Household debt reaches monstrous levels

Why are Brown and Darling so desperate to revive bank lending to households? A quick look at the outstanding stock of household lending quickly reveals the reason.

Bank lending to households now stands at about 88 percent of GDP. Thirty years ago, it was only 20 percent of GDP.

The UK economy has become addicted to debt. This huge surge in credit has kept up the illusion of growing standards of living. It has kept us consuming, while UK real wages have remained stagnant.

We have reached an impasse. Bank credit can not grow any larger. Household balance sheets are in deep trouble. Debt servicing costs are eating into disposible income and as the economy slides into recession, default rates are about to rise.

Brown and Darling are desperate for banks to turn on the flow of credit. However, if the banks were to buckle under the pressure from the government and begin a new surge in credit growth, household debt would rise further. This would only generate an even greater finanical crisis in the future.