The UK
Manufacturing Purchasing Managers Index, released earlier, fell to
just 47.4, the lowest figure since March 2009. Any number below 50
represents contraction. On top of that, other economic data show the
economy heading rapidly back into recession due to the austerity
measures being imposed by the Government. Unemployment is already at
a 17 year high, and, with a 10% fall in University applications, that
will mean an additional number of young people remaining on the dole
queue, adding to the record high number of youth unemployed, which
has already gone over a million. The ONS figures themselves, showed
that on an annualised basis, even this distorted figure for Q3,
represents a fall to 0.5% from 0.6% last quarter. The Government are
frantically trying to talk up the economy, as they recognise that they
are in deep trouble, and are coming under pressure to change course.
With the decision of Greece to call a referendum on the Bail-out
deal, and with Portugal now responding, as they were bound to, by
calling for concessions on their own bail-out, the hope the
Liberal-Tories had that Europe would come to their rescue is fast
disappearing.
Meanwhile,
The
Independent have reported that Credit Card debt in the UK
is soaring, as families seek to cover the monthly deficit between the
falling wages, and soaring inflation. They quote a report by Shelter
and Co-op Insurance, which says,
“nearly
a third of struggling families are being forced to spend more money
each month than they have coming in, with the average adult facing a
monthly shortfall of £165.”
Its no
wonder we are seeing a new rash of TV adverts by Usurers charging
over 1,000% interest on pay day loans, and that we are seeing the
return of the “We Buy Any House, Car etc” merchants who will give
you, at best, 60-70% of the current value of those items you need to
sell to raise money. In fact, although the Government has gone
overboard for the last 18 months with its scare stories about how
Britain was in danger of becoming Greece due to the Public Debt, it
is Private Debt in Britain, which is the much larger problem, and set
to become even more of a problem. Public Debt stands at around £700
billion, but Private debt stands at more than £2 Trillion. The
Government can always print more money to cover its debt, but
individuals have to either pay up or become bankrupt. The latest
figures show an increasing number will be forced to do the latter.
Given that a large amount of this private debt is tied up in
property, it will inevitably mean a crash in house prices, and big
problems for the Banks and Building Societies who have irresponsibly
lent huge amounts of money, at reckless multiples against income, to
people who will not be able to pay it back. As has happened
elsewhere, when the mortgages go bad, and the house prices collapse,
the Banks will find themselves holding worthless assets.
There is
another factor playing into that scenario. Over the last few weeks a
new Credit Crunch has been developing. As a result, UK Banks are
finding it more difficult to borrow, and are paying much higher rates
on the money they can get their hands on. Nowadays, especially with
such negligible rates for savers, the Banks and Building Societies
are reliant upon this borrowing in the Capital Markets, to fund the
mortgages and other loans they make. That was the problem that
afflicted Northern Rock back in 2007, and then affected other Banks
in 2008.
Even without
an increase in the Bank of England’s Bank Rate, the Banks and
Building Societies are having to pass on these higher interest rates
in higher mortgage rates. Moneyweek
reports,
“Lloyds,
the largest mortgage lender in the UK, has just raised its standard
variable rates (SVR) – the rate to which borrowers coming to the
end of a deal move on to – from 4.84% to 4.95% for borrowers with
The Mortgage Business and the Bank of Scotland (both part of the
group). At the same time, some banks have begun to raise SVRs and
tracker rates for new customers; something that appears to have taken
many by surprise.
One
couple quoted in the Telegraph declared themselves “dumbfounded”
by the rise. They are in the process of selling their house. I wonder
if the higher payments will make them feel like cutting the price to
get it away a little faster? Given that transaction volumes are under
half their peak levels and that the average house is now selling for
around 10% under the asking price, it might not be a bad idea.”
All of the
factors required to ensure growth in the economy are heading in the
opposite direction, and the austerity measures being undertaken are
the basic cause of that. The problem is that even changing course
is not likely to have the necessary effect, because as I have said
previously, it requires more input to reverse the downward momentum
than is required to maintain forward momentum. Only a large scale
programme of restructuring and stimulation across Europe is likely to
be able to do that. At the moment a financial collapse, causing
something approaching a Depression seems more likely.
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