PERSONAL DEBT SOARING AT ALARMING RATE – The Chancellor George Osborne claims that the economy is recovering but some are now questioning whether the recovery is simply being built on personal debt.
A recent report by MoneySuperMarket.com stated that personal debt now stands at a staggering £139 billion as people look to their credit cards in order to pay their mortgages, social activities and general bills.
According to the report some 43% of the population owe more unsecured credit compared to last year with the average 18 to 24 year old now owing more than £5,500; this figure didn’t include student loans.
It is now being suggested by some economic experts that Britain’s economic recovery is simply being built upon plastic and with rising property prices any upward movement in the interest rates could leave hundreds of thousands of people facing a debt crisis.
Consumer spending, coupled with rising house prices, is being attributed to the economic recovery faster than most initially expected; this is turn is boosting job numbers but experts are warning that the long-term sustainability of economic growth through debt is unrealistic.
It appears we have forgotten the lessons of 1976 when James Callaghan, the then Labour Prime Minister, was forced to seek a bailout from the International Monetary Fund (IMF).
As a result the Government faced a vote of ‘No Confidence’ resulting in the calling for a General Election.
In the aftermath of the financial crisis of 1976 James Callaghan gave a poignant speech in which he warned future Governments and the British people to the perils of attempting to borrow your way out of a recession.
“We used to think that you could spend your way out of a recession and increase employment by boosting government spending… I tell you that this option no longer exists; and so far as it ever did exist, it only worked on each occasion by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.” James Callaghan’s, British Prime Minister, Labour Party, 1976.
There are a number of key issues the British public needs to acknowledge and in turn demand the Government to address.
We simply cannot fuel our lifestyles on credit and yet four out of every ten people now rely on their credit cards to fund their mortgages, monthly bills and their social activities; it is unequivocally a recipe for financial ruin, not just for the individual but also for the economy as a whole.
Last week the Government announced that the economy had expanded by 1.9%; this figure far outstripped other European nations and the U.S.
With increased personal borrowing it certainly gives the populace spending power which in turn boosts the economy but an economy built on debt is unsustainable.
Personal debt is certainly being fuelled by the public’s belief that the economy is growing giving them confidence to spend, this confidence is also further exasperated by the current interest rates which are the lowest seen in decades.
The Bank of England recently announced that interest rates are likely to climb next year in order to rein in the rise in property prices which would ultimately leave thousands of homeowners unable to meet their mortgage obligations.
In our view there are three aspects people need to consider, the first being borrowing to buy a home, the second being borrowing to fund a lifestyle and the third being that of welfare.
Last week it was suggested by a number of economic experts that the Governments ‘Help to Buy’ scheme was fuelling the rise in property prices. Whilst the scheme was designed to help first-time buyers get on the property ladder it also resulted in the prices of homes rising, meaning people have to accumulate more debt in order fund a purchase.
Most people consider their homes as an asset; unfortunately this is pure fantasy; unless of course you purchase property without accumulating debt.
For most homeowners their property is merely funded through a mortgage and therefore is a liability not an asset.
Sit down sometime with a pen, paper and calculator and work out how much your home would have cost you once you finished paying the mortgage. It’s likely that the cost would exceed the original purchase price by three times.
We are not suggesting people should refrain from buying a home but taking such a decision should be based on whether you can afford to buy without financing the mortgage payments on your credit cards.
Looking carefully at the funding of a lifestyle and it is easy to see that many people live month to month solely by the use of their credit cards.
Britain has gone from a nation of producers to a nation of buyers and there appears no end to our materialistic greed – few people now stop to consider whether what they are purchasing is absolutely necessary and a large number have no fear of the consequences of defaulting on their credit cards simply because it is ‘unsecured borrowing’; the question is do we consider bankruptcy as an inevitable part of life?
One of the underlying reasons people survive on credit is because the money they earn is simply not sufficient; that is after they have paid taxes they are left with an insufficient amount to meet their financial obligations.
We all want to pay less tax and the key to this is to significantly reduce welfare. Welfare is the single most financial destructive cost the taxpayer and the overall economy faces.
We now have clear evidence that welfare doesn’t aid the poor to a better life but rather condemns them to a life of almost abject poverty.
The most devastating aspect to any welfare system is that it plunges a nation into debt; last year alone the interest payments on the borrowing to keep the welfare system afloat amounted to a staggering £48.20 billion – yes that’s what the taxpayer had to fork out in just interest alone on the borrowing required to pay for the welfare system.
What Britain needs now is a society willing to sacrifice their materialistic needs and their dependency upon the state.
We’ve said it before and it needs continuously enforcing that Britain is heading for bankruptcy. You only need to look at the current levels of debt and compare this with Greece.
The fact remains that Britain is carrying debt twice what Greece accumulated and if the British economy collapses it will be far worse than what has occurred in Greece, not simply in monetary terms but more importantly socially; that is the streets are likely to be rampant with uncontrollable violence.
There are many economic experts who now feel that the economic recovery is little more than fantasy built upon debt. Of course we need to consider that a General Election is due next year and no sitting Government wants to provide the real truth because that would result in a humiliating defeat in the elections.
The issues we face are of course those of practicality, reason, integrity and above all honesty but the reality is that none of these traits will ever be found in a politician for their remit is simply to tell people what they want hear in the hope of getting elected; even the bad issues are suitably spun by spin doctors in order to soften the blow and lull the public into the false sense of security that the situation is in fact under control.
The very fact that Government ministers require the services of spin doctors clearly indicates that the truth is never truly revealed; it amazes me just how gullible the voting public remain, especially in the modern age of communication where the truth is readily available, although Government figures will tell you that these are mere conspiracy theories.
Listen carefully to any of the political parties and each will talk of fiscal responsibility and yet none of them practice what they preach.
In my view, if those in power truly want to assist the people of Britain then every single one of them would be working on minimum wage; at least this would allow those in power to fully empathise what many people in the UK go through in order to make ends meet.
The very fact that most politicians are millionaires or at least wealthy doesn’t allow them to see reality as we do and as such they will twist the economy’s figures to lure the public into a sense of false security.
The truth is rarely pleasant but at least with the truth we can face reality and take measures to put right the wrongs.
Finally, it is time that people took a good hard long look at themselves and asked how sustainable their accumulated debt is and whether a rise in the interest rates would tip them over into the abyss of bankruptcy.
Articles of Interest:
Britain on the Verge of Bankruptcy - The video is immensely interesting and uncovers the real financial problems Britain faces.
Remember that unless we are able to achieve such and take responsibility for our spending then you can never expect the politicians to follow suit for they will continue to support the fallacy of affordable debt in order keep you spending and ultimately under control via debt.