British private sector debts reaching their limit

Cash-conscious consumers face serious debt worries: British household and consumer debts are three times the level of government debt. Such debts are the inevitable result of past economic stimulus, because stimulus works by creating credit. The cost of these debts should be given more attention in the budget coverage.

Research shows that around one-fifth of global economic output is spent on paying interest – and Britain’s debt service costs are average for the world. Higher taxes and cuts to public services will add to the burden faced by families and businesses, depress consumer spending and deepen the recession.

The evidence of wasted output is published in a book, The Financial System Limit, which shows why debt cannot expand to infinity.  A postscript to the UK print edition argues that the loss of GDP caused by Brexit makes it even harder for Britons to service their debts.

The book also shows that the global economy is now dominated by the central banking economic cycle. Excess credit creation in the pandemic, by central banks, has been a factor causing the current downturn.

Author David Kauders said “The present inflation will burn out with rising bad debts, arrears and repossessions. Commercial banks have to compete for quality borrowers and penalise those who are financially stretched by charging them even higher rates. The result will be lower interest rates for depositors and quality borrowers, rising inequality, and eventually deflation as business activity shrinks. The story that interest rates have to rise to fight inflation will soon be forgotten.”