Living beyond our means

4 02 2009

The fourth part of my white paper on the UK after the recession https://postrecession.wordpress.com/2009/02/04/the-uk-economy-after-the-recession-part-4/ deals with the house price bubble and the growth of debt in the UK.

Credit is very elastic and in theory there is no limit to it. As long as the borrower trusts that they will get their money back at some time then credit can expand indefinitely. However, once lenders become fearful that they will not get repaid then the elastic contracts rapidly. In theory it could contract as far as it expanded in the first place. In practice zero debt is implausible,but the credit crunch shows so far no sign of ending.

The expansion of consumption in the UK in the past ten years was highly dependent on increased debt. In future we need to find ways of earning and spending more which are based on increasing production and becoming more competitive as a nation.

For previous parts of my white paper see here:

https://postrecession.wordpress.com/2009/01/30/92/

https://postrecession.wordpress.com/2009/01/28/the-uk-after-the-recession-part-2/

https://postrecession.wordpress.com/2009/01/26/the-uk-economy-after-the-recession-part-1/

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