Why does the Bank of England have it in for young people?

Debt is a young person’s game. In most free enterprise societies older people own most of the wealth. Young people borrow to get started as homeowners and business people. This happens naturally, as it takes time to save, to accumulate assets, to buy a home and to benefit from it going up in value. Most of us start out with no assets, receive no inheritance, and have to save for our old age as we work and earn. Even those who can draw on the bank of Mum and Dad usually need to borrow commercially as well to fulfil their ambitions.

It is the job of the banking system to lend the money older people save and deposit to their collective children and grandchildren who need it to buy homes, cars and other expensive assets, and to businesses who need it to increase capacity and to supply new goods and services.

Today the Bank of England is arguing that there is too much mortgage and car loan debt in our country, and this needs to be controlled. They are instructing the commercial banks to lend less. It is difficult to understand why.

The commercial banks now have much more cash and capital by way of reserves than they had during the banking crisis of the last decade. They are also more profitable again. These buffers can take care of any bad debts they do incur. Employment is expanding. As people get jobs so they can afford to borrow to buy a car or a home. The banks should be allowed to meet their aspirations. The invention of the 3 year car loan/lease allowed many more people to have a new car. The banks would be able to foreclose on the vehicle if someone fails to make the payments, so there is reasonable security.

Of course banks need to examine each loan application. The individual has to demonstrate they have the income claimed and show they are likely to keep a job. The bank lending money does need to make a judgement that the person concerned will not behave irresponsibly. Most people do take their debt obligations seriously.

Current levels of mortgage and car loans would only be unsustainable if the Bank decided once again as it has in the past to withdraw liquidity from the markets too quickly and push up interest rates too far too fast. It assures us this time it does not wish to do that. There is already considerable protection against rate rises, as many have chosen to take out fixed rate loans. In that case it should allow more young people to borrow to buy a home or a car. More mortgage and car loan debt when the economy is growing and more people have jobs is not something to worry about. Tomorrow I will describe how the Bank and government could do something that would make a real difference to reduce total UK debt that does not require squeezing the young.

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133 Comments

  1. Dame Rita Webb
    Posted August 6, 2017 at 5:39 am | Permalink

    JR why blame the BoE why not blame the banks themselves? How many billions have they paid out in dividends/share buybacks recently rather than make that money available for loans, as you would like? There is an interesting piece in this weekend’s FT about the appearance of a new mortgage product. This allows home owners to borrow against the equity in their homes so as to allow them to invest in the stock market. So with things like that it appears that the banks have learned absolutely nothing from 2008 while other commentators show concern about their levels of capital adequacy as they return cash to their shareholders.

    As an aside does the government have any comment about the 520 jobs lost at a Suffolk diesel engine parts factory? The employer blames declining demand for diesel cars in the UK and is shifting some of his business to Romania, coz wages are lower and government subsidies are higher.

    • Lifelogic
      Posted August 6, 2017 at 7:38 am | Permalink

      Well Theresa May and P Hammond wants to increase the minimum wage hugely, force pensions on to employers and “build on EU worker rights”. Property and rates are expensive too in much of Suffolk. Then the owners have to think of capital gains tax up to 28%, the high income taxes and NI up to 45% & 23% combined and the 40% grim reaper inheritance tax plus all te expensive green crap energy drivel. And up to 15% stamp duty if they buy an expensive house.

      What did the dopey T May and P Hammond think some business owners would do? Indeed would perhaps have to do or go under.

      Romania Tax Rates for comparison – income tax rates are flat at 16%, Romania’s corporate tax 16%, capital gains of companies and individuals 16%.

      Very sensible of the owners to go I suspect. We have an anti business, tax borrow and piss down the drain government – perhaps to be followed by the even worse Corbyn and a trip to Venezuela for the UK.

      • Dame Rita Webb
        Posted August 6, 2017 at 1:43 pm | Permalink

        Appropriately enough Mr Hammond was visiting our fellow debtoholic Argentina the other day.Its amazing politicians of all parties seem to avoid visiting places that are going places like Singapore.

      • Richard1
        Posted August 6, 2017 at 7:17 pm | Permalink

        Wonderful news that the countries of Eastern Europe which know they have to be competitive to attract and retain investment have such sensible tax policies. This is surely what will happen in the UK over the longer term as successive governments recognise that, post-Brexit , we are out there on our own and people and businesses have a choice.

        We cannot blame such countries for continuing fealty to the EU when they get 10% or more of GDP in transfers from it.

    • Roy Grainger
      Posted August 6, 2017 at 1:26 pm | Permalink

      So you think the banks paying dividends to shareholders such as pension funds is as bad thing ? Odd idea.

      • Dame Rita Webb
        Posted August 7, 2017 at 6:52 am | Permalink

        It is not of you are concerned about the banks financial strength. Most pension funds are in a perilous state today because ZIRP increases the value of their liabilities. ZIRP was introduced because the banks could not give a toss about their solvency knowing that the tax payer will bail them out when it all goes wrong.

  2. Mark B
    Posted August 6, 2017 at 6:03 am | Permalink

    Good morning

    I am with the BoE on this one. It is not the housing debt we need to be worried about, people always need homes, but the car debt. We could end up with a situation with a large number of vehicles no one wants.

    Houses can rise in value but cars only depreciate. Therefore the BoE is right on this one.

    • eeyore
      Posted August 6, 2017 at 7:16 am | Permalink

      The traditional way of managing supply and demand in the money market is by adjusting interest rates. The Bank has chosen instead to restrict supply. One understands why, considering the level of zombie debt piled up in the last ten years.

      Even so, a widget-maker who responded to buoyant demand not by increasing prices but by restricting production would not find himself in the widget business for long.

      As for car loans, if the young who need wheels can’t borrow in orthodox ways they’ll borrow in unorthodox ones. The market will not be denied, however much the Bank wishes otherwise.

      • Anonymous
        Posted August 6, 2017 at 5:42 pm | Permalink

        A reliable second hand car can be bought cheaper than ever. It is the insurance that is the killer for young people these days.

    • Lifelogic
      Posted August 6, 2017 at 7:41 am | Permalink

      Second hand cars are very cheap indeed already, and often more reliable than the over compex new ones (and they even have spare wheels too). Why buy a new one? Just to show off, in general, I suspect!

      • Ed Mahony
        Posted August 6, 2017 at 4:56 pm | Permalink

        Good point.

        Buy a second-hand Renault 4 made in Casablanca and drive along the coast of Morocco and through the Rif mountains and back home.
        Magic trip, for a few hundred pounds, and great memories to sustain you whilst you get caught up in traffic driving to work back home in the UK.

        If you can’t afford a new car, why on earth spend £13K +, getting into debt? Madness.

      • Bob
        Posted August 7, 2017 at 9:22 am | Permalink

        @lifelogic
        Agree 100% with that comment.
        I wouldn’t buy a car that cannot carry a full size spare wheel.

    • A.Sedgwick
      Posted August 6, 2017 at 8:10 am | Permalink

      I agree on the risk of car debt. Young people I know are not relaxed with this system, worried over the cost, commitment, minor damage, mileage use and their joy may be confined to two days: acquisition and return. It creates false demand and the system will disappear. The car market is in for a rude awakening, the leasing system is an effort to sustain the market as it is.

      Less young people choose to have driving licences.

      Big city centres will become car free.

      Urban driving will become prohibitively expensive and some roads car free.

      The attraction of owning vastly complicated, computerised, expensive, ridiculously and illegally fast cars will dawn on more people.

      Home delivery is now back in fashion (it was normal in my youth for groceries to be delivered).

      Short term rental and taxi usage will increase.

      • Monza 71
        Posted August 6, 2017 at 6:50 pm | Permalink

        Fast cars are not illegal.

        There is no law that says the top speed of a car has to be below a certain figure.

        I take my Ferrari to Germany at least once a year. It has a top speed of 202mph and on around 50% of the Autobahn network it is perfectly legal to drive it at that speed.

        On the right day when traffic is light, baring mechanical failure, it is relatively safe. After all, the car is engineered to do that speed.

        • Dame Rita Webb
          Posted August 6, 2017 at 7:30 pm | Permalink

          Have you not seen all the hoardings above the autobahn marked “runter vom gas” with the pictures of widows and orphans from traffic accidents on them? You cannot possibly be doing those speeds on the A2 to Berlin. On most of that route you would be going faster if you got out of your car and started walking.

          • Monza 71
            Posted August 7, 2017 at 8:19 am | Permalink

            I agree with you Rita. I stay well away from Berlin !

