Hey, small spenders
THE home counties, says. Ian Shepherd- son, are turning into Brazil. I think they look more Argentine myself, but Mr Shepherdson works for Midland Montagu, whose experience of Brazil has been dearly bought. The point about Brazil, he says, is that too much of its income was needed to look after its debt, so there wasn't much to spend on anything else, let alone the sort of spending that make an economy grow. He thinks that the British have got themselves into the same position, most of all, of course, in the over-borrowed South-East — which, to the banks now providing for bad debts, does have an air of the pampas. People's assets went up as well as their debts, but assets such as future pension rights brought in no income to pay the extra interest. Now, he argues, they are stuck with a period of low spending and the economy is stuck with the consequences. I argue that people were used to coping with their debt by trading in and out of houses, when houses were a liquid market and a rising market. Now the home counties are peppered with little individual Argentinas — houses whose price today would not cover the mortgage. So long as the lender pretends not to notice, and the borrower keeps paying, both will be all right in the end. (Even Latin American debt has been rising in value.) Inflation has rescued borrowers in the past, but there has been no house-price inflation for a year, and in 1991 the Halifax thinks it will be less than retail price inflation, which will be in low single figures. Not quite like Brazil — but not an economy full of big spenders.
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