According to a report from PricewaterhouseCoopers (PwC) the typical UK household owes £7,900, which they are repaying at an average rate of £355 per year. At that rate it will be 22 years before these personal loans, overdrafts and credit card debts are repaid.
Although households in the UK have begun the debt repayment process (known as deleveraging) the country as a whole has not. Since 2008 our total debt as a percentage of GDP – which includes all the loans and fixed-income securities of households, corporations, financial institutions, and government – has grown by 20%.
What’s happening is that the debt repayment that is being undertaken by households, corporations and financial institutions, is being more than offset by the new debt being taken on by the government.
When the credit bubble finally burst four years ago, the government stepped in to try to prevent the natural deflation taking place. Now however, we have reached the stage where government spending can no longer replace that of the productive private sector and therefore we are back in recession.
The sad truth is that had we let the deflation run its course, we would now be beginning a new wave of prosperity.