Copied from Dr Tim Morgan’s blog.
The UK economy is, in my opinion, entering the long-predictable crash phase.
Essentially there are two possible scenarios here. First, the aggregate burden of national or global liabilities just becomes so great that vertigo sets in, as people begin to realise that these liabilities cannot be honoured ‘for value’. The result is a dash for the exit doors and, of course, these doors get smaller as people rush towards them.
The second, which is starting to happen in Britain, is a stress collapse, in which household finances crumble under too great a set of burdens. Think about it – mortgages or rents; cost of essentials; debt servicing; car finance; perhaps student loans; HP or BNPL payments; TV and other subscriptions, the list goes on – it all just gets too much. Part of the problem is that we regulate banks, because they take deposits (we look after the customer as depositor) but we don’t do much to regulate non-bank credit (we don’t do much to look after the consumer as borrower).
The problem with using rate rises to tame inflation is that it’s indiscriminate – it hits all borrowers, not just those driving inflation by borrowing to buy the unaffordable. Why should someone who has borrowed to invest in a business be hit in just the same way as someone who has taken on too many BNPL loans to buy things they don’t really need and can’t afford? Just as bad, the burden imposed on the latter is less than inflicted on the former – if you’re already paying 15-20% for non-bank consumer credit, the effect of a 3% rise is far less than it is for somebody with, say, a 3% mortgage.
