Credit Bubble 2.0

The various rebel economists are all talking about a return to rising rates of household debt. Even the Independent picked up on it (George Osborne’s deficit reduction plan requires unprecedented binge in personal borrowing. 4 Dec 2014). In any cases the warning bells are sounding that private sector debt is no longer falling.

John Ficenec, Questor Editor, writing in the Telegraph:

Consumer spending during the past five years has heroically dragged the economy from brink of disaster despite falling real incomes. Retailers now face the horrifying prospect that having maxed out credit cards and plundered the household savings account households may have simply run out of money in the run up to Christmas.

As we know a build of debt causes a parallel build up of debt repayments. These repayments soak up money that might otherwise be spent in the economy. Low demand means continuing low investment (and hoarding of cash). And so on. And at some point there will be another tipping point that will send us back into recession.