            I normally go over by the tunnel and head for Venlo or Dusseldorf and then turn South down the Rhine towards Bayern.

            There are several very good stretches going South and I only drive over 140mph on relatively quiet sections of Autobahn where there are three lanes not two. In other areas I am often overtaken by BMWs, Audis and Porsches when I’m doing 130mph.

            Bayern is a beautiful place to visit and we usually end up in Garmisch Partenkirchen. The bonus is then to go into Austria via the Bodensee (Lake Constance). We often return via the great Swiss mountain passes.

        • Bert Young
          Posted August 6, 2017 at 9:34 pm | Permalink

          Ferraris always were fantastic . You are a lucky bloke >

          • Monza 71
            Posted August 7, 2017 at 8:10 am | Permalink

            I realise that I am lucky every time I get in the car but I bought my 575M at the right time and it cost me the same amount as a high spec Jaguar XF.

            The differnence it costs more to run but it has doubled in value. whereas the Jaguar would be worth a fraction of the purchase price.

        • Bob
          Posted August 7, 2017 at 9:25 am | Permalink

          @Monza 71
          where do you put the luggage?

          • Monza 71
            Posted August 8, 2017 at 6:22 am | Permalink

            The 575M is a front-engined grand tourer in the old style of the term. The model has a 5748cc V12 engine and mine is blue and was built in 2004. It is so capable that it hardly gets into its stride until it’s doing over 100mph and that feels like 60 in a normal car.

            The boot is quite large as a result of having no spare wheel. It can take coats, one large case and two bags the size you can take on board an aircraft.

            Also, there is a large parcel shelf behind the two seats and I have made two overnight suitcases that exactly fit on the shelf and have covered them in matching blue leather. They alone are big enough for a three or four day trip for two so the boot luggage is only needed when we get to our destination.

            Last year we went on a 25 day 2,500 touring holiday including a week at Lake Como and another in the centre of France and we were not short of anything. All accomplished at an very reasonable overall fuel consumption of 19.85mpg.

    • Monza 71
      Posted August 6, 2017 at 8:22 am | Permalink

      I agree with Mark on this. It is now so easy to obtain a new car on various forms of credit that residual values are being depressed because of the glut of two, three and four year old cars being sold on at the end of their initial agreement.

      Why would the user buy out the car at the end of his agreement when it is out of warranty and it’s so easy to get another new one ?

      Only yesterday I was looking at a new Audi. I normally pay cash for my cars but in this case, the dealer was offering a huge £10,500 “deposit contribution” if I took the finance option at 3.9% APR. Only half that was available as a discount if I paid cash.

      It makes a new car deal look superficially very attractive until I looked at the price of the same Audi model on the internet. I could buy a near identical 2016 car with only 10,000 miles from another dealer for just 57% of the RRP of the new one. Audis are supposed to have strong residuals but clearly the PCP deals are having a big impact on all used car prices.

      Needless to say, all thoughts of me buying a brand new car have disappeared into thin air……..

      • Anonymous
        Posted August 6, 2017 at 4:37 pm | Permalink

        The problem is that buyers are suffering the drive-off-forecourt depreciation every three years.

        “They were giving them away !” said a colleague about his new car.

        “How much ?”

        “£180 per month”

        “No. HOW much was the car ?”

        He did not have a clue how much the car was being sold to him for. Forecourts rarely have the price of the car on them these days, just the repayments.

    • agricola
      Posted August 6, 2017 at 8:39 am | Permalink

      Not if you had the wisdom to buy a 246 Dino ten years ago. $50,000 to $300,000 now and rising. It is the sort of investment into which lots of wealth has gone when all the usual financial vehicles have been paying out 1%, but charging 6 to just think of a number %.

      • Mark B
        Posted August 6, 2017 at 3:50 pm | Permalink

        Spot on !

        That is where the real money is going, in Classic Cars. I know at least three people who, years ago, bought classics. One has seen a very handsome rise in prices.

        • eeyore
          Posted August 6, 2017 at 7:41 pm | Permalink

          HMRC classes old cars as “wasting assets” which don’t attract CGT on resale. Same for old watches, clocks, guns, scientific instruments and other vintage machinery.

          Some classic cars and watches have appreciated up to 1600% in ten years – a textbook example of how government tinkering can distort a market.

          • Monza 71
            Posted August 7, 2017 at 8:23 am | Permalink

            The classic car market is truely international. The CGT situation in the UK is very welcome but entirely irrelevant to movements in price of the best cars.

        • Bert Young
          Posted August 6, 2017 at 9:36 pm | Permalink

          I did very well out of them financially ; racing some of them was the best thing ever .

    • Mark
      Posted August 6, 2017 at 4:58 pm | Permalink

      Houses can also fall in value, and I think this is what really worries the BoE, although the use of remortgaging to increase borrowing for consumption spending or to fund a “deposit” on a fresh BTL purchase (both prevalent in the pre-crash era under Labour) should also be a concern.

      • Bob
        Posted August 7, 2017 at 10:02 am | Permalink

        house prices will not fall while housing benefit is available to fund anyone who rocks up at Dover needing a roof over their head.

  3. Posted August 6, 2017 at 6:13 am | Permalink

    One word of caution here.
    The Banks do not know the people they are lending to personally. Which means that a lot of them, through credit cards, are giving out loans which are not going to be honoured. I get this from listening to the debt programme on LBC.
    This is extremely dangerous.
    In the USA it led to the banking crisis of 2008 when the sub prime mortgages were bundled up into derivatives. In Greece, according to Janis Varoufakis, the German salesmen descended and got a thrifty and naive people into serious debts which could not be honoured.
    And there is the government debt which is growing very fast and is rapidly approaching 2 trillion. That means that interest rates have to kept low with disastrous results on the housing market.

    • Dame Rita Webb
      Posted August 6, 2017 at 7:28 am | Permalink

      Reality is that the political class have no other prescription but than more debt. Its the only way they can keep the plates spinning. The fastest growing part of personal debt is student loans. So I do not know where they are supposed to have the spare cash to get a car loan from the begin with. The Guardian had a superb piece the other week about a young lady who did a degree in PR & Advertising at a former poly in central London. A couple of years down the line she has her dream job at an ad agency in Leeds. However she is still earning less than £21k p.a. so she will not be paying any of her loans back. However her credit score will preclude her from obtaining any future credit. While the mug taxpayer will be on the hook when her outstanding debt of £60k is eventually written off. Meanwhile the government allows this fiasco to keep on repeating itself.

  4. Lifelogic
    Posted August 6, 2017 at 6:14 am | Permalink

    Off topic I was looking at some figure on just how inefficient battery charging (especially rapid charging) and discharging of car batteries can be. So the batteries alone cost circa £10,000, more than a far more than a rather better petrol car just for the battery (which is only the fuel tank). These expensive batteries only work efficiently for a couple of year, the batteries can actally waste up to about 50% of the power in charging and discharging, they can, over all, use about double the energy of a petrol cars (at the power station).

    Their sole advantage is that the pollution is at the power station rather than in town. But a hybrid can do this more cheaply and effiently in most cases.

    Why on earth are tax payers forces to subsidise this electric car lunacy? It is not remotely green, petrol or perhaps hybrids make far, far more sense with current technology in all ways.

    • David L
      Posted August 6, 2017 at 3:29 pm | Permalink

      Our pub discussion last Friday centred around the car battery implications. What and where are the world reserves of Lithium, Cobalt etc and will the nations with them be able to hold us to ransom? And unless there’s a massive change in the technology the power required for mass re-charging is enormous. My two companions were both engineers and expressed the feeling that the Government’s intentions are just hot air with no thought of practicalities. I will stick with my 12 and 18 year old petrol cars. Current models hold no appeal for me whatsoever.

      • David Price
        Posted August 7, 2017 at 8:47 am | Permalink

        Did you consider the equivalent issues of potentially uncooperative countries which have the oil reserves.

        With regards to charging resources, have you ever not been able to make a phone call? Telecoms networks are not engineered to meet the needs of all users simultaneously yet the vast majority are blithely unaware of this risk.

    • Dave Andrews
      Posted August 6, 2017 at 3:42 pm | Permalink

      There is far more energy in fuel than there is in battery weight for weight. I’m a little puzzled as to why a move to renewable ethanol isn’t spoken of much now.

      • David Price
        Posted August 7, 2017 at 8:52 am | Permalink

        I believe an argument against it is that the feedstock would displace food crops.

        Algae biofuel is an interesting alternative since that approach should keep the greenies happy with zero sum CO2, doesn’t displace food crops and offers a path with similar processing to petroleum products. This approach can therefore exploit the existing distribution networks and ICE engines. There is active research on this but they are not there yet.

