say that private debt attracts 10% interest that still about 45% of GDP.
ReplyDeleteI'd certainly be interested to see some more realistic numbers. Any idea where I'd find them?