Thursday 29 September 2016

We don't need a credit splurge - just normal economic activity

Published 14/03/2016 | 02:30

The European Central Bank recognises that for years, families avoided borrowing because household budgets have been so stretched
The European Central Bank recognises that for years, families avoided borrowing because household budgets have been so stretched

Want a loan to renovate the kitchen, or replace the clapped-out washing machine?

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Unless your credit record is shot - and many are in that situation after years of relentless financial assault and battery - then you should get one all right.

The problem is that you will pay through the nose for it, despite living in an era of 0pc central bank lending rates.

Bank customers are being hit with exorbitant lending rates on personal loans and mortgages, while those with savings are getting little or nothing in return for depositing their money.

Banks see borrowers as mugs to be exploited by prohibitively high personal lending and mortgage rates, while paying paltry savings returns.

Bankers seem to do much as they please, with little or no restraint exercised on them by our Central Bank. This means that consumers are on a sort of lending strike. No wonder credit unions are under-lent.

Until borrowing costs reduce in line with European Central Bank rates, consumers will refuse to borrow to fund household consumption.

Families need to borrow to replace the car, get a new fridge, pay for the sky-high insurance premium, or fund college for a son or daughter.

This is the normal economic activity that has to be paid for, but too many of the clobbered middle-income cohort just don't have the readies to hand.

The European Central Bank recognises that for years, families avoided borrowing because household budgets have been so stretched. Consumers are not spending, and so deflation is stalking the eurozone.

That is why it cut its main lending rate to zero, and started charging banks more for depositing money with it.

However, the response from banks in this country has been negligible.

The boarded-up shop fronts in towns and villages the length and breath of this country attest to the need for the stimulus that would come from sensible levels of lending.

We do not need a new credit splurge, just a spur to get citizens spending money on household items that they have deferred replacing during our prolonged recession.

Yes, the banks are still labouring under the yoke of bad loans, arrears and write-downs.

But there is only so much of the cost of this that should be visited at the door of ordinary working people.

Bankers - they never disappoint when it comes to letting us down.

Irish Independent

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