    • Alan Jutson
      Posted August 6, 2017 at 6:27 pm | Permalink

      Lifelogic

      The Green Policy, and its cousin the Penal Taxation policy, is simply a nonsense.

      Yet another policy designed by politicians who do not understand real Science or the behaviour of human nature.

      Only when the lights go out or need to be limited will they realise the policy they have put in place is simply daft but more importantly does not work.

      But as usual they will blame someone else, never themselves.

    • David Price
      Posted August 7, 2017 at 8:39 am | Permalink

      Subsidising EVs?

      The government is effectively foregoing the VAT on a new EV (which includes hybrids) so in that sense it is no more subsidised than your ISA or personal allowances where the government does not take the tax in the first place. Your access to oil has been susidised by your fellow citizens in treasure and the blood of some while that access is becoming harder with increasing competition (eg China) and reduction in “safe” sources – for the EU the primary sources are Russia, Norway, Nigeria, Saudi and Iraq.

      Fracking is a stop gap and doing nothing is not an option.

    • Monza 71
      Posted August 7, 2017 at 8:49 am | Permalink

      You are absolutely right. I’ve seen it said here before that full electric cars powered by batteries are a cul-de-sac born out of political correctness. The future for road transport has to be elsewhere. Hydrogen fuel cells are a very good example of a way of delivering electricity for vehicles and trains. Zero emissions and no range issues either.

      Unfortunately the problem is the infrastructure however, I doubt that this would be any more expensive that sorting sufficient electric charging points and replacement battery facilities.

      The US is working towards a target for hydrogen production of $4 per kg delivered. One kg of Hydrogen will give the Honda Clarity a range of 60 miles so that would be the equivalent of about 58p a litre of diesel before taxes. Currently the cost in California is three times that but we are talking about very limited availability.

      The Honda is little more than an ongoing experimental vehicle but already it has a range of 312 miles and takes less than 5 minutes to refill. Full electric cars are decade(s) away from even that level of usability.

      The plan in the US is to generate the Hydrogen from solar and wind farms. Of course, unlike renewable electricity, with Hydrogen there are no problems over storage.

  5. alan jutson
    Posted August 6, 2017 at 6:17 am | Permalink

    Attitude to personal debt is probably and to a degree, learnt from how parents run their finances, as they after all are the usual role model in their formative years..

    During the last 50 years or so I believe attitude to debt has changed massively.

    A house is no longer regarded as a home but as an investment, television commercials beam endless offers of “must have” goods into our homes, cars for most people are now an essential form of transport, as people and families work and live many more miles apart.

    Offers of finance of all sorts is more plentiful than it has ever been, and lending criteria has changed dramatically with much easier offers of credit now available from a whole range of sources.

    Many younger, and now not so younger people have the “I want it now syndrome” saving up for something or making do with what you have until you can afford it, is now almost the preserve of older people.

    Debt of course is an attitude of mind , but getting into debt to purchase a fast depreciating asset like designer clothes, expensive cars, holidays etc and continuing that cycle year on year, can be a very expensive and high risk way to live.

    Mortgages of course are different, we all need somewhere to live, and past history shows that such debt will soon be outgrown, with the property market having a history of long term appreciation.

    As usual it is risk verses reward which is the calculation that is important.

    Just because you are in full health and in a well paid job today, does not mean that will be the case forever as many find out to their cost.

    • alan jutson
      Posted August 6, 2017 at 9:01 am | Permalink

      Afraid for many who lack Budgetary or simple mathematical skills the temptation to borrow and not really understand what they are getting themselves into is a real problem.

      Seems as though for the last few decades, simple but life practical mathematic skills has not been taught in school.
      This can be evidenced by the huge number of younger people who cannot read or understand a simple bus or train timetable, or work out the real cost of a loan deal even when knowing what the monthly payments are.

      As for Compound interest, and APR rates, what are those. !

    • Narrow Shoulders
      Posted August 7, 2017 at 6:59 am | Permalink

      I think you may be being a little unfair here Alan.

      Buying something now on 0% finance or 2% balance transfer for two years is much more sensible (if one can afford the repayments) than trying to save up for the same thing. Especially taking into account the depreciating value of money over the period.

      The real risk is taken by the lender on unsecured loans. That will come home to roost at some point.

  6. Duncan
    Posted August 6, 2017 at 6:37 am | Permalink

    Carney’s been politicised. No longer is he an independent minded, impartial head of the BoE whose opinion, intentions and position can be trusted. He’s a pro-EU ally of Hammond and if these two individuals can construct circumstances that delay or prevent our withdrawal from the EU then they will irrespective of the consequences.

    Politics poison’s judgement and reason. Carney is the embodiment of this. He and the bank he leads had been nobbled and cajoled to take a political stance on the issue of the UK’s membership of the EU. His behaviour was nothing short of reprehensible. A stain on a revered institution

    And still, he’s behaving like a political animal. If raising interest rates or cajoling banks to restrict responsible lending dampens UK economic growth then this will provide pro-EU sympathisers like Hammond and May all the ammunition they need to argue such a fall in economic activity is due to Brexit uncertainty.

    The EU will try to damage us. Within the UK we have pro-EU politicians and other political actors who will do all they can to damage the UK and prevent our withdrawal. Carney is one of those political actors

    • Timaction
      Posted August 6, 2017 at 12:14 pm | Permalink

      Indeed. He should have been sacked a long time ago. His behaviour and rhetoric before the referendum was outrageous and on he goes. Anyone with an ounce of sense can see and hear he is part of the 5th column elite determined to undermine our Brexit.
      I read recently that four out of every five new cars are now bought on credit under the loan/lease schemes. Apparently a relatively new phenomenon. If that is the case I’m no economist but that is a substantial amount of money taken out of the economy to pay for cars as a choice against other purchases. It’s bound to distort the economy.

    • zorro
      Posted August 6, 2017 at 5:04 pm | Permalink

      This is so true I am afraid. Today I saw a demonstration of people wearing EU teashirts and waving EU flags implying that they would not respect the vote. It made me sick to my stomach that someone could drape their body in that sheet. No Union flags or home country flags anywhere…..

      zorro

      • zorro
        Posted August 6, 2017 at 8:39 pm | Permalink

        T-shirt!

    • Bob
      Posted August 7, 2017 at 11:47 am | Permalink

      Mark Carney’s job Remains secure while Philip Hammond Remains Chancellor.

  7. formula57
    Posted August 6, 2017 at 7:10 am | Permalink

    Indeed, we need ever-increasing levels of debt to sustain the recovery, timid and slow though it is and stalled as it would be without yet more debt, and so why should this generation of young persons be spared even temporarily carrying as much of that burden as they can?

    It is always fashionable to complain about the ways of the young but this generation has excelled, what with their student loans of c£50,000 a go. The Bank should stand aside.

  8. John Pablo
    Posted August 6, 2017 at 7:59 am | Permalink

    It is the job of the banking system to lend the money older people save and deposit to their collective children and grandchildren who need it to buy homes, cars and other expensive assets, and to businesses who need it to increase capacity and to supply new goods and services.

    Since when did banks lend from deposits? (Even the banks acknowledge that this is a fallacy!)

    Reply Deposits are a major source of cash, an import financial liability which helps finance their loans.

    • forthurst
      Posted August 6, 2017 at 3:20 pm | Permalink

      “Reply Deposits are a major source of cash, an import financial liability which helps finance their loans.”

      Why would the banks loan out deposits to mortgagors? A mortgage is a long term loan; most deposits are short term. Surely, a cautious bankster (if such a species exists) would use the deposits elsewhere by putting them on deposit or purchasing derivatives with the prospect of higher interest and possibly capital gain (in another currency) and where the cash can be withdrawn commensurate with the notice period of the deposit and then lend the whole value of the mortgage into existance; that way the bankster is making a turn on more cash, with a higher yield because he is not paying any interest on a constituent of the mortgage and he avoids the siuation in which, if there is a sudden withdrawal of deposits he is forced to foreclose on mortgage loans to pay out cash.

    • Mark
      Posted August 6, 2017 at 5:20 pm | Permalink

      It was the case in 1997 that mortgage (then some £417bn) and other UK domestic lending was matched by UK deposits. After that, banks started to borrow abroad to fund domestic mortgage lending, packaging up mortgages and selling the resultant securities to foreign buyers, who thus became the effective lenders. By the time of the crash in 2008, some £800bn had been borrowed this way from abroad. When a large chunk of the lending was effectively withdrawn following the bankruptcy of Lehmans, the BoE stepped in with a variety of emergency lending operations, including the Special Liquidity Scheme. These were effectively replaced in due course by QE.

