Some experts are calling the new simplified lending rules a huge economic game changer which will deliver benefits for everyone, but I wonder if they could be more spin than win.
It sounds fantastic in theory – a debt led recovery, with relaxed lending restrictions freeing up huge amounts of credit and supercharging our economy back into growth.
In practice, however, the change from “responsible lending” to “responsible borrowing” won’t encourage banks and other finance providers to throw open their vaults, nor do they give us any incentive to race out and apply for more credit.
People don’t borrow more to get out of trouble, they spend less
Unless there is a bright light at the end of the debt tunnel, people faced with financial hardship tend to tighten their purse strings and spend less, not borrow to spend more.
Here’s a graphic example of how this works.