"Britain's real debt disaster"

Whenever people speak, as an example of evangelicals ‘picking and mixing’, of how the Church has given up on its opposition to usury without any real harm being done (so why don’t we ‘get real’ on ‘other’ issues?), I am minded to observe, firstly, that the current economic crisis was caused by money-lending and, secondly, that we are by no means out of the woods yet.

On the contrary, what we need right now is a healthy dose of the kind of reality provided by this article here.

As the headline say, “We are in danger of ignoring Britain’s real debt disaster”, and that debt disaster, as this blog has been saying for a long time, consists not just in national and institutional borrowing, but individuals who have also borrowed well beyond their means to repay.

Moreover, as the article goes on to observe, they are being encouraged to do so even further by economic pressures and government policies:

Alistair Darling duly obliged this week by removing stamp duty completely from all houses costing less than £250,000. It was almost certainly an astute political move. But then you notice that first-time buyers are currently borrowing an average of between four and five times their annual household income when, to be safe, that multiple should stay below three. You can see the strain. And when you recognise that the rise in interest rates which must, eventually, come would expose all those interest-only borrowers to sharp "rent" increases on undiminished debt, you can see the danger. Such borrowers are a different version of the "sub-prime" which devastated America. It would be much kinder to help them pay down debt quicker than to devise new, clever ways of inciting them, or new entrants, to borrow more.

What is needed is a new attitude — both to debt and to wealth. And this is a matter of morality and (that old favourite of Church campaigning) of justice:

It is wrong to go on presenting the bottom rung of the housing ladder as an essential mark of modern adulthood, like losing your virginity or passing your driving test. It is foolish for the Government to offer equity share to first-time buyers when the housing market is, in real terms, going down. As with endowment mortgages and private pensions in the past, this looks like mis-selling. Indeed, in relation to money, you could say that all our politics in the 21st century has been a form of mis-selling.

And, moreover, it requires a new attitude to life itself:

For half a century, we experienced the "revolution of rising expectations". That revolution went on for so long that the expectations outreached reality. The revolution of lowering expectations is only just beginning.

The problem is, our Western culture does not want to hear this. We regard increasing wealth, and widespread prosperity, as ‘normal’. Indeed, we think that these things can be achieved and maintained without too much effort on our part. But as the article observes,

... the history of the world is one in which most human beings have had a very hard time. A social order which produces steadily, genuinely growing prosperity for most citizens is therefore a great and rare achievement.

The Bible was right to frown on money lending for profit, and the Church was wrong to abandon its objection. (Investment was never the issue — the question was whether money itself could and should be treated as a commodity. So long as it is, there will be people greedy enough to lend to those who cannot afford to borrow, and those stupid, or desperate, enough to borrow what they cannot afford to repay.)

A friend of mine whose business it is to know about these things predicts that we are halfway through the economic crisis, and that the present sense of disaster averted is actually the calm before the second storm. If he is right, and if, as this article suggests, that storm brings rising interest rates (as must surely eventually happen), then we are in for not just difficult, but dangerous times:

Ministers, bankers, Parliament have all failed, while looking after themselves comfortably in the process. So the conditions are ripe for a new politics of grievance and anger. Which is where revolutions begin.

Watch this space.

John P Richardson
27 March 2010

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