      Banks do expect deposits to be made against lending they conduct. That allows them to lend some more: look up “banking multiplier”. If deposits are not made, then they have to limit lending to what is prudent in the light of the capital they own, which will be a fraction of what they can lend if they get deposits back.

  9. James Neill
    Posted August 6, 2017 at 7:59 am | Permalink

    There is a big difference between buying homes and buying new cars. Houses will normally appreciate in value as time goes on whereas cars start to lose value and very quickly after we buy.

    The BOE is doing a good job, in my opinion, they have the brakes on and are trying to avoid another bubble in the economy, and especially right now that we have no way of knowing what the final cost of this brexit business is going to be- maybe 50 or 60 billion. Then then there is the probability that the whole country is going to be much the poorer if we don’t get the new trade deals with the EU that we had hoped for. So there is little wisdom now in opening the floodgates and giving cash out wily nily to young people so that they can buy flash new BMWs for instance when all they may be able to aspire to in the future is working for lower and lower wages? What the BOE are at – just for the moment- makes full sense to me

    • Denis Cooper
      Posted August 7, 2017 at 12:47 pm | Permalink

      Have you attempted any estimate of the final cost of non-Brexit?

  10. fedupsoutherner
    Posted August 6, 2017 at 8:14 am | Permalink

    If it’s harder to get bank loans for cars how are we all meant to dump our diesel cars and buy electric? Some young people who didn’t go to Uni might be able to afford a mortgage or loan but others will already be saddled with debt during their twenties at least.

  11. Sir Joe Soap
    Posted August 6, 2017 at 8:16 am | Permalink

    No mention here of the low level of interest rates which is feeding this debt beast. Normalise interest rates even half way to 3% and see how much demand there will be for mortgages and car loans then. In the past, there was a sensible balance between the amount older folk received on deposits and the amount of interest paid by the young.

    • sm
      Posted August 6, 2017 at 2:53 pm | Permalink

      As someone who has only ever had to run a home and family and the financial responsibilities that accrue, I also wondered why interest rates are being kept so painfully low, and hope JR will address this in a further post.

    • Mark B
      Posted August 6, 2017 at 4:09 pm | Permalink

      You cannot ratchet up the interest rates strait up to 3% or thereabouts, it will crash the economy. Just look at what the stupid Conservative (sic) government of Sir John Major and Lord Lamont did during the ERM fiasco ?!?!?! The latter sang in the bath while the economy, business, families and people all went under. It doomed the Conservatives.

      Much better to find other means, and the means chosen by the BoE of raising the bar for such loans seems sensible.

      Price inflation is creeping in due to falling of the pound. A small 0.1% increase is on the cards, probably in Autumn.

      • miami.mode
        Posted August 6, 2017 at 8:18 pm | Permalink

        Mark. I think you are wrong on Lord Lamont because the story was that he was singing in his bath at the fact that we had pulled out of the ERM and we were therefore able to pursue our own economic goals without the constraints of the precursor of the euro. I think he later claimed that he never really believed in the ERM anyway.

        All it needs now is for the Remoaners to sing in their baths when they realise how much better off we will be when out of the EU.

    • miami.mode
      Posted August 6, 2017 at 4:23 pm | Permalink

      But Joe, if interest rates increased we would not then be able to import in excess of 800,000 new cars from Germany each year for which, according to reports, we are about to pay £36bn to the EU for that pleasure.

      • Denis Cooper
        Posted August 7, 2017 at 12:55 pm | Permalink

        Reportedly the £36 billion would be more like a bribe to try to get them to negotiate sensibly.

        http://www.telegraph.co.uk/news/2017/08/06/brexit-negotiators-trying-ram-36bn-brexit-divorce-bill-eurosceptics/

        “The Sunday Telegraph yesterday disclosed that senior Whitehall officials have concluded that the offer is the only way to break the deadlock in negotiations and push ahead with discussions on a future trade deal.”

        Personally I don’t favour that approach, I would prefer to tell the rest of the world that any deadlock in negotiations is down to the intransigent EU and not to us, and so try to recruit them to our side against the EU.

  12. Ian Wragg
    Posted August 6, 2017 at 8:21 am | Permalink

    I listened to the rep from the motor industry blaming a 9 % drop in car registration down to Brexit.
    I bought my new UK built car earlier than normal to avoid Gideons new car taxes. No mention of this of course.
    It’s the same with housing. We are 2 people in a large 4 bed detached. We would downsize but are not willing to pay the enormous stamp duty charges.
    Most of the problem is government policy. Today announcing a review of power charges when you continue to increase subsidising stupid wind and solar.
    Get out of the way and the economy will boom.

    • fedupsoutherner
      Posted August 6, 2017 at 12:10 pm | Permalink

      @Ian Wragg

      Yes, employing someone sensible who knows about power and the costs etc will only be useful if the government actually implements his findings. Otherwise it is another costly exercise we have to pay for. Dieter Helm was very much against wind farms etc and I don’t think this will have changed.

    • Lifelogic
      Posted August 6, 2017 at 7:21 pm | Permalink

      Indeed get this daft soft socialist, interventionist, government out of the way and the economy will boom.

      Hammond says he want higher productivity, but he and the bloated, incompetent state, over taxation, over regulation, restrictive planning and employment laws and over priced green crap energy are the problem.

      Please can someone expain this to these socialist, tax borrow and piss down the drain dopes?

  13. David Murfin
    Posted August 6, 2017 at 8:22 am | Permalink

    I have never understood why people borrow to buy new cars. Apart from a satisfying a lifelong ambition for a really nippy estate with a Subaru WRX Sportwagon which cost me £5k from a retirement endowment policy (and lasted me 10 years) I’ve never spent more than about 1/10 of the new price on a car, and paid no interest. A hundred or three a year (today’s prices) extra on servicing is less than the loan interest on new price. These days they don’t even rust away. My current Turbo Forrester is 16 years old and outperforms most newer 4x4s.

    • Lifelogic
      Posted August 6, 2017 at 7:30 pm | Permalink

      Indeed, my family’s two cars (a volvo estates and a VW convertible) are perhaps worth £3K in total. They are all working fine and have done for years. They cost virtually nothing to maintain or insure and have a range of about seven times that of a new electric car (and use less energy too). The tanks can be refilled in a minute too, rather than hours it takes for an electic one.

      All in all they are far greener than new cars too.

      • David Price
        Posted August 7, 2017 at 8:59 am | Permalink

        While you are patting yourself on the back for how green you are have you considered how long you will have such easy access to the petrol/diesel?

        What happens with increasing competition and bad international relations when it is not simply too expensive but may involve conflict to maintain any supply. Are you far enough up the greasy pole to ensure access when rationing and prioritisation take hold?

  14. agricola
    Posted August 6, 2017 at 8:30 am | Permalink

    Well managed debt is surely the business of the banks, what other purpose do they fulfil. They are certainly not the benign philanthropic organisations their advertising would have you believe.

    I have been trying to think of ways that would allow the younger generation to get onto the property ladder. When you and I were in this position we did not have the obstacles of student debt or affordable property. Apart from cheaper , better homes built in factories, we have to look at the debt we have burdened graduates with. If an applicant was earning enough in our day to afford a mortgage, he/she is now likely married and in student loan debt to the tune of £60/£100,000.. in this enlightened age.

    An earnest effort needs to be made to offer free university places to students intent on taking a worthwhile degree. By this I mean one in Engineering, Science, Medicine, Teaching etc., but not one in politics and media studies. Overseas students should pay. get over the student loan obstacle and you are well on the way to returning us to a property owning society with it’s attendant social benefits. Dear Margaret was well aware of this.

    The mortgage itself needs looking at. I think it should be at a fixed rate for the duration of the ownership of the property. It should be a fifty year product that you take with you like a dinning table, the rate only changing to that of the current market when you do so. This would remove a lot of in/out costs.

    You are just the person to come up with some affordable original thinking, so with the added contributions of your followers let’s do so. If the current government are too myopic to make use of your talent let’s force it upon them a la Farage.

    • Denis Cooper
      Posted August 7, 2017 at 12:58 pm | Permalink

      “I have been trying to think of ways that would allow the younger generation to get onto the property ladder.”

      Cut immigration?

