Debt - The waiting timebomb.

From the Daily Mail

Shares were in freefall across the world yesterday, wiping hundreds of billions of dollars off pension funds and investor portfolios.

In London, the FTSE 100 index suffered its biggest losses since the year 2000, shedding £63billion as it finished 232.9 points lower at 6038.3.

It was the second day of a wave of panic-selling provoked by fears that banks are sitting on huge losses incurred from the U.S. property market.

It is feared there will be damaging knock-on effects for the broader economy and the UK housing market, as the global supply of cheap credit dries up.

Experts warn that the market turmoil could snowball into a worldwide economic downturn, bringing down the curtain on the strongest period of global growth since the beginning of the 1970s.

That could force the Bank of England to delay any decision to raise interest rates again, despite having indicated on Wednesday that a increase to six per cent was likely.

The situation was serious enough to merit intervention by Gordon Brown. The Prime Minister insisted yesterday that the UK economy remains sound.

**Gordon Brown a man who's only idea on economics is to raise taxes(100+ and counting), a modern day Irving Fisher. Mr Fisher was the chap who famously predicted, a few days before the 1929 crash "Stock prices have reached what looks like a permanently high plateau."

Then claimed that when the crash happened that "the market was only shaking out of the lunatic fringe" and went on to explain why he felt the prices still have not caught up with their real value and should go much higher. On Wednesday the 23rd, he announced in a banker’s meeting “security values in most instances were not inflated.” For months after the Crash, he continued to assure investors that a recovery was just around the corner.

The European Central Bank also waded into the markets by providing billions in emergency credit to big financial institutions for the second day running.

The U.S. Federal Reserve and Australia's state bank have also pumped large sums into the system to give the industry room for manoeuvre, but the Bank of England has so far chosen not to follow their lead, prompting criticism from some experts.

The markets stampede has been provoked by a meltdown in American "sub-prime" mortgages - loans to borrowers with bad credit records.

Billions of dollars of these riskier loans have been repackaged and sold on to investors and pension funds around the world.

But a rash of defaults by hard-pressed American families have left funds sitting on losses that could add up to £50billion, leading some analysts to liken the situation to the Great Depression of the 1930s.

Economist Neville Hill of financial services company Credit Suisse said: "Everyone is very worried in the markets - it looks like a loss of confidence.

"The U.S. markets have been the centre of the storm, but the contagion in money markets has spread to London.

"If this carries on, it could deter the Bank of England from raising rates again - at least for the time being until things settle down."

Howard Archer, of economic analysts Global Insight, said: "This increases the risk that the UK housing market could see a sharp slowdown.

"Smaller bonuses in the City could also have some dampening impact on consumer spending and the housing market in London in particular."

**Ok, some of the worlds economies have pumped in extra money. All well and good in the short term, but it still doesn't resolve the mayor problem that credit has been and still is being hawked to all who want it.

Naturally when you have a situation like that, lots of people who can not afford credit or who (if circumstances change) could not afford to pay back the amounts borrowed will pose a risk. With what is happening in the sub prime markets in the US, spreads out things could get a lot worse before they get better.

On Friday the U.K. FTSE 100 index fell 3.7%, or 232.9 points, to end at 6,038.30. Its worst day in 2007. The declines in London followed a 387-point loss for the Dow industrials on Thursday, its second worst close so far this year, as reports of liquidating hedge funds triggered more credit-related anxiety.

Oh and we have the factor of China:

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

**Still Gordon says we shall all be fine, so thats all fine folks! Some figures below from the Credit Action website on Gordon's safe economy:

Tags:Gordon Brown
Debt
Stock markets

Total UK personal debt at the end of June 2007 stood at £1,345bn. The growth rate increased to 10.2% for the previous 12 months which equates to an increase of £107bn.

Total secured lending on homes at the end of June 2007 stood at £1,131bn. This has increased 11.2% in the last 12 months.

Total consumer credit lending to individuals in June 2007 was £214bn. This has increased 5.2% in the last 12 months.

Total lending in June 2007 grew by £10.4bn. Secured lending grew by £9.6bn in the month. Consumer credit lending grew by £0.9bn.

Average household debt in the UK is £8,841 (excluding mortgages) and £55,567 including mortgages.

Average owed by every UK adult is £28,600 (including mortgages). This grew by £220 last month.

Average outstanding mortgage for the 11.7m households who currently have mortgages is £96,648

Average interest paid by each household on their total debt is approximately £3,660 each year (this equates to 9% of take home pay).

Average consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to £4,550 per average UK adult at the end of June 2007. This figure increases to £10,200 if the average is based on the number adults who actually own some form of unsecured loan (21m according to the Bank of England).

Britain's personal debt is increasing by £1 million every 4 minutes.

Link: http://www.creditaction.org.uk/debtstats.htm

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