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Friday, 23 June 2017

Rates of Interest 2

The present situation in the UK, where there is effectively no interest rate, leaves a free-for-all in financial markets. Mortgage lenders are able to raise cash at very low rates of interest, and lend it on to intending homebuyers at rates which are very much lower than those which prevailed in the years down to 2007. The Bank of England has several times become concerned at the amount of lending that is being advanced against peoples' homes, because they are aware that a collapse of property prices would leave millions of households in a situation of 'negative equity', where they owe much more in the debt that they took on to buy their home that they could get from selling the house. Thus the Bank and the government ask the lenders [principally, banks and building societies] to limit the amount that they lend. This limitation is set on the aggregate of money advanced to all home purchasers, rather than on categories of property or classes of home buyers [such as the young, or people of limited means].

Alongside the mountain of debt that house-buyers have been allowed to accumulate, the same people have been encouraged to borrow to maintain their standard of living as real wages have declined for the majority of the population; hence the amount of unsecured debt [that which is not 'covered' by the 'value' of the borrowers' material assets] has escalated alongside mortgage debt. In the bizarre Britain that has been created since 2008, sales in the shops largely depend on the customers borrowing a significant  proportion of what they spend. Thus Economists on the television tell citizens that the 'dominant service sector' of the economy is what 'drives' the growth of the system. So when government representatives talk about the UK as a successful, growing economy; indeed as the 'world's fifth-largest economy'; they are talking about a reckless growth of debt owed by the British people to the financial system and to the foreign firms that are prepared to advance credit to British firms and institutions. The whole thing is unsustainable; and unless rational economic policies are explained to the electorate, and adopted by them, a crash much more catastrophic that that of 2007-8, or that which followed the 'Wall Street crash' of 1929.

As the country most addicted to debt, we can be sure that the United Kingdom will suffer more than others when the inevitable crash occurs.

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