  15. Andy Marlot
    Posted August 6, 2017 at 8:37 am | Permalink

    Too much debt is a disaster for young and old and the UK economy is far, far too indebted as a whole making debt slaves of us all. Easy credit also pushes prices up. I advise my son to avoid any debt that does not bring benefits of improved earnings or knowledge. Spending large amounts of your income on debt repayments for a new car that promptly loses most of it’s value as soon as it turns a wheel is not an investment unless it’s a business necessity. I’ve managed to get through 56 years never owning a new car and am the better for it. I have zero debt and intend to keep it that way.

    • Anonymous
      Posted August 6, 2017 at 9:05 pm | Permalink

      Well, someone has to own a new car.

      Otherwise where would all the old ones come from ?

      The trouble is this:

      Like the banksters pre 2008, sub-educated, commission driven young spivs (car salesmen) have become money printers.

      They are endowing unsuitable people with purchasing power they should not be entitled to.

      The only new cars out there should be company cars and those bought by people with the money up front. Otherwise we are consuming beyond what we can pay.

  16. MikeP
    Posted August 6, 2017 at 8:42 am | Permalink

    @ MarkB Car Loans, repayments and exit options are based upon an assessment of the residual value of the car at any point in time. Lenders are very well aware that the car assets depreciate and even so-called 0% interest loans are covered within the quoted price of the car.

    • Mark B
      Posted August 6, 2017 at 4:12 pm | Permalink

      Thanks.

      🙂

  17. Anonymous
    Posted August 6, 2017 at 8:42 am | Permalink

    Why is mortgage lending at this level bad ?

    When the older generation bought houses they were limited to 3x +1 salary.

    Now this has been loosened commercial banks have become money printers, in effect.

    The house hasn’t changed much, the surrounding jobs have suffered pay freezes for years… yet there is more money in circulation ??? How so ?

    Gramps has sold up and realised money that doesn’t exist and his neighbours have gone out and bought top range SUVs on PCP on the news that a few local houses are being sold for silly amounts.

    “House prices always go up.”

    “Why.”

    “Because they do.”

    Is not good enough. This is funny money again. It’s a pyramid and some poor suckers are in it for virtigo inducing amounts. It’s false. It’s bad.

    • Anonymous
      Posted August 6, 2017 at 11:37 am | Permalink

      Borrowing is the only game in town in modern Britain.

      If it stops then we realise whom we truly are – and maybe whom we are not.

      Our first world status is based largely on loose credit and it’s key stone is the humble British house and the government’s predilection for overcrowding in our country.

      It’s a con trick that won’t work for much longer but you can guarantee that Brexit will cop the blame.

    • Lifelogic
      Posted August 6, 2017 at 7:33 pm | Permalink

      House prices do not always go up at all. If the population declines significantly in an area or there are no jobs, they drop like a stone.

      Or if someone like Corbyn gets in to office!

  18. Leslie Singleton
    Posted August 6, 2017 at 8:45 am | Permalink

    Dear John–Whether the BoE knows what it is doing is another story but I must say I didn’t think much of your article today. As in the past you downplay individual credit analysis. Other things being equal if borrowers have more debt they are more likely to go bust. I am very sure you have heard of gearing. Especially is this a matter of concern and judgement at a time when interest rates are going to go up, who knows perhaps steeply, from a very low point, the shock of which could cause suicides never mind debt defaults. And even more especially by reason of Brexit. I am as gung ho and optimistic on the subject as anybody but it is not sensible to ignore the possibility of a period of problems that might lead to some people losing their jobs. Encouraging lending for the sake of it right now is not my idea of a good idea, rather the opposite.

  19. Denis Cooper
    Posted August 6, 2017 at 8:54 am | Permalink

    Off-topic, but here we go again:

    http://www.telegraph.co.uk/news/2017/08/05/uk-ready-pay-40bn-brexit-bill-eu-talks-trade/

    “UK ready to pay £36bn Brexit bill, but only if EU talks trade”

    And, an official spokesman for David Davis’s Department for Exiting the European Union responded to this suggestion by saying … NOTHING, AS ALWAYS.

    The government has said it doesn’t want to give a running commentary, maybe it prefers to leave that to those who want to gradually erode support for Brexit, day after day, week after week, month after month, so that in the end we stay in the EU after all.

    As time goes by it seems increasingly likely that is the strategy.

    • Jason Wells
      Posted August 6, 2017 at 1:59 pm | Permalink

      RE Denis Cooper:

      The bill we will have to pay will be to cover past made UK commitments and it is likely to be far more than the 36bn reported in today’s papers- probably 50 or 60bn.

      Threatening to not pay, if we do not get EU trade talks going before our exit deal is agreed and then presumably the result that we want, is not the way to go about this. There are other things to be agreed too as well before our departure like Ireland and the future of EU/ UK citizens living in each others countries that will hold everything up more so than haggling about money. Unfortunately for us the EU side holds all the cards on these matters and if we want a satisfactory outcome to our future trade deal with the remaining 27 countries we will first have to leave without slamming the door.

      • Original Richard
        Posted August 6, 2017 at 8:18 pm | Permalink

        “The bill we will have to pay will be to cover past made UK commitments….”

        Why should we be continuing to pay for future projects from which we will not be benefitting ?

      • rose
        Posted August 6, 2017 at 10:56 pm | Permalink

        It is the Commission which decides what to spend and where, not the Council. Individual countries do not therefore make “commitments”. Furthermore, the Commission is only supposed to spend money that it has actually got. If it is overspending, that is not the responsibility of the UK taxpayer.

        The House of Lords – not known for its Brexiteering sympathies – took evidence from experts, including European and British lawyers, and concluded we owe the EU nothing.

        • rose
          Posted August 7, 2017 at 5:02 pm | Permalink

          PS We cannot settle the Northern Irish border till we know what the trading arrangements are to be. Surely the EU should be able to work that out, even if Mr Varadkar can’t?

      • Denis Cooper
        Posted August 7, 2017 at 1:06 pm | Permalink

        Jason Wells, I will be moderate in my language and simply say that you seem to have chosen the wrong side in this dispute, that is to say you are aligning yourself with the enemies of your own country. So do you have an invoice from the EU, a fully itemised bill? No, I thought not, you just prefer to take the side of people who are behaving as if they were our enemies.

    • Mark B
      Posted August 6, 2017 at 4:16 pm | Permalink

      Denis

      Have you considered the possibility that most of these stories, and they are stories much like the, Three Bears etc, and that we are being softened up for something that, had we not been softened up, we would object to ?

      We will see the outcome in March / April 2019 and, if the Conservative (sic) Party sell us short, its bye, bye Tories forever !

    • rose
      Posted August 6, 2017 at 7:04 pm | Permalink

      On the review of the papers last night the presenter said HMG had denied it. The alarming bit was Ruth Lea accepting it.

      • Lifelogic
        Posted August 6, 2017 at 7:39 pm | Permalink

        Ruth Lea is one of a tiny number of women (perhaps 3 in total) on BBC politics programmes who is generally sensible and does not push the usual lefty, wrong on everything, BBC drivel.

        I shall watch it.

    • Anonymous
      Posted August 6, 2017 at 9:08 pm | Permalink

      The overriding impression is that there are only Remainers in Britain.

    • fedupsoutherner
      Posted August 6, 2017 at 9:41 pm | Permalink

      Denis Cooper

      I have been saying this all along. What with the BOE and the route the government is taking over Brexit and the economy going belly up slowly they are grinding us down in the hope we will stay in the EU and have a soft Brexit. Cynical or what? No other country has been allowed to vote the way the establishment disapproved of and I doubt if our vote will stand for much at the end of the day. That’s how it is and always will be unless we take a stand and get rid of our 3 main parties who are all going the same way.

  20. Epikouros
    Posted August 6, 2017 at 9:12 am | Permalink

    Because interest rates and money supply is controlled by central banks a reliable mechanism does not exist to regulate supply with demand. Instead it is regulated at the whim of a small number of not omniscient people(despite claims to the opposite) and the politicians who have even less knowledge and understanding of the vagaries of supply and demand that appoint them.

    All influenced by the fashionable economic theory of the day which must support the concept that central banks are the beast means of regulating supply and demand or they are not adopted. Currently Keynesian that relies on the mechanical process of shuttling interest rates and money supply higher or lower in anticipation that it is the appropriate time to do so. Invariably with poor results or at least with less than optimum efficiency. Many times creating conditions that have no other choice than to eventually fail. Not rewarding success and punishing failure so not encouraging good practices and discouraging those that are bad. So the process keeps repeating itself.

