flow of lending at certain debt - to - income limits in respect of new owner - occupied residential mortgages. this gives the fpc a tool to target overall household indebtedness should it consider that it posed a risk to financial stability. what does the last financial cycle tell us about sustainability? putting all of this together, it seems reasonable to conclude that since the 1980s there have indeed been long lasting forces that pushed down on both the risk - free interest rate and the spread that lenders charge. this lowered the rates charged to borrowers and raised the price of houses. it will also have raised the sustainable level of debt. but it is not at all clear that in future these forces will raise the level of sustainability further. there is much uncertainty and discussion now about further downward shifts in the real interest rate as a result of secular stagnation and lower potential economic growth. but though such effects, if they occur, may continue to push down the risk free interest rate, they will as i have said, also push down income and are therefore unlikely to improve sustainability. judgments about sustainability are difficult. the household debt to income ratio has come down materially since the crisis – back to its 2004 level of 135 %. the debt service ratio shows a similar picture. it is back to 2001 levels. and, crucially, within this, we ’ ve seen a fall in the proportion of heavily - indebted households and the share of households spending a high proportion of their income on debt repayments ( chart 7 ). 11 but the position is sensitive to upward shifts in interest rates without a similar increase in incomes, especially if some of the powerful forces that have pushed rates down since the 1980s begin to unwind. and it is very vulnerable to a resumption of the rise, in credit relative to gdp driven by housing that we have seen for most of the last 40 years and that we saw particularly in the upswing of the last financial cycle. how much do such risks matter? the growth of credit and household debt relative to gdp and income in the uk did not, as some commentators have pointed out, trigger the financial crisis in the uk. the proximate cause was the overseas exposures of uk banks to very risky assets and the extreme fragility debt service ratio is defined here as mortgage interest payments plus mortgage principal repayments as a proportion of total household income. the share of households with very high mortgage debt to income ratios ( above 5 ), for instance,

, for example, thomas ( 1997 ). see fisher ( 2010 ) for a more detailed discussion of these operations. estimating the effects so far so what impact have our asset purchases had to date? that ’ s the two hundred billion pound question. unfortunately, it is hard to provide a definitive answer. to be clear this is no different from our inability to assess precisely the impact of the reduction in bank rate from 5 % to 0. 5 %. or indeed of any macroeconomic policy measure. without knowing what would have happened in the absence of a policy action, it is not possible to identify its incremental impact. but what is different is that this policy instrument is relatively untried and untested. so the demand to provide some insight into its impact is that much greater. this demand is quite understandable, but difficult to satisfy. one possible approach to assessing the impact of our asset purchases is to consider the growth of broad money. a key principle underlying the asset purchase programme is the belief in a causal mechanism running from increased money balances into higher asset prices and nominal spending. this mechanism can be expressed in terms of a process of portfolio rebalancing in which yields of different assets adjust in order for the higher level of money balances to be willingly held. but the same mechanism could be expressed in terms of a monetarist approach, in which asset purchases work through measures of money disequilibrium which in turn spur additional spending. these different frameworks are sometimes presented as conflicting models of the transmission of asset purchases. but i view them as essentially two sides of the same coin. importantly, they share the same fundamental assumption about why monetary policy at the zero bound can stimulate nominal spending : namely, imperfect substitutability between money and other assets. over the past year, despite money - financed asset purchases totalling £200 billion, broad money has increased by just £8 billion. 6 what should we make of this weakness? in part it speaks to the counterfactual. the falls in nominal spending and the desire by banks to reduce leverage means that, absent the monetary injection, broad money would have almost certainly been far weaker. but it is also symptomatic of the scale of the new equity and debt raised by uk banks over this period which, together with retained profits, totals more than £85 billion. given that the non - bank private sector is likely to have been the source for much of this funding, this is