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July 28, 2008
"The Day After Tomorrow" - only it's debt, not ice
One sound we may hear broadcast across the Norwegian fjells (see above) is "help!" - from UK callers at least. In that country, one in eight homeowners who took out a home loan since the start of last year is already in negative equity; according to industry figures, more than 10 per cent of all mortgage-holders could soon find themselves with homes worth less than the debt outstanding on them. That ten percent is surely an underestimate: Industry pronouncements admit to a five per cent decline in prices, but people I spoke to in London last week say that prices have fallen 30 per cent or more in their area - and London is supposed to be the least problematic market in the country.
In theory, asset deflation is a paper loss - but the loss becomes horribly real if you lose your job and can no longer make the payments. This is where the UK story starts to look really scary. Large scale job losses have not yet started in earnest - commentators still talk about the "threat" of a recesssion, and employers still talk about layoffs as a future option - so it seems that the big job losses are still to come.
As an exercise (which no UK newspaper that I have seen has done) put that prospect next to the last week's reports that more than a third UK adults would be unable to support themselves for a fortnight if they were made redundant, or found themselves unable to work. The average UK citizen, maxed up to the hilt on 100 per cent (or more) mortgages and multiple credit card debts, has enough in savings to support themselves for 52 days without an income. And that's the average citizen: 36 per cent would run out of cash in just 11 days.
Eleven days. More than a third of the population. It sounds like the economic equivalent of the instant ice age in the film The Day After Tomorrow.
The UK economic scenario is not remotely funny, but it does prompt the question: How did we get to this point? For a unique combination of downwards plunging graphs and hard-hitting cartoons to explain them, check out Global House Price Crash. Otherwise see the presentation by Margrit Kennedy that first alerted Doors of Perception to the issue; (this was at our conference in India in April 2005).
Posted by John Thackara at July 28, 2008 04:09 PM
