'Let them eat credit': Carney delivers his line on the last decade's boom, but can our cheap borrowing cure for a debt crisis work? asks SIMON LAMBERT

Published: 01:30 EST, 24 September 2015 | Updated: 07:45 EST, 24 September 2015

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‘Let them eat credit.’ The Bank of England governor Mark Carney delivered that pithy verdict on the attitude of the 2000s boom in a speech this week.

Discussing the first of the 'three financial lies' – This time is different – Carney gave a brief history of the immense credit boom that built up against ‘the serene backdrop of the so-called Great Moderation’.

This time of plenty, when inflation and interest rates were low, growth was good and some even suggested victory over boom and bust, cruelly came to an end with the credit crunch in 2007.

Cheap credit: Governor Mark Carney has presided over record low interest rates

Carney told it like this: ‘In the US and UK, this was led by massive increases in household debt, the likes of which were last seen during the Great Depression.’

Yet in this ‘debt super-cycle’ we also had the ‘stagnation of middle-class real wages’ and ‘households had to borrow if they wanted to increase consumption. “Let them eat cake” had become “Let them eat credit”.’

Carney added: ‘Financial innovation made it easier to do so. And the ready supply of foreign capital from the global savings glut made it cheaper.

‘Most importantly – and this is the lie – complacency among individuals and institutions, fed by a long period of macroeconomic stability and rising asset prices, made this remorseless borrowing seem sensible.

‘After the reckoning, the ensuing crisis and feeble recovery would look very much like all others that have followed prolonged credit booms.

‘Policymakers quickly disassociated themselves from the received wisdoms of the Great Moderation and scrambled to re-learn the lessons of the Great Depression. That process continues today as central banks contemplate current parallels with the late 1930s.’

Carney’s speech, which is published on the Bank of England website in full, is worthwhile reading – especially for us economics and interest rates geeks.

He makes some excellent points in it.

The great irony of this salutary tale about cheap credit, of course, is that Carney is one of the world’s most influential central bankers, sat on a chair of record low interest rates.

The governor argues that this prolonged period of low rates has been made safer by the Bank of England’s actions to protect the financial system.

He goes into detail about frameworks being overhauled, the Bank getting new powers on financial stability, higher bank capital requirements and tighter mortgage standards.

It’s almost certainly true that our banks are safer. But is the same thing true for the households taking on all the cheap credit that we are trying to cure a debt crisis with?

We arrived at the financial crisis with huge mortgage and personal debt. The Bank of England and successive governments have done all that they can to keep that debt going.

I have long thought that central banks would keep rates lower for longer - and I wouldn’t fancy being in the shoes of the central bankers making our monetary policy decisions.

Theirs is a very difficult balancing act between keeping the economy afloat and trying to prevent more problems down the line.

Credit makes the world go round, but too much debt sucks the life out of an economy.

With our big mortgages, credit cards, loans and car finance plugging the gap between our earning and our spending, Britain is a nation that persists in living above its means.

How long can that continue and will today’s medicine mean the bust proves even worse next time round?