How do you get people to borrow less?

GDP growth’s falling. The economy’s a mess. And Carney wants a rate rise. Why, oh why, oh why?

To add to that decline, personal debt data remains worrying.

If you wish to curb borrowing you raise interest rates, no?

20 comments on “How do you get people to borrow less?

  1. Well obviously there is debt and there is debt. Personal debt is for buying things people do not need. Cars. DVD players. Holidays in Spain. That sort of thing. Corporate debt can be a good thing that helps the economy along. If it is for social housing and so on.

    What is needed here is a National Lending Agency that would vet each and every loan application for its net social value. If it is of value to the community it would be allowed. If not then of course it needs to be banned.

    Simple really.

  2. So GDP is still growing, unemployment is at the lowest level for, what, 40-odd years yet the economy is in a mess?

    I love the “GDP growth is falling” bit (note, not “GDP growth’s falling”). GDP growth should always increase, without exponential growth of GDP we are all ruined.

  3. Though given the spending commitments Murphy and the rest of the asylum demand we probably do need exponential GDP growth.

  4. Here on Planet Earth night will follow day. In my personal monster Keynes Theory diagram from the 1960’s there are a lot of things interweaving. In other theories the same applies although there are differences in the ideas about how this or that works or do not, depending on circumstances. But, and a big but, among those many things are Savings and also Rates of Interest. So, if you decide to flat line rates of interest while at the same time fiddle around with the various forms of savings, things will happen. I say no more nudge nudge as successive PM’s have said to Chancellors and the Bank of England.

  5. GDP growth should always increase, without exponential growth of GDP we are all ruined.

    Well, it depends.

    We need exponential economic growth for the purposes of showing how Brexit/The Tories are evil and insane, deliberately immiserating the vulnerable and forcing single mothers to eat pencil shavings down at the food bank.

    We also need to stop economic growth before Mother Gaia decides to punish us all with hurricanes and tornadoes and people in Scotland seeing the sun, which would probably cause them to leap into the sea in horror and confusion.

    It’s an ethical pickle.

  6. Ok, but personal loans have an interest rate of around 7%, on average. Credit cards maybe 18%. Is raising the base rate by 0.25 really going to make much difference to the affordability of personal debt? (Mortgage debt is another matter; but that’s not what the Spuddy Professor is talking about.)

  7. Snippa is concerned about all those corporate holders of gilts who might suffer capital losses as a result of a rate rise. The man oozes compassion

  8. you simply don’t understand Tim – he wants to make government debt more attractive by increasing rates while increasing the cost, and reduce the level of personal debt by increasing interest rates while not making it more expensive; any attempt to paint this as inconsistent is, frankly, little more than neoliberal sophistry

  9. @andrew m – most people I know, who have used credit cards correctly, have 0% rates for years to come… I have 36 months of 0% on one of mine… Very handy when the cash to pay it off is getting 5% interest… Barclaycard will give you 0% interest and no fees for transfering…. Money for nothing (as long as you watch the end dates…)

  10. @Ted in C.
    Why does the State borrow off the banks if the banks are creating money out of nothing? Why not cut out the middleman and allow the State (once again) to create it own money, like Lincoln did in the Civil War with Greenbacks?
    Two old-school English gents, Desmond Allhusen and Edward Holloway, wrote in 1959 “When modern governments find themselves with the choice between curtailing their own expenditure and financing it by the creation of new money then they choose the second alternative but-incredible as it would have seemed- they allow others to issue the money and the borrow it from them at interest”.

  11. Bloke in Cornwall

    “Very handy when the cash to pay it off is getting 5% interest…”

    Where can you get 5% pa interest today in an investment where your capital is guaranteed, so you can certainly pay off 36 months of credit card expenditure?

  12. ‘If you wish to curb borrowing you raise interest rates, no?’

    No.

    The interest rate charged/offered is supposed to be the risk premium + the opportunity cost and it should be specific to each individual loan.

    It is not a tool for discouraging borrowing nor is it a tool for controlling inflation.

    It is not a tool at all but a measurement.

    If you want to discourage borrowing then alter the lending/borrowing criteria (and vice versa)

    If you want to discourage inflation then alter the spending/taxation balance (and vice versa).

  13. One other thing,
    TFT is correct in insisting on Spend and Tax.

    At the start of the year a Government sets a spending budget and a tax claim.

    Spending is carried out during the current year and at the end of the year the tax bill is presented to the public.

    Government does indeed spend money into existence and then tax it out.

    ‘What difference, at this point, does it make ?’

    None.

  14. Andrew M said:
    “Ok, but personal loans have an interest rate of around 7%, on average. Credit cards maybe 18%. Is raising the base rate by 0.25 really going to make much difference to the affordability of personal debt?”

    Isn’t it about supply? If interest rates go up, capital can get greater returns elsewhere, so the supply of capital to personal debt decreases. Because of risk etc., a rise of 0.25% in base rate probably means that personal debt interest rates need to increase by more than 0.25% to continue to attract the same amount of capital.

  15. @Rob,

    It really is very worrying how the west – probably the world as a whole – literally never has had it better. And yet the entire dialectic, from left and right, is about what a parlous state the entire world is in, how poor we all are, the terrors of the widespread child poverty and inequality we suffer, and how we are ground into the dirt by neoliberal capitalism, about how it’s only the 0.1% who are doing fine and the rest of us are paying for it.

  16. Why not cut out the middleman and allow the State (once again) to create it_s_ own money, like Lincoln did in the Civil War with Greenbacks?

    Because it is against EU rules (law?) and Brexit is still some way off?

  17. Brexit might be an opportunity for other good ideas from the past: Resale Price Maintenance for instance which Edward Heath knocked on the head gladly to get the UK into the Common Market.He thought it would cure the country’s never ending productivity problem. How allowing supermarkets to set prices for manufacturers would achieve this he didn’t think through.

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