Saturday, May 09, 2009

 

Are we Worrying too Much About Debt?

Don't know about you but I have found the economic crisis a real downer- unemployment, expenditure cuts pending, tax rises, debt expetending into the future and so on. But I now feel slightly less worried after reading an article by Michael Blastland and Andrew Dilnot on the BBC website. In it he argues that debt is

"basically fine. In fact, we're coining it in the UK, with more wealth stretching ever further ahead of the amount we owe...So we hear that the British owe more on their mortgages than anywhere else in Europe.

He goes on to say:

But we seldom hear the obvious corollary - that the British also own more housing wealth than anywhere else in Europe... By 2005 wealth was six times as great as annual national income. Not poorer, but hugely richer, is the story of the last 20 or so years... Some of the increase reflects house-price growth, some increases in share prices, but there is no denying that as the economy has grown, and incomes with it, so have savings and wealth. Debt has been rising, but wealth has been rising much more quickly.

Reassured? I was... sort of. But I question this apparently easy explanation. All debt cannot be such good news, surely? If I borrow money to buy a business which fails, then I lose out, right? Well the sub-prime mortgages were business which failed and we dived into a lot of that debt. And even if I have a house in exchange for my mortgage, what if I can't repay? Surely then debt becomes a bad thing?

So I'm still not convinced. Blastland and Dilnot are clever guys but so are all the people telling us we're in hock to the future for a decade. But read the article and see what you think.

Comments:
Not sure what all the fuss is about - I've had three companies go bust, got the system to write off my debts and started up again. What a fine country this is!
 
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