The only way out of a debt crisis is to deal with your debts. That’s why households are paying down their credit card and store card bills.

Is what he actually said.

You can spin that description into an exhortation, if you want to. But since he took the trouble to change the original wording to make sure it wasn’t taken as an exhortation, that would seem a bit perverse.

“since he took the trouble to change the original wording”

Following a morning of critical media commentary.

Oh whats the point? Cameron could get caught eating fried kittens and the tory commentators on here would defend him.

What’s this debt crisis? I thought that was a Eurozone issue. I thought our problem was a structural deficit. Now I’m confused.

Cameron could get caught eating fried kittens and the tory commentators on here would defend him.

Nice with hand cut chips and a chilli dip, I believe.

The problem of course is that real wages are falling and household income is going through its largest squeeze since the 1920s. It is a simple fact that if incomes are falling then the only way household spending can grow is by increased borrowing.

But the problem is real wages are falling and household incomes are being squeezed. Thus household spending will not increase. People will hold on to their cash. Pay down their debt. Which is sensible.

Even if households were to repay just half of this that would a £33bn fall in demand in the UK economy, easily enough to push the UK back into recession.

Well it is a little more complex than that because it would also be £33 billion the banks could lend to small business. It would be a massive downward pressure on interest rates making investment and borrowing more attractive for existing viable businesses. That is the solution in the long run.

Nobody wants to see households get into too much debt, or a resumption of reckless pre-crisis lending.

Then it seems your objection is too late – reckless lending means that too many people have too much debt as it is. There is simply no room for them to rack up even more debt.

But calling for households to focus on paying down debt whilst their incomes are being squeezed and the economy suffers from a lack of demand just isn’t serious policy making, it’s a soundbite and a dangerous one at that.

This seems a foolish two-way bet to me. You don’t want people to borrow more, you don’t want them to borrow less. Or at least you condemn Cameron for merely suggesting they might. Which is it?

Never mind Cameron’s strictures on paying down credit cards, if I heard correctly on the BBC news, Cameron is also calling for all countries to cut spending.

Since spending generates incomes somewhere, what does he suppose the consequences will be of spending cuts everywhere on an international scale?

World deflation?

Labours way out, please get a credit card and spend spend spend, but in fact part of the problem has been the spend spend must have now society.

About time people grew up and realize saving for something is cheaper.

I’m off to buy a new computer

“About time people grew up and realize saving for something is cheaper.”

That may be so but since spending generates the incomes of others, if everyone cuts back on spending it follows that the incomes of others will correspondingly fall.

interesting to read this alongside Chris Dillow’s latest:

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2011/10/doubts-about-wage-led-growth.html

@ 8 Bob B

“That may be so but since spending generates the incomes of others, if everyone cuts back on spending it follows that the incomes of others will correspondingly fall.”

Yeah – I think the whole problem with this is that borrowing is often bad for individual households but is good for the economy as a whole. After the wake-up call of the credit crunch, it would be hard to convince people that they ought to borrow more even if that seemed like the right thing to do. Encouraging business borrowing might be one solution. Creating government-run loans that are designed to avoid pushing people into harmful debt might be another.

@10 Chaise: “Yeah – I think the whole problem with this is that borrowing is often bad for individual households but is good for the economy as a whole”

When Britain’s consumer debt mountain – which was mostly mortgage loans – reached £1.4 trillion by autumn 2008 there were certainly valid grounds for concern.

But what many still don’t appreciate is that while the actions of one person or several people with the best of intentions may have acceptable or even beneficial social consequences, if many do the same thing more or less simultaneously, the systemic consequences can be exceptionally adverse.

A classic example is that my deciding to withdraw all the cash out of my bank account to keep it in my mattress instead – or pay it into a foreign bank account abroad – will have little impact on Britain’s banking system but if many do that at about the same time then solvent banks are very liable to collapse because of a liquidity crisis – which is roughly what happened as the result of the run on Northern Rock in the autumn of 2007.

If everyone cuts back on their spending more or less at the same time, the incomes of those whose incomes are generated by that spending will be reduced – and that will very likely induce them to further cut their own spending.

Notice that the central banks which have adopted inflation targetting as their primary policy guideline aim to maintain a low but steady rate of inflation in order to avoid the hazards of deflation with a trend of falling prices. This is because deflation on trend usually leads to economic stagnation as consumers and businesses persistently postpone expenditures in the confident expectation that prices will be lower next year so that what they want to buy can be bought more cheaply. As Japan discovered during the 1990s and since, deflationary trends can be extremely difficult to halt.

@9 – Not really. There’s always been a strong correlation between wages and spending, outside recessions. We’re headed into a depression, the government is being strongly negative and talking about cuts…and he wants us to take that as normal? Pfft.

