Scary Numbers of the UK's Debt Disaster

£1.475 TRILLION

Total Personal Debt

£183.2 BILLION

Total Consumer Credit Lending

£64.4 BILLION

Total Credit Card Debt

£1.292 TRILLION

Total Mortgage Debt

£1.606 TRILLION

Total Government Debt

£57 BILLION

Interest Paid each year on Government Debt

Britain in the RED: The Problems with each type of Debt

Consumer Debt

One of the most worrying aspects of Britain’s Debt Disaster is the prolific use of personal loans and credit cards to purchase goods that become worthless soon after their purchase.

The graph below indicates this pretty well.

creditcardlending

The widespread use of credit cards has contributed to total consumer credit lending being a staggering £169Billion, or £6,071 per household.

The situation is in fact even worse as averages can be misleading. How many people are in debt up to their eyeballs and to sums far in excess of the average?

Well, the fact that the Citizens Advice Bureaux in England and Wales deals with approximately SIX THOUSAND new debt problems every working day indicates that the problem is truly a complete and utter disaster.

The consequences of being indebted are far-reaching and terrible.

Lives are destroyed as people’s health is damaged. Families break up through stress and arguments over money. Individuals and families become completely impoverished.

So what is the great need to get into debt in the first place?

It’s mostly caused by the huge demand to purchase things we probably could get by perfectly well without. New clothes, new cars, new sofas, new TVs all contribute to the desire to obtain credit, whilst there are also those who use consumer credit simply to get by on a weekly basis and feed their families.

Have you ever noticed just how easy it is to get credit?

It’s almost force fed down your throat.

Here’s a new TV. Here’s a credit card – preapproved (obviously).

Here’s a flashy new car. Can’t afford it? Of course you can. It’s only a few hundred every month.

Can’t afford that bill? Don’t worry, it will come out of your account anyway and you’ll just get charged extra.

When you have a potent mix of easily available credit, low levels of financial literacy and near 24/7 professional marketing for consumer goods, is it any wonder there are so many spiralling downwards into huge debts?

It’s good to have nice things, but the consequences of getting into debt is poorly understood by far too many, until it is too late.

Every time you borrow money, you have to work longer to buy that item due to the addition of interest on the loan.

People need to start thinking about debt as what it represents and not what it can buy you.

Debt is a claim on your time and labour.

It is not a blessing, it is a curse.

As Faustino Ballvé explains in the Essentials of Economics when discussing a person borrowing.

“Now he has to wait. If he can find the money, he can have today what otherwise he must wait for until tomorrow. Thus, When he obtains a loan, he does not hire money; he hires time. The interest that he pays is the price of the advantage that he gains in having today, what otherwise he would not have until tomorrow.”

Many economists talk about the importance of credit in our economy and feel it is a positive aspect, generating enhanced economic activity. But you must take these economic views with a huge bag of salt. Many of these economic departments are indirectly or directly funded by the banking system and they fall victim to spending far too long looking at graphs and numbers rather than the real world, which unfortunately for their economic models, have humans in it.

I will make my position perfectly clear.

I completely disagree with the notion that credit is a good thing.

Firstly, the majority of debt-fuelled consumption is only bringing forward spending that would of happened in the future, just at the expense of interest paid on the loans. So whilst bankers gain, society at large loses by paying huge sums of interest, solely due to a lack of patience.

Secondly, consumer credit is causing consumption that may not have ever taken place.

This is promoted as a boon, but is it really?

Economists are confusing economic activity with increasing wealth. How is borrowing money and using it to purchase goods that soon become worthless, eventually ending up in landfill and leaving behind nothing but debts and pollution in the process, increasing the wealth and prosperity of the individual, the nation or the world?

Many of the people who get themselves into debt problems are young adults and families. This accumulation of debt obligations is happening at a time in their lives when their focus really needs to be on saving and investing for their future wellbeing.

The path we have been on for far too long will lead to poverty.

We must restrict the ease with which Banks provide credit as far too many now find themselves essentially enslaved to the repayment of their debts.

This is not a new phenomenon.

