The Credit Cruncher

Where is the recovery?

noreply@blogger.com (jay) — Tue, 06 Oct 2009 12:21:00 +0000

The recovery is in the financial markets, in the banks and maybe even in the property market, but where it is NOT, is the more telling news.
The recovery HAS NOT and WILL NOT hit unemployment figures, GDP and the general population for a while yet - maybe in 12 months time we can talk about the economy being on the mend for those other than in the privileged banking sector.
There is merit in 'talking up' the economy to help build up confidence, but we mustn't behave like the problem is over, as for many families, the problems are very real or may even be yet to come.
The UK and the US are bracing themselves for record unemployment figures which can only lead to misery, poverty and financial ruin for many. This crisis is being freely described as the worst since the Great Depression, but the situation we find ourselves in is very different from the 1930's. For a start, the abject poverty of those days was characterised by ill-health, death and homelessness. The lack of material goods suffered included clothing and the basic needs that today we take for granted. Without a complete collapse of the Western economy, we will always be in a position to prevent a repeat of the poverty of the Great Depression simply because even our poverty is wealth compared to the genuinely under-privileged.
We in the West are outrageously wealthy in world-terms and we would do well to remember that when we complain about how badly things are going for us. Similarly, we would do well to remember that when we have a chance to voice our opinion on the way bankers are paid, and the general growth of greed throughout our society. So no, the crisis is not over, but even the poorest of us is still better off than the majority of the world's population. There is a slim chance that the financial crisis has enabled some people to re-evaluate their priorities and put money into perspective - if not brace yourselves for another crash in a few years time.

New Banking rules to be phased in...

noreply@blogger.com (jay) — Mon, 05 Oct 2009 13:00:00 +0000

The FSA (financial services authority) is to give banks time to phase in alignment with the new rules on liquidity. The upshot of the new rules is that banks will be required to hold a better equity-to-risk ratio, however time is being given so that banks are not prevented from lending to aid the long-awaited economic recovery. After the concerns following the Icelandic banks collapse, the new rules will apply to foreign banks that have branches in Britain.
In tandem with the new rulings, the Bank of England will be expanding deposit facilities to smaller banks, thus preventing the need for smaller banks to keep deposits with larger commercial banks who themselves may suffer at the hands of a future financial breakdown. The smaller banks have been dependent on commercial banks for liquidity, in future they will be able to access funds directly from the BoE.

Competing for Business

noreply@blogger.com (jay) — Sat, 03 Oct 2009 12:00:00 +0000

There is no doubt that the current economic climate has not been kind to companies that cannot react quickly to changes in the market place. Competitive companies that have been able to adapt their operations will be the survivors, able to take a larger market share due to the demise of the competition.

One of the ways in which the surviving companies will win through, is that they will create the right impression throughout their business. The marketing budget may come under close examination, but it is worth noting that creating the impression of a clued-up dynamic company is not expensive and should not be an area of spending that is compromised.
Joined-up thinking in the area of a logo that appears across all your stationery and your website, your business cards etc.., consistent themes and colours, text, icons, graphics and fonts all combine to give the impression of a well-thought-out individual image which supports the idea that your products and services are solid and worthwhile.

If your company is heading towards an identity crisis, don't immediately head for the free business cards ads, get some professional help in sorting out a suitable image for your company that tells your clients something they want to hear. It is not prohibitively expensive to have some professional outside input from a reputable company, and it could well separate your company from the competition.

All talk and no action?

noreply@blogger.com (jay) — Sat, 26 Sep 2009 22:36:00 +0000

The G20 Pittsburgh summit winds up and it is a struggle to work out exactly what the point of such a meeting is... Over the last few years, the G7 grew through G8 and ended up as the G20. The truth is we are now looking at something like the 'G20 and friends', nobody is counting any more. The talking shop is now even bigger on talking, and naturally, with so many more points of view, decisions are harder to come by.
Imagine an ever-growing jury which must deliver a unanimous verdict. You may get a verdict from twelve good men, but twenty, twenty three?, twenty four??
So what has been achieved in Pittsburgh? Plenty of talk about reining-in the banking community, plenty of resoultions to 'do something about it', nothing in terms of concrete limitations forthcoming.
In the meantime, jobless figures continue to rise, bankers seem set on fleecing the markets again and the environment, arguably a far more important issue, remains the time-bomb that no-one wants to de-fuse.

Steady as she goes

noreply@blogger.com (jay) — Thu, 10 Sep 2009 14:27:00 +0000

The Bank of England has held base interest rates at 0.5%, the lowest rate it has ever had for the sixth consecutive month. There are also no further plans to develop the quantitative easing program despite Mervyn King's desire to pump more money into the economy.
Despite hope of a recovering economy, it would certainly be too soon to take any steps in the assumption that the market is robust. My feeling is that the financial houses see the wider economy and the stock market as being the same thing... As long as markets are buoyant they are happy regardless of the effects on the population. The truth remains that a lot of people have lost a lot of money, a lot of people have lost their jobs and this is not a pendulum swing that can swing the other way overnight. It takes a lot longer to establish a business than it does to close one down!

