Encouraging more lending 'almost irrelevant' if people don't want bigger debts
Encouraging more lending 'almost irrelevant' if people don't want bigger debts
Wednesday 22nd July 2009
That is the opinion of Michael Baxter, economist at Defaqto, who asserted that there are two main reasons why people do not want to borrow more money at the moment.
Mr Baxter noted that because many people are already in debt, "the last thing they want to do is incur more debt", perhaps indicating that they have already taken heed of sound debt advice.
Moreover, he noted, people from the baby boom generation are coming to realise that they may not have enough money put away for their retirement.
As such, they are more concerned with saving money than accruing debt, he suggested.
"A lot of people are probably getting a bit nervous about that at the moment, so they're trying to save a lot more," he commented.
Mr Baxter went on to say that because people are showing signs of good debt management and are not too keen to borrow more money, there may not be the predicted problems with quantitative easing.
He explained: "Whatever banks do the demand for credit is going to be a lot lower moving forward, which is something that critics of quantitative easing forget.
"They say that if banks keep printing money it's going to lead to a hyperinflation, well not if you don't want to borrow the money it won't."
His comments follow the summer forecast from the Ernst & Young ITEM Club, which predicted a 4.5 per cent contraction of UK GDP this year and recovery of just 0.5 per cent in 2010.
In addition, the report also suggested growth will be constrained by banking's lack of capital, capacity and competition.
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