Tide Going Out: Nude Bathers At Risk

Nothing quite brings home the end of cheap money like noticing that I am now getting 4.12%  -  tax-free and "risk-free"  -  on my NS&I index-linked certificates.  Has anyone been talking about this? 

In my business sector (energy) there are a heap of players - renewables, small suppliers - who have only been in existence in the era of cheap money.  Boy, are they going to come unstuck soon.  Elsewhere on the horizon, John McDonnell's plans might come in a bit pricier than he was anticipating.

And then there's all those leveraged B-T-L players, often the subject of our btl commenters.

Where do we think the serious chaos will start first?

ND

The UK credit culutre disaster

How can we end the culture created of always living on credit in the UK?

The numbers to the left are form the credit site, credit action. A truly excellent place to go if you do need advice or warning on debt. Mutely too has asked me to write on this subject many times

I have watched the Government squirm during the credit crunch and try to blame the banks for the situation that we are in.

And it is true, banks make far more money form you and I than they ever used to.

However, there is a cultural and regulatory reason behind this that is eating away at our long-term prosperity.

Ever since the 1970's and the first credit cards, Britain has become a nation of personal debtors. Instead of savings, we buy now and pay tomorrow. This is no bad thing when you are in control and helps to get you what you need.

There is nothing inherently wrong with borrowing money. What has changed is the culture. Instead of just mortgages, everything has a finance plan now, cars, TV's, dishwashers. Even clothes on credit store cards.

This means that the total amount of interest paid on finance by your average UK citizen has shot up. More so in recent years. Indeed with student University fees and mortgages many young people start out in life heavily in debt - it has become the default and indeed natural position foe us all.

The chickens are about to come home to roost though. With rising interest rates come higher repayments, relatively falling wages will hurt too. Instead of regulating credit further (we have some of the easiest credit laws in the world, easier than anywhere in Europe by far) the Government chose to make the bankruptcy laws less harsh. Now the daytime TV adverts are often for usury services - debt consolidation has been a growth industry for years.

All this served to do was increase the number of personal insolvencies - not change the culture of no saving and spending tomorrow's money.

Indeed rather than lead by example, the UK Labour Government is setting a terrible example, stealing from all our futures to pay for today's Government services with debt.

I have a fear that as people start maxing out their credit cards paying their mortgages (for that is what anecdotally I am hearing is happening today) we will have a major problem on our hands in the UK. Perhaps the Government plans a period of hyper-inflation to get rid of this problem?

This is one area where David Cameron's broken society theme has some strong economic ties. Moving us away from a pay later culture will help people improve their finances and be able to then make better fist of working their way out of poverty.

I will do a follow-up post on ways to make this work - but all comments welcome.