Surging debt levels seem unsustainable

IT is hard not to look at accelerating international, domestic, and personal debt and not feel a frisson of anxiety. 

The here-we-go-again alarm bells start to ring. The catastrophic impact of out-of-control debt, and the realisation that debt unwisely provided following light-touch assessments by irresponsible banks might never be repaid, has, time and time again, been the genesis of life-changing recession. Despite those crushing lessons, despite the confusion between appetite and need, or our it’s-different-this-time fantasy, we remain players trapped in the boom-and-bust cycle.

A wonderfully titled book of 1841, Extraordinary Popular Delusions and the Madness of Crowds, describes the 1637 tulip bubble, in Holland, when a tulip bulb sold for more than 10 times the annual income of a craftworker. Every economic implosion from then to our Anglo-Irish-led catastrophe of a decade ago has followed an all-too-predictable pattern.

Figures from the Institute of International Finance (IIF) suggest we are at least consistent in our recklessness. The IIF records that global debt has surged to over €24,500 for every person on this stretched planet. Global debt has grown by €65tn, to €190tn, since the 2007-08 crisis. It is as if that collapse hardly broke our stride. World debt levels stood at 327% of global economic output in the first quarter of 2017 — a ratio that would confound even the belt-tightening Charles Haughey. A decade-long, €35tn borrowing spree in the developing world has added to the debt since 2007, a significant and unsustainable acceleration from the €7.5tn added between 1996 and 2007. Of €49tn of emerging market debt, China accounted for almost €29tn.

In Ireland, the loan-and-deposit ratios in our banks mean Irish households continue to be net funders of the banking system. Banks held €8.8bn more household deposits than loans at the end of May. In contrast, household loans exceeded deposits by €72.6bn in May, 2008. Consumer loans provided by banks exceeded repayments by €162m in the three months to May, continuing a trend evident since early 2016. These loans are used to pay for cars, furniture, domestic appliances, or holidays. Overdrafts and credit cards are included. Credit card debt represented 20% of outstanding consumer bank credit in May.

These figures are, in scale at least, irrelevant to the salarymen and women struggling to finance everyday living costs, a struggle that becomes more and more difficult during periods of wage-stagnation or modest wage increases. That struggle has become even more challenging in this society, where house prices rose more in the first six months of 2017 than in all of last year. That we have been warned that house prices will rise for five to 10 years, unless drastic action is taken, adds to that life-draining struggle. Debt is an essential component in many lives. It serves a core purpose, but it would be foolish to pretend that the current trend of ordinary people spending ever-greater proportions of their lives repaying debt can continue. Today’s debt levels are crucifying individuals, but they will eventually destroy the system that is so dependent on the idea of lending for profit.


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