It has happened periodically in different civilizations throughout history and was called usury. The provision of credit at high interest rates was even made illegal in many periods by multiple different nations, and even remains so today in parts of the world.

I wouldn’t propose something so extreme. I only propose two solutions to stop us sinking into more and more debt.

Firstly, I would only suggest restricting credit to a sensible level per person, the details of which I outline in my Debt Disaster Campaign.

Secondly, I aim to provide educational courses so people can understand the financial consequences of the decisions they make and take control of their wealth.

In my e-book ‘Your Path to Prosperity’ I explain that one of the most important aspects of building wealth is ownership, but getting out of debt can also be about ownership.

It’s about owning up to your problems of debt, facing them, repaying them and escaping your own debt disaster.

The banking system is designed to push credit on you. But you don’t need to push back, however you just need to turn your back on the banks. We can get by, thrive and prosper without the banks of today and without the debt that they provide.

In my book ‘Britain’s Debt Disaster’ I outline in depth the problems of consumer, housing and government debt and the consequences of this huge debt mountain we have built up, to a total tune of trillions of pounds!

And yes that is Trillion with a T. That’s 12 zeros. Unfortunately it isn’t a typo.

Take control of your wealth. Order the book today. Just click here.

Housing Debt

You would have to live on the moon not to know about the escalation in house prices we’ve experienced since 1995.

Here’s a chart showing just what has happened to prices across the country.

1housepriceescalation95to15

What has caused high house prices?

So what has made house prices in 2015 worth 3x the price in 1995? Have the houses suddenly becoming much larger? Are they now built with superior building materials, perhaps with golden doors? Have Apple suddenly started building gadget-homes? (We can only dream).

No, in the majority of cases, the houses have depreciated through wear and tear and new homes appear to being built smaller, with smaller gardens. But largely you’d be purchasing the same house you could in 1995; you’d just be paying 3x the price!

There is only one main reason and most people don’t ever mention it.

Debt expansion.

Without debt expansion, none of the other flimsy or valid reasons cited – such as a shortage of housing, greedy landlords, not enough social housing, another example of a financial bubble etc– could have had the effect on prices that we have witnessed without the corresponding expansion of debt.

Here’s a chart that shows the increase in lending secured on houses.

mortgagedebtmountain

Anyone else notice a link between the direction of the above two charts? Well the chart below illustrates the relationship between debt and house prices more clearly. It is a plot of correlation and will indicate a positive relationship if it heads in a 45-degree angle (upwards from left to right).

debttopricerelationship

As you can see there is a very clear relationship between the increase in bank lending and the increase in house prices. It is so obvious, yet so few people lay the blame of escalating house prices with the banks loosening lending policies and expanding debts.

The problem of debt-fuelled house price expansion

Whilst the increase in prices have helped existing asset owners pre-1995 (so largely older people), it has been at the expense of their children and grandchildren taking on excessive debts and a transfer of wealth from young to old and from the people to the banks.

Think about it this way. In the early 90s, you could purchase a house with 10% down, using one person’s income and with a mortgage of 25 years. In 2015, it would again be 10% down (after the 100%-125% loan to value nonsense), but you would need two persons’ income and often a mortgage over 35 years! So you’re buying the same house as your parents/grandparents, yet you need an extra person working full-time to pay the mortgage, plus will be in debt for an additional 10 years!

The banks have simply stolen most of the economic benefits of women participating in the workplace.

This puts a strain on families, as now two people have to work to get by, rather than being a bonus to your household income. What is even more concerning, is that many younger people are using two person incomes and 35-year mortgages, at a time when the Bank of England base rate is at it’s lowest in history and before they have added the time and financial pressures of children to the equation.

How can we expect this to end well?

You can read more about the problems of housing debt in the e-book BRITAIN’S DEBT DISASTER.

Government Debt

The government taxes our labour. It taxes our consumption. It taxes our saving and investment. It even taxes our children just because we die.

Despite all the ridiculous rhetoric about how they help us, the government basically acts like a bunch of gangsters taking money from our pockets through the threat of force.

