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Frank Hovis

Spending £14.4bn more than earning

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The story isn't particularly clear but I don't propose to start ploughing through the ONS datasets to get a more pellucid picture.

Ten years of ultra-low interest rates is making Britain a nation of borrowers rather than savers

  • Households became net borrowers in 2017 for the first time since records began 
  • Savings fell to their lowest since 1963 as families failed to set money aside 
  • Households spent £14.4billion more than they earned last year, figures showed 
  • Savers have been put off by paltry returns and record-low interest rates

 

This is the very definition of unsustainable; every year personal debt gets higher.

I don't even get the impression that people are being profligate; rather that so many are on low wages mean that in order to buy anything above a subsistence level, such as a basic foreign beach holiday, that money is having to be borrowed.

The only relatively painless way of resolving this is to let inflation run high for a few years with wage inflation being pushed up ? artificially so that the existing debt reduces in real terms and spending reduces below incomes so that overall debt isn't being further accumulated.

And to help that interest rates will need to be kept low with the obvious mechanism for this being to change the target BoE inflation from 2.0% to something higher (current inflation is 2.7%).

The next ten years is not going to be a good time for holding either cash or fixed rate bonds IMO.  Pension deficits ahoy.

http://www.dailymail.co.uk/news/article-5560761/Ten-years-ultra-low-rates-making-Britain-nation-borrowers-savers.html#article-5560761

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So British households are now borrowers.

The British government is borrowing on a massive scale and the country also has a huge trade deficit.

The UK is really fucked.

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4 minutes ago, Fischer said:

So British households are now borrowers.

The British government is borrowing on a massive scale and the country also has a huge trade deficit.

The UK is really fucked.

It can be unwound but yes the economy is now so fragile that putting BoE base rates up to a perfectly reasonable 5% would totally devastate it.  So that's not going to happen and the only way out is inflation to erode that debt (and cash savings).

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2 minutes ago, One percent said:

Looking back on my financial decisions, why oh why did I bother to work hard and save, forgoing the fancy lifestyle?

Might as well have just pissed it all up the wall. 

What a good idea. Most inspirational.xD

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I suspect I am the only person I know with any sort of savings. Even (especially?) well off management types seem to spend most of their time in the red.

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2 minutes ago, Frank Hovis said:

Would you have enjoyed the fancy lifestyle?

A couple I know used to really trade upon their millionaire friends (less so since it turned out that the care home near Bristol featured in Panorama was theirs) but when they go for their expensive meals they always seem to allow them to be spoiled by any minor imperfection.  The coffee was cold or whatever.

It reminds me of the reported itinerary of Lady Di the night she died, visited one restaurant after another but the first few were "oh no, they have a green wall" or somesuch.

This is what the "because I'm worth it" mentality engenders: relentless dissatisfaction and never really enjoying anything because it should be perfect but life's not like that.

I get what you are saying but I wasn’t thinking that level of extravagant, more a decent holiday cottage rather than a leaking tent. 

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1 minute ago, MrPin said:

It is better to buy one Harley, than a score of Suzikis. I have spoken. If you spend, spend well.O.o

I agree with the principle Mr Pin but that is an appalling example of it!

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1 hour ago, Fischer said:

So British households are now borrowers.

The British government is borrowing on a massive scale and the country also has a huge trade deficit.

The UK is really fucked.

And they desperately need us to save for our old age.... and yet seem to not understand why we don't.

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1 hour ago, Frank Hovis said:

It can be unwound but yes the economy is now so fragile that putting BoE base rates up to a perfectly reasonable 5% would totally devastate it.  So that's not going to happen and the only way out is inflation to erode that debt (and cash savings).

A managed inflatiion makes sense as plan A.

My concern is that they'll cock it up, and we'll end up with a currency crisis, and some sort of emergency interest rate that forces a reset.

We need a reset, so it'll pan out for the best in the long run, but living through it won't be fun.

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18 minutes ago, SpectrumFX said:

A managed inflatiion makes sense as plan A.

My concern is that they'll cock it up, and we'll end up with a currency crisis, and some sort of emergency interest rate that forces a reset.

We need a reset, so it'll pan out for the best in the long run, but living through it won't be fun.

Without dropping straight to the baked beans, gold and shotguns level there are ways that you can protect yourself if you can see it coming.

