Thursday 26 April 2018

David McWilliams: Without debt forgiveness our economy can't grow

FOR some reason, the issue of debt forgiveness, which has been discussed for years, seems to be back on the table as if it is something new. It is not new. Debt forgiveness, debt write-offs, debt restructuring -- whatever term you want to use -- always happens after a credit-driven growth mirage. The reason is simple. In the boom, too much credit was given to people who had no prospect of paying the stuff back and now they can't pay it back. So, as the saying goes, "can't pay, won't pay".

In order to think about this, let us consider a person who still has a job, but who is in the generation that were unlucky enough to come into the housing market in the boom. We are talking broadly about people who were born in the mid-1970s to mid-1980s -- 600,000 people.

If you are one of them and borrowed lots of money to buy a house in the years up to 2008, how are you going to pay it all back on the same terms? Now the house is worth possibly 50pc less than you paid and as there is no market, because the very banks that lent you the money are bust and have no new money to lend to anyone, so this 50pc drop might be simply notional and the actual drop may be higher.

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