    If left to the market the appropriate time would be decided by all instead of the few with undoubtedly greater success. Failures would still occur but they would diminish or at least cause less damage as incentives would be created to learn from mistakes and make them less likely to happen in the future.

  21. RDM
    Posted August 6, 2017 at 9:48 am | Permalink

    You assume the young (and not so young) have stable incomes?

    In the Regions, the largest employer, with stable jobs, is the Government. What, over 60% of jobs in Wales is in the Public sector?

    Out of the 80’s came those with stable Incomes, Pensions, bought Houses, and are happy, thanks! The rest still can’t get a stable Income, or are Self Employed without a higher enough Income to pay for such things as Houses or a Pension.

    I would hasard a guess, the sector without stable Incomes are now growing large enough to make it known, they need help to get a stable Income!

    That is the real reason MPs voted to support giving the Self Employed a Pension!

    Well, I didn’t ask for it, and neither do I want it!

    Do not forget; in the 80’s we de-industrialised, that is, removed large sectors of stable jobs, people were left with no idea how to get a stable Income, some left, some became self employed, and some, eventually, became lucky enough to find a job.

    Not that finding a job leads to a stable Income! Most were unemployed again, a couple of years later. Not long enough for a Mortgage.

    Also, one other point, but important; having a stable job has become more important then any Income, stable or not.
    I.e The Self Employed!

    Well, what they need is not a Mortgage for a house, but a Mortgage for somewhere to live and work, so they can build up an asset, they don’ waste money paying rent!

    Why are these called Commercial Mortgages, and not a normal Mortgage???

    I would want to be able to borrow enough to buy a shop with flat above, speaking metaphorically, or in my case, it would a Man with a shed, or £200k+ truck and trailer ( do you realise the rate per tonne, for a load, is very close to the rate in the 80’s).

    Just a thought.

    Regards,

    RDM.

  22. Bert Young
    Posted August 6, 2017 at 9:51 am | Permalink

    Whether it is worth responding is questionable – my comments yesterday are still being “moderated”. The points I made were relative to the topic and reflections of my experience ; there was nothing in it that was insulting to others or had bad language, and , compared to other responses , it was relatively short . Here goes :

    Banks do not want to keep other people’s money , they need to lend and , in the past , they have always favoured property loans . The Bank Manager used to be a respected contributor to his community ; he understood its local values and knew who to support . Much of this tradition has now disappeared and been replaced by centralised computing .

    Personal debt has now reached an unsupportable level – largely due to the irresponsible tactics of the credit card companies . This is the area that now needs to be brought under tight control together with that of car loans . People should not be encouraged to “own” without support credibility . The North South divide does present a dilemma to Banks and Loan companies nevertheless , wherever irresponsible loaning and borrowing occurs , it must be properly controlled .

    • Narrow Shoulders
      Posted August 7, 2017 at 7:32 am | Permalink

      Mr Redwood, I appreciate this is your site, run by you and paid for by you so this comment is submitted in that context.

      Many of the most interesting points raised on your blogs are posted later, sometimes due to moderation and sometimes as posters respond to other posts. Your site would be greatly improved by having a search function that allowed posters to find posts released during a certain time frame. This would sate posters and readers in equal measure as those like Bert above whose posts stay in moderation for a period would know discerning readers can find older posts more easily and readers can benefit from the better researched and more lengthy posts without having to scroll through all the posts read already.

      A function such as this would also add longevity to each topic.

      • CitizenOfNowhere
        Posted August 9, 2017 at 2:47 pm | Permalink

        NS, if you keep the list of the titles of JR’s posts (and possibly the corresponding dates), you can (without too much difficulty) find all JR’s posts including the comments made at the time by various contributors, and this over at least five years: an invaluable treasure trove for anybody willing to write anything on topics like UK-EU, EVEL, …
        Right now it is with great interest I am comparing these beautifully conserved documents with the story of the EU referendum campaign as written by T.Shipman “All Out War”.
        It is absolutely delightful to realise how so many “contributors” were simply clueless with respect of the interactions between VoteLeave and Leave.EU, or the level of involvement by different strands of EU sceptics, or the details of the Gove-Johnson partnership, or those of the Conservative leadership campaign following the referendum.
        This book really made my (holi)days.

  23. JoolsB
    Posted August 6, 2017 at 9:55 am | Permalink

    “Why does the Bank of England have it in for young people?”

    That’s a bit rich coming from a member of a Government which has imposed a lifetime of debt on young people in England which will hang over them for most of their working lives.

    • Lifelogic
      Posted August 6, 2017 at 12:28 pm | Permalink

      No one has “imposed” any personal debt on young people. They have chosen to borrow. Often alas for pointless and valueless degrees or rapidly devaluing cars. They will learn from experience and hopefully get wiser perhaps as they age. But given the large youth support for the rubber cheque proffering Corbyn they seem a bit slow on the uptake.

      Not that zero vision, lefty Maybot helped very much.

      • JoolsB
        Posted August 6, 2017 at 7:55 pm | Permalink

        What about the ones that aren’t pointless and valueless? The doctors, scientists etc. The Tories have imposed a debt on those also yet they have no choice or do we not need doctors and scientists any more because we can ‘rely’ on those that aren’t home grown? I agree many degrees are pointless but it was the politicians who wrongly encouraged more and more to go to university and now our young will be saddled with life changing debts, but only if they are English of course.

    • sm
      Posted August 6, 2017 at 2:59 pm | Permalink

      You should check your facts – Mr Redwood is not a member of the Government, unfortunately.

      • JoolsB
        Posted August 6, 2017 at 7:57 pm | Permalink

        Correction. He is a member of the party that imposed these debts on England’s young despite he like the rest of then receiving free tuition and then happily voted to pull up the ladder behind him. (sorry John but it’s true)

        • rose
          Posted August 7, 2017 at 4:53 pm | Permalink

          When Mr R went to university he was accompanied by 3% – some might say 4% – of his generation. So it was possible for the taxpayer to pay their fees and grants – though even then many of them complained about it, not having had the chance to go themselves. “Students!” they would say, “Never do a day’s work.”

          John Major and Tony Blair decided everyone should have the chance, so now nearly 50% go. How can the taxpayer fund that? And how can academic standards be what they were?

  24. bigneil
    Posted August 6, 2017 at 10:31 am | Permalink

    “Most of us start out with no assets, receive no inheritance, and have to save for our old age ”

    The ones who can afford to pay a trafficker thousands, but miraculously don’t have a penny when they do arrive, have no such worries. They will sit back happily in the knowledge a never-ending supply of benefits ( from the taxpayers toils) will be supplied from those who welcome them in.

  25. ian
    Posted August 6, 2017 at 10:48 am | Permalink

    It the quickies way to murder a country and it future, is by picking on the young people who are from middle and poor background, with wages that never seem to go up to keep pace with the price of cars, houses and anything else they might want to buy. If they happen to been to uni then 6% interest rates for something that was 1% or nothing at all.
    This is how the people with money are keeping their kids at the front of pack with no debts, but have the ability to walk into good job if they want, and borrow lots money if they want, as this policy was brought in by rich people in government like the last con party leader and lib dem and people at the top of the last labour gov, all millionaires with kids, business would call it unfair competition.

    Don’t get me wrong it always been that way, the only thing is that there a lot more of them theses days to fill the top jobs, and borrow money, and show up more in gov policy made by millionaires in government. You could say that they have taken the ladder away.
    No more bank managers to level the playing field out for small businesses for young people. Just more rules and regulation to keep the competition at bay.

  26. hans chr iversen
    Posted August 6, 2017 at 11:19 am | Permalink

    I am generally concerned that without significant increase in productivity in tthe economy we will not have the growth in the economy to sustain the increasing debt levels we are currently seeing and experiencing as savings rate are far too low for the moment.

    With little productivity higher inflation and therefore lower purchasing power, how is the debt supposed to be services in the future?

  27. Nerwmania
    Posted August 6, 2017 at 11:21 am | Permalink

    The protection against interest rate rises is less than ever before as many fixed rate deals have been abandoned as rates have had to be held artificially low to try an float the country through the post referendum recession ..( by creating a consume demand bubble)
    The problem now is that growth is stalling whilst inflation is rising . Investment has been replaced by consumption of course and all of this will have to be paid for in one way or another and largely by remain voters given the huge proportio9n of state dependents in the Brexit vote.

    I have noticed the Brexit lie machine is has shoved up a gear of late , is it perhaps the fact that the referendum and its endless lies is now colliding with truth . Wee offering £36 bn I believe , how much is that from the NHS per month ?