What you do depends upon your situation of course.

If you are working then borrowing cash to buy inflation proof assets should work well.  Generally borrowing to invest is a high risk strategy but I would go against this.  So I would buy that house and maybe even some unrecorded, untaxable gold on the assumption that your wages will go up and your debt will erode.

If you're not working (me in a few years :)) then into inflation-proof assets with a bias to strong overseas economies and see the returns shoot ahead.

A good thought exercise is: what would happen if sterling was seriously devalued such as by a half next year?

Well if you were renting with a load of cash on deposit you would find your savings halved in value whilst your rent (and council tax, utilities, food) would shoot up leaving you a lot poorer.

If you owned your house, and were invested in inflation proof assets then (on paper though very clearly not in reality!) your wealth would double.  On one level you would be unaffected but you would have done relatively better than the person in the previous example and wealth is above all relative.

If everyone was a millionaire then getting someone to cut your lawn.

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2 hours ago, Frank Hovis said:

every year personal debt gets higher.

It has too. Every year there's more capital sloshing around chasing yield than the year before. Hence the gap between the haves and the have nots gets ever wider, as the capital owned by the haves gets loaned out to the have nots in order to create yield for the haves. Massively simplified, I know, but for personal debt levels to drop, the haves would have to take a hit to their wealth, and understandably they're keen to make sure every other fucker goes down first.

Quote

The only relatively painless way of resolving this is to let inflation run high for a few years with wage inflation being pushed up ? artificially so that the existing debt reduces in real terms and spending reduces below incomes so that overall debt isn't being further accumulated.

That's what the BoE have been trying to achieve since 2008 or so. Problem is, how do you create wage inflation in a globalised economy where there's always someone else willing to do your job or make your widgets for less than your UK workers can afford to, because they need to earn X to pay the interest on their mortgages and car loans? Oops.

The only way out of this is complete collapse at some point in the future. And because nobody wants that to happen on their watch, we'll extend and pretend and make the end result ever worse until it can't be avoided any more.

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7 hours ago, Frank Hovis said:

The story isn't particularly clear but I don't propose to start ploughing through the ONS datasets to get a more pellucid picture.

Ten years of ultra-low interest rates is making Britain a nation of borrowers rather than savers

  • Households became net borrowers in 2017 for the first time since records began 
  • Savings fell to their lowest since 1963 as families failed to set money aside 
  • Households spent £14.4billion more than they earned last year, figures showed 
  • Savers have been put off by paltry returns and record-low interest rates

 

This is the very definition of unsustainable; every year personal debt gets higher.

I don't even get the impression that people are being profligate; rather that so many are on low wages mean that in order to buy anything above a subsistence level, such as a basic foreign beach holiday, that money is having to be borrowed.

The only relatively painless way of resolving this is to let inflation run high for a few years with wage inflation being pushed up ? artificially so that the existing debt reduces in real terms and spending reduces below incomes so that overall debt isn't being further accumulated.

And to help that interest rates will need to be kept low with the obvious mechanism for this being to change the target BoE inflation from 2.0% to something higher (current inflation is 2.7%).

The next ten years is not going to be a good time for holding either cash or fixed rate bonds IMO.  Pension deficits ahoy.

http://www.dailymail.co.uk/news/article-5560761/Ten-years-ultra-low-rates-making-Britain-nation-borrowers-savers.html#article-5560761

In the run up to 2007 I remember the useless cunt Brown giving his tractor production 100 quarters of growth speeches.

The useless twat aas running a 3% deficit, personal debt was rising 10% a year, houseprices i.e mortgage debt was 10%+.

It was a massive disastarous bubble.

BoE are party to the current lunacy. Except this time the FED is on IR hike spread. 

Uk has emerging economy levels of national debt. Its going to have emerging economy levels of IRs.

And 50%+ the population get the majority of their income from the state. As well as 5m+ non nationals.

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This is  a rational response by the population, IMHO.

Rates are so low that savings are eroded by inflation.