That may sound extreme but consider the facts.

If you don’t pay your taxes some armed people will come to your home, tie you up, kidnap you and drag you to a tiny locked room for whatever time period they deem necessary, unless you can pay up your taxes with added fines.

If you actually have money to pay taxes, they couldn’t care less if you have other pressing needs for that money, such as investing in your business, saving for your future or even simply feeding your family.

What’s even worse than taxing money that we actually have, they also make us liable for money that we don’t have.

Apparently, despite taxing nearly everything, the government isn’t capable of only spending what it can forcibly shake out of our pockets. It has to borrow money to keep up with it’s promises for votes, it’s grand projects, wars and myriad bureaucratic institutions. In summary it’s bullying, self-righteous, nannying, interfering, manipulating waste.

They’ve been borrowing increasingly more money for years and now the outstanding debts are staggering.

The government, and therefore its tax paying citizens and companies, officially owe approximately £1.27 trillion.

On top of this, they have a huge burden of unfunded promised payments, most notably state and public sector pensions.

All of these paper promises are predicted to require a large slice from the government purse as more people retire and do so for longer periods of time. If the government actually accounted for these debts to their citizens in the same way that a business is legally bound to do so, then you can add another trillion or so to our debts.

Our debts are at such a high level that I can predict with some conviction that they won’t be fully repaid.

There may be an outright default at some stage in the future, with the resulting economic mess that goes with it, or more likely, the government will commit fraud and devalue our money so that whilst investors will get their money back, it will not be of the same value as the money they lent.

Politicians always favor the latter option as it keeps them in power and seems like the easier road to travel, yet too much inflation, too quickly can result in more economic doom than an honest default, and even moderate inflation over long periods of time (such as what we have had for decades now) can alter people’s mindset and our economy, creating large transfers of wealth from the poor to the rich and the banking elite, without many people understanding what has happened.

These two unpleasant scenarios facing us were summarized rather well by Adam Smith in the book ‘Wealth of Nations’.

“When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has been brought about at all, has always been brought about by a bankruptcy; Sometimes by an avowed one, but always by a real one, though frequently by a pretended payment (i.e. payment in an inflated or depreciated monetary unit).

The honor of a state is surely very poorly provided for, when, in order to cover the disgrace of a real bankruptcy, it has recourse to a juggling trick of this kind, so easily seen through, and at the same time so extremely pernicious.”

Considering the book was published in 1776, you’d be forgiven for wondering why we keep on making the same dumb mistakes.

This can be explained in large part by politicians attempts to promise things in return for gaining power, combined with foolish and shortsighted people’s eagerness to take up the crumbs on offer for the short-term illusion of safety, financial security and ability to live to a higher standard than their productivity warrants.

As Frederic Bastiat so eloquently put it, “Government is that great fiction, through which everybody endeavors to live at the expense of everybody else.”

Make no mistake. If we continue to try to live at other people’s expense we will all ultimately lose.

My e-book ‘Britain’s Debt Disaster’ explores the problems created by government debt, and discusses some options for moving towards prosperity and away from governmental control and impoverishment.

It also discusses housing and consumer debt in our economy, explains how we have gotten into this mess and the consequences of these debts both separately and when combined, which truly makes this Britain’s Debt Disaster.

So how can Small Acorn Money help?

I’m taking a stand. I feel we need to stop the tidal wave of debt that is ruining people’s lives.

Small Acorn Money is promoting a campaign to raise awareness of the problems of debt and to help restrict consumer credit. The focus will be on Credit Cards.

I’ve also created an online course to help you become aware of the dangers of debt and to help those in debt, escape their debt disaster.

As i’m passionate about the problems of debt in our society, i’ll be providing this course at a huge discount to my other premium online courses.

Make sure you sign the petition, register for the course and please share our campaign.

Mark Underdown

Financial Coach, Small Acorn Money

Debt Disaster Campaign

Sign our petition to restrict credit cards and help to highlight the problems caused by debt.

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Escape Your Debt Disaster Course

Premium online course about the problems of debt and to help you escape your personal debt disaster.

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