    • Oggy
      Posted August 6, 2017 at 2:54 pm | Permalink

      If you want to talk about the lies machine then you have to go back to 1972-75 when the remainers told whoppers that we had just joined the common market and it was all about trade and cooperation. They (the liars) knew full well it was about Uniting Europe politically and fiscally (Treaty of Rome).
      The British people have never given permission to join a United Europe only the Common Market, so we’ve just righted a 45 year old wrong.

    • zorro
      Posted August 6, 2017 at 5:11 pm | Permalink

      From a ‘source’ doubtless who shall not be named. Wishful thinking from some – explain to me how you arrive at that figure please 😀

      zorro

    • Anonymous
      Posted August 6, 2017 at 6:01 pm | Permalink

      Interest rates were held artificially low after the 2008 bust, I do believe. Then successive doses of QE.

      All whilst in the EU and BEFORE the referendum.

      Thanks for campaigning for the LibDems in Lewes.

      You helped confirm in quantifiable measure that the people do not want a second referendum – and not a battle bus in sight to do it !

    • Wendy Dallas
      Posted August 6, 2017 at 9:19 pm | Permalink

      The Brexit lie machine.

      As others have pointed out on this page. The Brexit machine is amazingly reticent.

  28. Dweam and dweam
    Posted August 6, 2017 at 11:22 am | Permalink

    Before Trump, one or two Republican states allowed and encouraged previous sub-prime car loan lenders to lend more, but loans refined as not “sub-prime” car loans to defaulters…now hear this “Because it is not fair that a man loses his car, driven away from him and sold off cheap leaving him in continuing debt and unable to get to work. So, he ( the defaulter ) should be given Another Chance”. ( weepy eyes ) Yes, the original loan and interest was not written off BTW. So now the car defaulters in some Republican states owe not one , not two but three car loans or even four..and more from their spouses. The American dream… Beverley Hillbillie Jed Clampett driving his jalopy down an old ranch rock strewn track…awaiting to get to a new Pool Table with “fancy eat’n irons.”

  29. jeffery
    Posted August 6, 2017 at 11:27 am | Permalink

    “More mortgage and car loan debt when the economy is growing and more people have jobs is not something to worry about.”

    Priceless – the Brexit wars seem to be getting to people’s thinking. Per Carney’s letter, there is still £40bn to come from the ‘magic money tree’ before next February. Taking it up to £560bn in BoE loans to the Asset Purchase Facility. How far there was ever even an actual credit problem after 2010 say is arguable anyway. But the limited growth benefits of magic money seem pretty well established from a variety of countries – flogging dead horses?

    Yes there will be some sort of negative effect on demand from these tiny first steps towards monetary sanity, even perhaps some ‘taper tantrums’. But not everything can be subordinated to Brexit propaganda. It will just have be explained that it has no connection to Brexit, whatever the BBC et al. might scream.

  30. Jack
    Posted August 6, 2017 at 11:29 am | Permalink

    This post is proof that JR still doesn’t understand modern banking. Banks do not “lend out” deposits or reserves, in fact loans create deposits (and by extension reserves).

    This is why bank lending still continued to fall and stagnate despite the massive QE from the BoE. What determines bank lending is people’s incomes (which in turn is related to fiscal policy)! Banks only lend more if people’s incomes are rising to allow them to pay off their loans and in turn provide the banks with profits. Interest rates also do not play much of a part at all, in fact raising rates can increase bank lending by increasing people’s income (via interest income), but the BoE should always keep the overnight interbank rate at 0% permanently for maximum macroeconomic stability.

    But yes, bank loans create new money “out of thin air”, hence how China’s money supply has increased massively since the Communist authorities forced state banks to lend at over 30% YoY in 2008/09 to offset the fall in export demand and keep GDP booming while we were in recession.

    Problem with bank-created money is that it’s offset by a liability, and private debt is a “real” debt burden for people. Government-created money (from deficit spending), is a net financial asset to the economy, so is superior in many ways. I’m not against bank lending, but rather than forcing banks to lend like China, I think tax cuts would be an even better way of getting a booming economy.

    If banks are lending too much, then regulate them on the asset side and use capital requirements etc, this will increase fiscal space for the government to spend, if it’s necessary. Adjusting interest rates does not work and is counter-intuitive, regulation is always superior to this.

    • Nerwmania
      Posted August 6, 2017 at 2:57 pm | Permalink

      Would this this by any chance been taken from the New Economics Foundation? I mean the laughable utopian bunch of socialist loafers whose various dreamy conclusions have not disturbed the serious study of economics more than my involuntary flatulence disturbed the howling gales in Cornwall ( Hem hem … I have been camping )?

      I think so

      “loans create deposits (and by extension reserves)”

      How ?

      • Jack
        Posted August 6, 2017 at 8:41 pm | Permalink

        No it doesn’t come from them, I don’t support the whole Positive Money stuff (they also don’t entirely understand banking), and I’m not a socialist. Did you not read the part where I said massive tax cuts are ideal?

        When a bank makes a loan, it’s true that they immediately become “short reserves”. If the bank does nothing then the BoE (monopoly issuer of reserves) will automatically credit the bank’s reserve account with the required reserves (like an overdraft account), so the reserves are created from the loan. Though this carries a higher interest cost than borrowing in the interbank market.

        If the bank borrows the needed reserves from the market instead, assuming other banks are lending, then the borrowing of excess reserves will tend to push up the overnight interest rate to a level above the BoE’s target. In response the BoE will add reserves to bring the rate back down to its target.

        If banks want to expand credit and that drives up the demand for reserves, the BoE automatically meets that demand in its conduct of monetary policy. Loans create reserves.

      • anon
        Posted August 7, 2017 at 9:43 pm | Permalink

        Well , if i was a large bank making a loan “out of thin air” the person recieving the purchasing power will spend it say on a car, the person who sells the car will receive payment and it will then deposit the funds in a bank.

        Hence on average the loans created end up back in the same large banks.

        Banks make money on interest. Hence they want to loan more. They will therefore lend first and manage the books later.

        I think Fractional Reserve Banks should end.

        They should not be allowed to create state backed money only the state should do that to fund direct spending or tax cuts or perhaps co re-payments of student debts.

        If they want to lend state money they should aquire it first, borrow it form pension funds or elsewhere .

        The money supply could then be controlled more directly by HMG and interest rates would reflect that and government would be responsible for spending & taxes.

        Inflation as a tax could then be clearly be seen, where spending in excess of tax & productivity occurs.

    • Anonymous
      Posted August 6, 2017 at 9:26 pm | Permalink

      The problem is that we have car salesmen cum money printers now. A new sub-prime situation driven by spivs.

      Car sales is now a vehicle (scuse pun) for money lenders. The car is secondary in this new ‘industry’. Cash up front is no longer the best way to get a discount.

  31. Sakara Gold
    Posted August 6, 2017 at 11:59 am | Permalink

    Clearly, the way to avoid even further indebtedness is to withdraw from the Brexit negotiations, immediately. The Daily Mail is leading today with a story that DD has now capitulated completely and OFFERED a Brexit settlement of only £35b. Where is this money coming from? Even more austerity? What do you think we have left to sell to cover this gigantic sum?

    So much for an extra £350m a day for the NHS…

    • Sir Joe Soap
      Posted August 6, 2017 at 12:21 pm | Permalink

      Anything like £35bn will see the Tories crushed. These people really don’t get it. Why are we paying at all to import goods?
      My bet and hope right now is that Farage, Banks & Co are getting their act together to compete with this apparently hopeless crew. Put your £35bn to the electorate, Mr Redwood. The last election will be a picnic in comparison. You will all be finished, crushed from both left and right.

    • Edward2
      Posted August 6, 2017 at 1:41 pm | Permalink

      In later news, the Govt has said the story is nonsense
      No such offer has been made.

    • michael mcgrath
      Posted August 6, 2017 at 3:29 pm | Permalink

      I was always taught to check the invoice against commitment before authorising payment. Provided that the demand as in accord with my order/agreement, I could sign it off for settlement.

      If DD has agreed to pay £35billion I assume there is supporting documentaton…please make this available to us to avoid embarassment

      Unfortunately, all I have seen so far is the demand from M Barnier for us to say how much we would pay against his unsupported 100 billion demand. Perhaps this is a standard technique from Bruxelles..maybe Mr Varofakis could advise given his recent experience.

