A handbag away from our debt ceiling

“Mum?”

“Yes, dear?”

“What do you and Dad keep arguing about late at night?”

“You should be asleep. When Daddy and I have our little chats, it’s past your bedtime.”

“Mum, I’m 15 – a bit old for bedtime. Anyway, I usually ignore your arguments but this one seems important.”

“Well, it is important. We are debating whether to raise the family’s debt ceiling.”

“Debt ceiling?”

“It’s the limit on what we can borrow.”

“Doesn’t the bank manager decide that?”

“Yes, ultimately Mr Foss-Smythe can refuse to lend money to us. But your father and I have a different system. For years and years, we’ve taken a solemn vow never to let our household borrowing exceed £500 without both of us explicitly agreeing to raise the limit.”

“So you were arguing about whether to borrow more than £500?”

“Darling, we’ve already borrowed £500,000. Houses aren’t cheap these days, even in Hackney. The point is that your father and I agreed each time we needed to raise the debt ceiling. But now we can’t agree. Your father wants me to cut back on my spending, or he won’t agree.”

“So, what happens if he doesn’t agree?”

“Then we have to ensure that our household debt doesn’t go over £500,000.”

“Fine. £500,000 is a lot of money. Dad has a point. You buy too many handbags.”

“But darling, the handbags aren’t the point here!”

“Aren’t they?”

“Well, perhaps they are a bit. But even if I did stop buying handbags, we’d still go over the limit. Look – ever since I lost my job I’ve been looking for a new one. I’m sure it’s just a matter of time. But until then our income is depleted.”

“So – stop buying handbags, Mum!”

“It’s not that easy. The percentage of household income spent on handbags has been considerably exaggerated by your weaselly father. Far more important is the mortgage. If we stop the payments, we lose the house.”

“But you’re not actually borrowing more money to pay the mortgage, are you?”

“Actually, we are. We’re taking out loans and using credit cards to pay the mortgage. There are also the payments on the car, your school fees and the money we promised to send every month to Grandma.

“And then there’s stuff like food and electricity – we haven’t promised anybody that we’ll spend that money but life would get pretty difficult if we didn’t. Without my salary, our spending is inevitably higher than our income.”

“Wow. So Dad wants us to do something really drastic?”

“Well – no, not really. He’s just using the debt ceiling as a bargaining chip. We agreed all of this spending and set out the whole budget a few months ago.”

“Was that before you lost your job?”

“No, that was after.”

“Mum, I’m confused. You and Dad knew what your income was going to be and you agreed all the spending. So, basically, you agreed spending that would guarantee that you’d break through the debt ceiling. So you’ve agreed to exceed the debt ceiling.”

“Yes – we agreed to exceed the debt ceiling. But we haven’t agreed to raise it. That’s the problem.”

“But that doesn’t make any sense!”

“It doesn’t matter that it doesn’t make any sense. The point is he has bargaining power now.

“The next mortgage payment is due on August 2; that’s also the same day we send money to Grandma. If he hasn’t specifically approved for us to go overdrawn on our joint account, we have to choose: Grandma doesn’t get paid, or we go hungry, or we skip the mortgage payment.”

“But you have the overdraft limit?”

“Oh yes. In fact we have the overdraft limit agreed with Mr Foss-Smythe. The same bank we have the mortgage with.”

“And he’s happy to lend you the money?”

“Delighted, darling.”

“So he’ll be happy if you borrow money from your current account to pay the mortgage, but not if you just skip the mortgage.”

“Exactly. He will be very unhappy. I’m surprised he’s not more nervous already.”

“Perhaps he should be more nervous that you don’t have a job and that you and Dad are spending far more than you earn, than about some entirely arbitrary debt ceiling that the two of you can agree to waive at any moment?”

“You may be right.”

“Where is Dad, anyway?”

“I think he’s buying himself a treat to relieve the stress.”

Also published at ft.com.