Things like the switch to bargain brands in supermarkets and the overall falls in food spending show that people are cutting back on the basics…

After calling for households to pay off their credit card debt, no doubt those who fail to do so, due to circumstances beyond their control or whatever, can now be held responsible for that expected rise in household borrowing and any attendant social consequences. Groundwork safely laid!

The financial problems of the nation have nothing to do with the “debt problem” as framed by Cameron the issue has nothing to do with credit card or any other form of personal debt whatsoever.

The financial straits the nation faces are due to unchecked greed, fraud and corruption in the global financial and political sectors and the fraudulent creation of “money as debt” for the sole benefit of the private banking sector. This coupled with the fractional reserve banking system is the problem.

The system is a Ponzi scheme and mathematically bound to collapse. This is now happening as a matter of course. The net result is that savers are being punished by earning no interest and erosion of the value of currency (buying power) and that speculators are being gifted money at 0% to speculate on commodities the markets are being manipulated for their profit and gain at your expense, the cost of everything including food is climbing and will continue to do so until you starve.

It is entirely disingenuous of Cameron or anyone else to say otherwise but worse than that Bullingdon Cameron is attempting to shift the blame on the witless fools who fell for the corporate advertising campaigns and borrowed money from the corrupt financial wolves.

Watch “money as debt” and “the money masters” over and over until you understand.

The bankers create money from thin air and due to the fractional reserve system can lend out many times more than they have on deposit.
Just to take the pi$$ one more time they even charge you a fee to “consider the loan”. As soon as you sign on the dotted line the bank is able to create from thin air the ability to loan out up to 10 time the amount you borrowed to someone else.
e.g if you borrow £100 and sign a loan document ( an iou ) the bank gives you the cash but retains the iou which is counted as an asset worth £100. They can then depending on the fractional reserve ratio arrangements with their friends in govt lend out another £900 supposing a ratio of 10:1. Oh and they will charge you interest too and inflated charges if you miss a payment.

This is called usury or DEBT SLAVERY it was unlawful and punishable by death for long periods in our history for good reason. Many religions also banish usury Christianity and Islam for instance.

The wider effects on any society which allows itself to be enslaved by such a system are always the same war, corruption, secrecy, financial exploitation and a collapse resulting in a transfer of assets and power into the hands of the corrupt pirates running the ponzi banking system. Who will continue to Lord it up while the masses suffer.

Do you recognise the signs ?

The solution is a creating and issuance of debt free currency “honest money”.

Cameron his mates and the rest of our so called representatives no matter what party hat they wear will fight tooth and nail not to let this happen and maintain the systemic exploitation no matter what effect it has on you serfs. In maintaining such a system the government hands the soveriegnty of our nation to the lenders the private banks. The bankers call the shots!

This is what the Times had to say about the USA before the central bankers hijacked the USA banking system circa 1913 with the Federal Reserve a private bank run for private gain. How is the USA economy doing lately ?

The Rothschild-controlled Times of London wrote, “If that mischievous policy, which had its origins in the North American Republic, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off its debts and be without debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed, or it will destroy every monarchy on the globe.” [11]

If this problem is tackled it will fix almost everything else. Freedom or Slavery its time to choose.

“But what makes this call doubly odd is that the Office of Budget Responsibility’s forecasts are premised on a large rise in personal debt.”

What is more odd is that their model expected such a rise at times of higher unemployment and flat-lining or reducing wages.

@15 – It’s not odd at all. What else did you expect from the Office of Budgetary Fiddling?

@16 I understand what you’re saying, but these projections are meant to be based on mathematical modelling, which just shows how ineffective and useless they are.

Was there not a report a few years ago that showed that the models used by the government and most major financial institutions were no better than chance when forecasting the following years statistics? Or is that a myth?

What does that say about the state of mainstream economics?

@17 – It’s a case of GIGO. There are deacent models out there, but when effectively they’re taking results and finding a model…

I suspect Cameron and advisers are wedded to Say’s law, which Keynes so effectively debunked in his seminal book: The General Theory
http://en.wikipedia.org/wiki/Say's_law

This would explain Cameron’s flatulent rhetoric about more enterprise and fighting back.

By Say’s Law, supply creates its own demand and those who receive incomes, don’t hoard – or pay down their credit cards. Any saving from income is invested through the capital market. But with a services based economy – and two-thirds of Britain’s GDP comes from services – output depends on sales. Output doesn’t happen unless there is a sale. Because of the cuts in public spending, aggregate demand will fall unless there are compensating increases in consumer spending, net exports and business investment – and that isn’t happening, which is why the economy is flagging.

It looks as though Cameron opted out of the economics part of his PPE degree from Oxford.