Cory's Insights – Wed 2 Dec, 2015

Seven years after the crisis, Britain is still addicted to the drug of debt

It is interesting what the Bank of England is doing with its loans. While extending the Funding for Lending Scheme (FLS) which supplies banks with free money (this is nothing new as we are seeing this around the world) the country is now focusing on lending to small and medium sized enterprises. An issues that the US has faced over the past few years as money has been held by the bigger corporation and not been trickling down. If money can get to the small and medium sized companies this could help spur growth.

Another interesting fact is that the article brought up is that banks are far more willing to lend to individuals rather than corporations. With the “cheap money taps due to gradually turned off over the next two years” we will have to see what the fall out is…

Click here to visit the original posting site over at Independent.

It’s seven years after the financial crisis and the banking industry is still in receipt of state support – support that will be available for two more years, and perhaps for longer.

The Treasury and the Bank of England have decided to extend their Funding for Lending Scheme (FLS), which supplies banks with cheap money with the aim of keeping the supply of credit flowing.

What ought, in theory, to be the scheme’s final outing will be very specifically targeted at lending to small and medium-sized enterprises (SMEs). This is a sector which is still struggling to obtain the funding it needs at a time when lending to other sectors has largely recovered.

The Bank says that things are improving, and its figures bear that out. But not quickly, and the growth in small business lending pales by comparison to the growth in consumer lending. The expansion of the latter is starting to cause concern, with the Bank’s chief economist, Andy Haldane, fretting about personal loans. He says they’re picking up at a rate of knots.

Britain has long nursed an addiction to the drug of debt that it’s never really addressed and the growth in unsecured lending is an indication of a return to bad habits. Given that Mr Haldane and his colleagues are engaged in the unenviable task of walking an economic tightrope, it’s no wonder that he’s getting twitchy.

But consumers are not, as yet, shooting up with the sort of wild abandon they exhibited in the run-up to the crisis. And, as Investec’s Philip Shaw points out, it wasn’t so long ago that we were still talking about the need to make more credit available.

SMEs present an entirely different challenge, and perhaps we should be concerned that the Bank still feels that FLS is necessary, even though the cheap money taps are due to be gradually turned off over the next two years.

The proportion of loans to SMEs being refused by banks remains high, and while alternatives to traditional lenders have been growing, fuelled by the internet, their impact has clearly been insufficient.

Despite their protestations to the contrary, banks appear far more willing to lend to individuals than to businesses, to the economy’s detriment. FLS treats the symptom, but the Bank and the Treasury would to well to consider the cause, at least if they don’t want to be in the position of announcing yet another extension in two years’ time.

  1. On December 2, 2015 at 3:48 pm,
    CFS says:

    You have to be careful about the anti-conservative ( anti-government) newspaper. It has screamed in opposition to the Conservatives aiming to balance the budget.

    It is an excellent paper; great for wrapping up fish and chips.

  2. On December 2, 2015 at 4:18 pm,
    Bob UK says:

    House prices never crashed in 2008/09 in the UK. A crazy bubble just carried on expanding and expanding.

    London now has the nickname of Londinstan and long ago teachers, police, fire fighters no longer could afford to buy a house there. Now, even people on the equivalent of 150K to 200K USD cannot afford to buy there. Nuts.

    • On December 3, 2015 at 9:41 am,
      silverbug dave says:

      I was working on individual residential property valuations in the 2011-12 time-frame. There had been something like a 15% correction in property prices in a lot of areas in the UK from 2008-2009 and some of this had already recovered, though new highs took a while in coming. Of course, London was probably already at new highs by then and never really looked back (yet).
      The graph for UK property in 2011 in most places looked a bit like the oil chart, a decent comeback but no new highs. Unlike oil, it has now gone to new highs just about everywhere I think. The property websites that show a trend graph for most areas look like they have been trending up almost parabolic since 2012.
      I also recall in the 2011/12 time-frame that the more economically depressed areas of the country had property prices still in the dumpster. I have just taken a look at some of those that I remember and they are all up just about every year since 2012, some as much as 10% in the last year.
      The UK is absolutely in the credit bubble.

  3. On December 2, 2015 at 4:41 pm,
    CFS says:

    BobUK, you must live in the south!
    While house prices in London, considered a safe haven for money from Russia, China, Middle East, etc, have consistently risen, houses prices have, indeed, dropped in the north of England. You can now pick up a 3 bed house in certain areas for 50K GBP, but who wants to live in the suberbs of Newcastle and the like?

    • On December 3, 2015 at 9:42 am,
      silverbug dave says:

      I love Newcastle.

  4. On December 2, 2015 at 4:50 pm,
    CFS says:

    Gives current average house price in NE England at 110 K GBP, but I have seen properties advertised at less than half that, which in in lousy areas, but in liveable good condition

  5. On December 2, 2015 at 6:07 pm,
    CFS says:
  6. On December 2, 2015 at 11:29 pm,
    CFS says:

    The U.S. has a problem:

    Look at the shootings in November alone!

    Recorded in 2015 over 355 incidents to date.

    • On December 3, 2015 at 7:02 am,
      Frank from moscow CCF says:

      fore warned…….and fore armed……………comes to mind………..

  7. On December 3, 2015 at 5:43 am,
    Dragonite says:

    I am still not sure I understand ECB – 0.3% rate. Is it depositor has to pay to save in the bank or bond holders have to pay instead of making money? If it is former, how about people all cash out? If latter, why buy bond? How about borrowers? Can I borrow money and actually make money? It all sounds like from another universe.

  8. On December 3, 2015 at 5:48 am,
    Dragonite says:

    I never believed FED would raise rate this month. However with ECB decision, is the chance of raising rate even less in December? Plus junk bond is starting to show stress. Is rate hike going to trigger bond collapse even it is small?

  9. On December 3, 2015 at 7:09 am,
    Frank from moscow CCF says:

    Platinum……looking good………….

  10. On December 3, 2015 at 7:14 am,
    Frank from moscow CCF says:

    ECB lowers rate……….Yellen is not going to raise rates…….fork in the eye.

    • On December 3, 2015 at 7:51 am,
      Frank from moscow CCF says:

      “Excessive risking taking”….Yellen, said. For a reason to normalize rates. Where has she been for 8 yrs…………lol

      • On December 3, 2015 at 7:52 am,
        Frank from moscow CCF says:

        risking…to risk……..

      • On December 3, 2015 at 7:54 am,
        Dragonite says:

        Sounds like Greenspan,

    • On December 3, 2015 at 8:11 am,
      CFS says:

      That is not what the futures market is indicating!

      Personally, I don’t know and don’t really care.
      Financial repression is crooked.
      The Fed, and the banking system is corrupt.
      And politicians are worse.
      I tried to drop out of the system two years ago, but will try again in the future.
      (Just waiting for now…….in limbo.)

  11. On December 3, 2015 at 8:29 am,
    Excelsior says:

    This was an interesting piece Cory. I like that you are targeting information and news from different economies around the globe. It’s a big world out there, and each little thing effects everything…..