The unbalanced economy

I’m pretty certain that Capx website is not for the most radical of writers. And certainly the author I stumbled upon used to write for the ‘Telegraph’. But under the heading: ‘There’s a new sub prime crisis’ and ‘the payday lending market has exploded since 2008’ the article considers Provident’s problems. This is a company that is a ‘doorstep lender’ and in spite of having (according to its website ) loans of £100 available at an APR of  1557% (sic) nonetheless managed to issue a profits warning.

The Provident’s problems may be difficult for its shareholders but it is a tragedy for its customers who feel obliged to borrow at these sort of pernicious rates. Mind you, these days even standard bank accounts come with automatic overdrafts that are pretty penal, especially when interest rates are allegedly 0.25% – Halifax charges 1p for every £7 levied every day you borrow. It doesn’t seem to list the APR, which I rather thought it should, but that is well over 50% and all for money they have magicked out of thin air. No wonder the FT has reported that some of the problem banks of the financial crisis (paywall) are now even larger.

The article continues “Access to credit is one of the things that lets people climb the economic ladder…. But access to too much credit – or to credit on the terms that are generally now on offer – keeps them trapped in debt.”

Of course whilst banks persist in closing their branches there is little chance of anyone having a personal relationship with anyone other than a doorstep lender.

I’m sure everyone at the “Daily Telegraph” thinks efforts to climb the economic ladder are noble and given sufficient effort will be able to escape that trap of debt.

They seem to miss that it is not happening any more.

So troubles at doorstep lenders are just another indication that the economy is not working for a sizeable chunk of the population. Even if pernicious rates of interest keep them trapped in debt, an economy where it hardly pays to work is what gets them into debt in the first place.

The government has stolen the ladder, wages are static or going down and inflation is going up:

So it is now treated as completely normal that the ‘poor’ should have routinely to borrow. And in a pointer to what the haves really think of the have nots, The Adam Smith Institute thinks abolishing Air Passenger duty for the under 30s is the key to get the young at least, back on side.

The Conservatives have failed to understand that people are not borrowing at 1557% out of a wish to climb the economic ladder, or to go on one more reckless holiday – they are borrowing to make ends meet.

The lessons of any prosperous economy is that they shouldn’t need to.

If, in addition, the Provident cannot make their operation work on their sort of returns then that is an indication that the current management of the economy benefits precisely nobody at all except the solitary top 1%, whose nannies now apparently have to be trained in self defence.

I’d like to think it’s because the children are a bit rough.

But I’m pretty sure it’s the rest of us they’re frightened of.