Investing in every other asset is taking part in a rigged market where the gvt can and will change the rules to suit their mates

even if you do save or obtain an asset, the legal system can and will take it off you if you run into a grade A cunt at the stroke of a pen unless you can afford huge legal fees

So - spend everything you have is a sensible response, to be frank

 

On the borrowing side; if borrowing a bunch of money you will never be able to pay back so you can live somewhere your kids wont get stabbed, as well as enjoying a decent lifestyle makes sense whilst monthly repayments are so low.  Plus, we have all see how the gvt steps in to rescue the bad actors (Grenfell sub letters, etc etc) so if enough of you borrow unsustainably, the gvt in power will soften the blow.  

 

In short, in an insane world, acting insanely with short term satisfaction as the key drive is rational irrationality.  

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8 hours ago, Frank Hovis said:

The story isn't particularly clear but I don't propose to start ploughing through the ONS datasets to get a more pellucid picture.

Ten years of ultra-low interest rates is making Britain a nation of borrowers rather than savers

  • Households became net borrowers in 2017 for the first time since records began 
  • Savings fell to their lowest since 1963 as families failed to set money aside 
  • Households spent £14.4billion more than they earned last year, figures showed 
  • Savers have been put off by paltry returns and record-low interest rates

 

This is the very definition of unsustainable; every year personal debt gets higher.

I don't even get the impression that people are being profligate; rather that so many are on low wages mean that in order to buy anything above a subsistence level, such as a basic foreign beach holiday, that money is having to be borrowed.

The only relatively painless way of resolving this is to let inflation run high for a few years with wage inflation being pushed up ? artificially so that the existing debt reduces in real terms and spending reduces below incomes so that overall debt isn't being further accumulated.

And to help that interest rates will need to be kept low with the obvious mechanism for this being to change the target BoE inflation from 2.0% to something higher (current inflation is 2.7%).

The next ten years is not going to be a good time for holding either cash or fixed rate bonds IMO.  Pension deficits ahoy.

http://www.dailymail.co.uk/news/article-5560761/Ten-years-ultra-low-rates-making-Britain-nation-borrowers-savers.html#article-5560761

My wife was moaning about the fact all her colleagues seem to drive new -3 year old BMW's, Audis, Vws, & Mercs compared to our 4 year old Toyota Auris Hybrid. 

I pointed out that I reckon most will be on PPI deals so effectively renting whereas we don't owe a penny on the Auris and it will go on for years. 

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9 hours ago, One percent said:

Looking back on my financial decisions, why oh why did I bother to work hard and save, forgoing the fancy lifestyle?

Might as well have just pissed it all up the wall. 

im working on that

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2 hours ago, spygirl said:

In the run up to 2007 I remember the useless cunt Brown giving his tractor production 100 quarters of growth speeches.

The useless twat aas running a 3% deficit, personal debt was rising 10% a year, houseprices i.e mortgage debt was 10%+.

It was a massive disastarous bubble.

BoE are party to the current lunacy. Except this time the FED is on IR hike spread. 

Uk has emerging economy levels of national debt. Its going to have emerging economy levels of IRs.

And 50%+ the population get the majority of their income from the state. As well as 5m+ non nationals.

yes its fking insane,people i work with were stunned that i overpayed my car loan by 800 a month instead of spunking it on shit that i didnt need,they go out and spend 100 quid plus on a night out to get wankered,i can do they same thing by haveing a few tins before i pop to the local and the best thing is they are on there phones all night not talking to the people they r out with.

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1 hour ago, spygirl said:

In the run up to 2007 I remember the useless cunt Brown giving his tractor production 100 quarters of growth speeches.

The useless twat aas running a 3% deficit, personal debt was rising 10% a year, houseprices i.e mortgage debt was 10%+.

It was a massive disastarous bubble.

BoE are party to the current lunacy. Except this time the FED is on IR hike spread. 

Uk has emerging economy levels of national debt. Its going to have emerging economy levels of IRs.

And 50%+ the population get the majority of their income from the state. As well as 5m+ non nationals.

On the plus side, when the pound really collapses, I should hopefully be able to buy my UK based kids a cheapo property in the UK somewhere away from the enriching hordes at an exchange rate of 1:1000 :P

 

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4 minutes ago, wherebee said:

On the plus side, when the pound really collapses, I should hopefully be able to buy my UK based kids a cheapo property in the UK somewhere away from the enriching hordes at an exchange rate of 1:1000 :P

 

Youre in Oz.

Youll be working in  Chinese coal mine soon.

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