Wednesday, September 02, 2009

The people not doing what Gordon wants.

Our Governments are never as influential as they would have us believe. Sometimes 'decisions' are no more than calculations of what's highly likely to happen anyway. Sometimes they are no more than simply following orders - passing on the decisions of the European Union. And sometimes decisions by Government are undone because the people refuse to do what they are 'supposed' to do. That's what seems to be happening with spending in the UK. I don't mean Government spending, which has rocketed into the unknown, but that of all the individual citizens. For the first time since records began in 1993, households paid back more than they borrowed in July - to the tune of £635 million. Unlike our Prime Minister, the people have decided that spending huge amounts of money that they do not have is not a sensible idea.

Much of this reduction in debt is the result of reduced mortgage lending, driven in part by reduced risk taking by lenders, and in part by a desire of borrowers to pay back some of their debts. All this will be unwelcome news to the Prime Minister because the impact of the people's prudence will be to reduce demand, undermining the strategy that has underpinned the Government's approach to limiting the impact of the recession. The downside of this reduction in debt is that it may feed through into a slower recovery and greater unemployment. But people respond to how they feel - and this is not always in accordance with Government expectations. Its how I feel myself.

1 comment:

ROMAN JONES Esq. said...

Economists can never make up their minds. It was the huge level of personal debt that has in part caused Britain's poor economic condition of recent years. All the commentators said we must reduce the mountain of personal debt or otherwise the thuderbolts of Zeus will rain down upon us - and now that we have ACTUALLY started to pay off our debt, they all start bemoaning that it won't stimulate the economy. For heaven's sake! Our economy has to readjust to a more sustainable level, then be re-grown through actual increases in productivity through exports, not borrowed money for domestic spending. When will they EVER learn?