The credit dichotomy
Fraser Nelson 10:40am
If you haven't already, do read our latest cover story. The Telegraph follows it today, and Robert Winnett has a good analysis about the problems piling up on these voters Labour had come to rely on.
Some CoffeeHousers have asked: is it so surprising that the sub-prime crisis is concentrated in poorer areas? Of course not, but the Experian data which George Bridges provides for us shows in clear focus just how unevenly it’s distributed. For a while in the credit bubble, you could hardly turn on satellite television without seeing adverts saying “CCJs? Been refused credit before? No problem”. For the middle class, the credit bubble meant cheap lending rates and, ergo, extra spending money. But their asset-to-loan ratio broadly stayed within manageable levels. It is in the poor areas that they were led into believing in a new era of low cost credit had arrived, and asked to borrow accordingly. It is such households that will have the most problems in remortgaging, and may be forced to sell.
For the constituencies at the bottom end of Experian’s map, the credit crunch will mean downgrading summer holidays, delaying house upgrade projects etc. But for others, it will mean losing their homes. The Experian map throws this dichotomy into sharp relief.
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Ian C
April 4th, 2008 11:11amThere is no credit dichotomy. The oversupply of money that arose in the past 5 years now has to be re-balanced by an increasing in savings (i.e. non-spending as you say above) and that means enforced educed economic activity.(Remember the money supply stats. in the '80's - been completely ignored in recent years while growing at double digit rates). How far this has to go is presntly the big unknown - hence the volatility in fiancial markets. The UK is far worse exposed to overall personal debt levels than the USA. This has to unwind. It can happen either swiftly and viciously or slowly and without dramatic consequences for the majority. The withdrawal of mortgage lenders and the widening of bank lending margins are early signs of how this will be done - the drying up of credit for anyone but the most creditworthy. At the moment no-one knows who they are because in every strata there are many who are over-borrowed and may lose their incomes through redundancy resulting from the reduced activity. There is nothing dichotomous about it. We are in the waiting phase like in 1989 -will it be a soft or hard landing? If America is anything to go by it won't be very soft, but there are obvious differences between the two economies. As The Times discussed last week, will the liquidity crisis become a solvency one? We all have to wait and see...........