The downward spiral of indebtedness

by
17 November 2017

Debt is on the rise. Are we facing another crisis — one that will have serious social consequences, asks Peter Selby

ARE WE heading towards another debt crisis of the sort that nearly brought the global financial system to a grinding halt in 2008?

Consumer debt now stands at more than £200 billion, and that means an average of more than £3000 of debt from car loans, personal loans, and credit cards for every man, woman, and child in the country.

More serious even than the current total of debt is its rapid rise — ten per cent a year over the past five years — while household incomes have increased at barely two per cent. If that were to continue and be compounded over future years, the annual rise would soon far exceed the ten-per-cent level.

The ratings agencies are warning us about the stark implications for the economy: partly to restrain lending, interest rates are starting to rise, and families already burdened with debt will be faced with higher interest charges; if they cannot afford them, that will give a further twist to the spiral of indebtedness.

Some might consolidate their consumer debt by borrowing against the value of their home; and, if the spiral continued its upward trajectory, that would add a further compound effect to the general rise in indebtedness, and the result might be the dark cloud of repossessions.

 

THAT general increase is serious enough; its distribution is of even greater concern. If the rise was mainly in the borrowings of people with secure incomes, or among those aspiring to a higher standard of living than their income will afford them, there would still be grounds for concern.

But, in reality, debt is, for many, something about which they do not have any real choice. The aspiring student does not any longer “choose” to go into debt: the only choice is whether to enter higher education at all. The person facing a six-week wait for the arrival of Universal Credit payments is not exercising a choice to go into debt: he or she must get an “advance” — another debt — if possible, or face homelessness, a cold winter, or hunger. That part of the consumer-debt increase is simply the rising indebtedness forced upon the poorest.

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Those on the front line of helping people whose debts have become problematic, such as Citizens Advice, seek rightly to do the best that they can to promote responsible and restrained borrowing; and the credit-union movement, like the Churches’ own Mutual Credit Union (cmcu.org.uk), seeks to create a mutual relationship between savers and borrowers, recognising that, at different times, any of us can be in either position.

But, despite those welcome initiatives, there are still too many lessons that are not being learned.

First, it is the nature of debt that it consumes today what will not be available, if at all, until tomorrow, next year, or in the far-distant and unpredictable future. We cannot, therefore, on the one hand, campaign to reduce the drain on the planet’s resources — as indeed we should — while at the same time inviting people to believe that borrowing is the way to sustain prosperity, encouraging a culture of borrowing which means consuming today more than today’s share, eating the future’s daily bread.

Second, the focus is, in far too limited a way, on debt as an economic reality. It is that, and the rising tide of inequality is, to a large extent, about the separation between those who have and those who can have only if they borrow. But, in the process, there is another, even graver inequality that is being promoted: the steady enlargement of inequalities of power.

That is no less real because it cannot be calculated as money can, but its entail can be seen in social disorder, and the twin crises of migration and in our prisons, as the relatively powerful have isolated themselves from the relatively powerless, who are constrained by their poverty and, especially, their debts.

The connections may not be obvious or manifest themselves immediately: but, if the illusion is fostered of growth though debt, the false promises of rising prosperity will, for many, turn out to be the downward spiral of poverty. Their disappointed hopes will turn to anger that is less and less controllable. Even if that does not always issue in crime or violence, it brings with it a rising sense that the country’s democratic and public institutions are incapable of delivering what people thought they were voting for.

 

THOSE who think of themselves as averse to borrowing unwisely, or remember being brought up to believe that you should not spend more than you can afford, are also more likely to hide from themselves the character of the culture into which society has moved, and its cost to those who are daily being invited into a destructive model of improved living standards through debt.

In that model, growth is sustained by borrowing, and the victims of it are led to collude in their own disempowerment. It is no use being in control of your own debts if you are not, at the same time, aware of the illusions being foisted on, and sometimes enforced on, our fellow citizens.

The credit-ratings agencies are right to point out that the model of growth through borrowing ultimately is unsustainable; for many of our friends and neighbours, it already is.

 

Dr Peter Selby, a former Bishop of Worcester, is the author of Grace and Mortgage: The language of faith and the debt of the world (Darton, Longman & Todd).

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