      • Denis Cooper
        Posted August 7, 2017 at 1:15 pm | Permalink

        Apparently it’s not uncommon for junior employees to mechanically go through the process of paying invoices without checking whether they are genuine or fake, it happens often enough to make scams profitable …

    • Mark B
      Posted August 6, 2017 at 4:22 pm | Permalink

      I’d take it form the ‘Overseas Budget’ as, effectively, the EU is a Third Country 😉

    • Anonymous
      Posted August 6, 2017 at 6:03 pm | Permalink

      Better to walk away entirely.

  32. Dr No
    Posted August 6, 2017 at 1:20 pm | Permalink

    People should not commit ad hominem by attacking a man as a whippersnapper aged 74

  33. The Prangwizard
    Posted August 6, 2017 at 1:45 pm | Permalink

    I’m not so sanguine. My cc company asks me every month if i would like to borrow for something which might take my fancy. Was 1.9% up front and the 0 last time.

    This is no way to grow an economy. Savings ought be encouraged instead first. But then Mr Redwood thinks it increases productivity simply to buy more stuff. Mostly imported of course or made by foreign owned businesses. How does that help? I suppose our slave economy gets bigger.

  34. mart
    Posted August 6, 2017 at 1:53 pm | Permalink

    Dear John,

    Can you then say what level of personal indebtedness IS harmful for our society?

    Consider the enormous total cost of servicing these debts. The money goes principally to the banks, not the savers.

    Consider the burden of the debt upon the indebted.

    By arguing the other side you appear to be sanguine about the country’s personal debt level, is this correct?

    Reply Allowing young people to buy a home on a mortgage is fine – why do you want to stop them?

    Kind regards

    • mart
      Posted August 7, 2017 at 10:19 am | Permalink

      Dear John, Thank you for your reply.

      “Allowing young people to buy a home on a mortgage is fine – why do you want to stop them?”

      With great respect, you avoided my points, and imagined I had made another point.

      But I will attempt to answer your question:
      1.I don’t want to stop them. But I would like to make money tighter so that prices (inflated in the last 20 years largely by loose money) come down.
      2.Your post mentioned all of: homes, cars, and other expensive assets. So, wider-scoped than just just homes. However, it is usually possible to buy a cheaper older car and so avoid a loan. For homes, not so easy.
      3.For homes, I would return to a regime where loans are less leveraged than they now are. In my day the rules were approximately 3.5 times the salary of one of the main earner in the household.
      4.Tightening the money would bring the over-inflated prices down, which would eventually take the heat out of the market for those just entering. It would cause difficulties and losses for those already “on the property ladder”, I do admit. But how else do we escape from 20 years of inflation caused by loose money?
      5.Consider that university leavers have 10s of 1000s Sterling in personal debt already, and we are breeding a generation for whom debt is “normal”. This cannot be wise in the long term.

      Kindest regards

  35. Chris
    Posted August 6, 2017 at 4:30 pm | Permalink

    I see that you are reported in the Express as condemning the Brexit bill being bandied about today. You are in good company as Ted Malloch states: (article on Breitbart London)
    “….And do not be cowed into thinking you owe the unelected Brussels statist elite and their expensive bloated bureaucrats more than 60 billion pounds. Humbug and “go whistle,” to borrow a phrase. That is a nonsense figure, contrived and totally made up. Do not pay a red cent. You don’t have to, so why would you? Blackmail is wrong and unjust….”

  36. Mark
    Posted August 6, 2017 at 5:45 pm | Permalink

    I agree that the BoE policies are inimical to the younger generation – and indeed, ultimately to us all. The mechanism is artificially low interest rates, which have resulted in inflated asset prices, creating the risk of substantial loss when asset bubbles deflate, as they very likely will within the lives of the young, destroying their savings . The young therefore are wise to avoid borrowing to purchase inflated assets such as housing, but this makes it far more difficult for them to raise a family. The result is that we import other countries’ young to replace them.

    However, the BoE do not bear sole responsibility here: government policies that promote bad investment in things like expensive energy, electric cars, HS2, etc. damage the ability of the economy to pay its way. We’re running a balance of payments deficit of over £100bn a year that has to be financed by a combination of borrowing and asset sales. Gordon Brown’s trick was to persuade householders to borrow abroad via the mortgage markets, while encouraging rich foreigners to buy up London property. We will not be able to sort out bad policy from the BoE without also sorting out the policies that leave us with the need to borrow and sell off our assets.

    Borrowing abroad and selling assets to foreigners reduces the interest, profits and dividends recirculating in our own economy, and siphons off repayments of loan principal. It is slowly bleeding us dry financially.

  37. BarryD
    Posted August 6, 2017 at 6:11 pm | Permalink

    This whole brexit thing is not turning out like we thought it would.. there are so many unforseen difficulties presenting themselves that it is hard to see how we can have a clean break ftom yhe EU. Even the irish border is now starting to look like it could be a problem..and as far as i know nothing at all has been agreed about the rightd of EU citizens in Uk

    Reply Nonsense. Lots of people trying to make a living out of complexity or trying to stop Brexit, but no unforeseen issues or great problems.

    • Oggy
      Posted August 6, 2017 at 9:51 pm | Permalink

      Please do not blame the Irish border problem on Brexit. The common travel area agreement precedes the EU by 50+ years.
      Likewise it is the EU that’s refusing to uphold the rights of UK citizens in Europe, whilst we have made it perfectly clear what the rights of EU citizens living here are. Also it is the EU outrageously wanting to control the UK after we have left by insisting EU citizens be subject to the ECJ.
      Your fears/complaints should be directed at Barnier and Juncker et al NOT the UK.

  38. graham1946
    Posted August 6, 2017 at 7:12 pm | Permalink

    O/T Breaking News is your government is prepared to pay £36 billion to the EU for a trade deal. What say you?

    Reply I trust they are not! No need to make additional payments over and above our regular contributions up to date of leaving. Story does not explain what the £36bn is based on.

    • graham1946
      Posted August 7, 2017 at 6:15 pm | Permalink

      I think it is based on a claim from Juncker (presumably a figure he has dreamed up) and he seems to think we are thinking along those lines. I don’t want to pay anything either, but are we not committed until the end of the 7 year budget which is in 2020 (agreed by us in 2013) so we could be liable for a year and a half at our normal figures, say £15 billion? Maybe he has a similar figure in mind then doubled it.

  39. ian
    Posted August 6, 2017 at 8:48 pm | Permalink

    I done my duty as a farther and paid all the school, unis, deposits for houses, cars, holidays, and the rest, as mine are all girls, the pay out is at the start with girls, and then it down to boyfriend and husbands. they have more money coming to them tax free when i go. I have now been retired for over 15 years, and could not give toss about the economy, and if it fell apart next week, i don’t care.
    Had accident in the car couple year ago and ended up in hospital for a week, and lost my car, and took a few months recover, start look for a new car but could not make up my mind, then old car came along for nothing, big old bus, lucky if dose 25 to the gallon, so i had it, great runner, took it to portugal last year, lovely, all i get from the girls is, when are you going to get new car, and i say i got one, then i hear, you can not drive around in that, so i say why not, they say it embarrassing, bloke over road, the same. That the culture theses days, and if something did happen to economy, they wouldn’t know there ass from there elbow.

  40. fedupsoutherner
    Posted August 6, 2017 at 9:28 pm | Permalink

    O/T

    The BBC was talking about the rise of energy prices tonight. They were saying that Dieter Helm has only been asked to investigate the cost of energy as a paper exercise. It’s about time this government admitted that the renewables route is wrong for this country and put a halt to it.

    The recently announced British Gas 12.5% electricity price rise is
    entirely due to expensive government green energy policies, as wholesale
    electricity prices have actually reduced.

    Existing onshore and offshore wind still receives renewable obligation
    subsidies under long-term contracts. New offshore wind solar, wave, tidal,
    and biomass benefit from exorbitant feed-In tariffs or generous guaranteed
    minimum prices under the new Contracts for Difference scheme. Then there
    are carbon levies and massive grid investments to send an erratic supply of
    wind, tidal, and wave electricity from remote areas to where it is needed,
    plus the ever increasing constraint payments, when windfarmers are paid for
    not producing electricity.

    Renewable energy is an unfair concept that could be best described as
    subsidised farmers producing part-time electricity as a sideline, with
    consumers taxed to pay for it regardless of financial status. And all for
    the benefit of wealthy landowners and developers and foreign manufacturers

  41. Original Richard
    Posted August 7, 2017 at 7:19 am | Permalink

    Why does the Bank of England have it in for young people?

    Because keeping corporates happy is more important to the BOE than young people in the UK.

    Hence the desire to remain in the EU/continue to have mass immigration to have access to an unlimited source of workers to lower wages and allow the corporates (and government) to not have to pay for the training of young people.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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