Personal money troubles

noreply@blogger.com (jay) — Wed, 09 Sep 2009 13:12:00 +0000

There are two main aims of this blog, one is to report on the global economic crisis, the other is to talk about personal debts with emphasis on using 0% credit cards to pay off debt.
I recently got very close to completely wiping out my own debt using 0% interest deals but have had a bit of a hiccup when I was within sight of my goal. I reverted to using my credit card safe in the knowledge that I would (soon) be able to clear my debts, but unfortunately have been adding to the balance at a greater rate than I am paying it off. I am resolved to be more disciplined before the onset of the expenses that will precede Christmas...
In the meantime I have been grappling with my household fuel provider (dual gas and electric) and began to think about how creeping household bills have helped to build up debt without many people even realising what is happening to their bank balance.
The scenario goes like this:
House fuel bills have been growing at an alarming rate and as most people pay these bills by Direct Debit, they have not really realised how much is leaching out of their bank accounts (recently my provider tried to increase my payments by 60%). The upshot of this is that a lot of people just accept their increased payments (or more likley don't even notice until it's too late). My own approach is to have all my outgoings in a spreadsheet which makes them easier to manage.
My questions to the householder who has just received a huge increase in their Direct Debit would go as follows:

Have you had a corresponding rise in income? (I expect the answer to be NO)
Have you adjusted your outgoings to allow for this extra expenditure? (In reality I would also expect this answer to be NO)

If the two questions above are answered in the negative, there could be a problem when it comes to reconciling income with expenditure, and the pressure valve in most cases is the good old credit card. I would realistically expect credit card spending to take the strain of the increase in household bills and this applies to food, insurance or any other expense that can creep up on you unexpectedly.
There are only two answers to the problem:

Increase your income
Cut your spending to allow for the increase

Otherwise you are heading towards debt that could take an awful long time to pay off.

Related posts:
the decline of my debt
where did it all go wrong?
how to get out of debt
Are we in too much debt?
credit card warnings

G20 prepares for recovery

noreply@blogger.com (jay) — Mon, 07 Sep 2009 12:00:00 +0000

The G20 leaders are acknowledging the changing state of the global economy, but are being urged to pursue a co-ordinated approach to the winding-down of the economic packages.
Ministers are being urged to continue with the stimulus packages that they are already committed to (a global total of US$5 trillion), but one of the sticking points has been the mechanism for accurately measuring the end to the crisis. It is proving difficult to get agreement on what parameters will be used to track the levelling out of the crisis.
Many promises have been made about requiring banks to behave more responsibly over pay, but the main emphasis now is focussed on how to prevent another crisis as opposed to previous meetings where the emphasis has been fire-fighting the crisis itself. Banks will be required to set aside more capital as a buffer against future hardships and they may face limits on speculative acquisitions defined by the value of their reserves.

Less than was absolutely desirable was agreed with regard to a G20 response to Global Warming because of deep divisions between developed and undeveloped nations. IMHO it is the developed nations that have to bite the bullet on this one seeing as they have created the best part of the problem in the first place.

Related posts:
Recovery or false dawn
IMF recognises recovery
Is the credit crunch over?

Recovery or false dawn?

noreply@blogger.com (jay) — Sat, 22 Aug 2009 12:15:00 +0000

I admit that my outlook on the current crisis is fairly dark and negative, but I think it's worth countering the spin that is being raised to paint a rosy outlook for supposed economic recovery.
These are the elements that are being cited as signs of recovery:

Rising house prices (remember THIS is what got us into the mess to start with!)
Recovering bank profits (sound familiar - see above...)
Steady growth in GDP (hopefully this will be evidenced soon, but this is not the ONLY thing the economy needs - see below)

The real indication of a healthy economy would be:

Stable and progressive public spending (UK borrowing will approach and unbelievable 80% of GDP this year)
Steady rising of employment figures (We are approaching critical levels of unemployment)

It is only when the economy has stabilised (don't forget the Government has yet to reveal how it is going to pay for all the craziness thorough possibly crippling taxation), and employment levels are manageable that we can be satisfied that our economy will not go into free-fall. The danger is that this short-memory economy will rely on rising house prices to prop up spending again, it does not even bear thinking about the consequences of a similar crash before the effects of this one have been ironed out.
Can we be so stupid as to allow this to happen again? My answer is that yes, we are possibly on the verge of doing exactly that.
What have the banks learned from dragging the economy close to oblivion? They have learned that they can personally profit from such a crash and will do so again...
This is the sad state of human nature, now the profiteers have seen and tasted the good times, they will want to go there again and again to personally satisfy themselves regardless of the growing unemployment queues. Our only hope is that the Government have legislation lined up to prevent the financial community from profiting from their greedy nature - Sorry, still dark and foreboding for me - I really hope my skepticism is unfounded, but I think we have seen what can happen and I think we may be powerless to stop it happening again - Welcome to the combination of the powerful Free Market and the equally powerful sense of Human Greed.

Related posts:
G20 prepares for recovery
IMF recognises recovery
Is the credit crunch over?

Making your money work for you

noreply@blogger.com (jay) — Fri, 21 Aug 2009 12:34:00 +0000

If you have not done so recently, there is no time like the present to review your financial position - even if you have done this in the last 12 months or so, there is every reason to take another cold, hard look at your outgoings and take advantage of some of the recession-inspired saving that can be made...
Firstly, take a look at those Direct Debits to see where savings can be made, the obvious ones are to shop around for lower cost insurance, and get rid of any outgoings that are less than essential. Consider the cost of your car insurance to see if you can get a better price - make sure you check if there are reductions for keeping the car off road or in a garage overnight. Check those insurances that offer reductions for households that have more than one car.
Consider also the life insurance and critical illness policies etc. that you might have and check to see that you are getting the best value for money - remember the financial market is squeezed and there are savings to be made now.
Talk with your partner about whether now would be a good time to overpay your mortgage with mortgage rates being so low (this is something that I have been doing this year) this could mean that you pay your mortgage off a lot earlier than expected. Consider the all the options for every Direct Debit that you have and set yourself the target of slicing at least 10% off your overall outgoings, you will be surprised at how easy that is...

Let's put the record straight on the NHS

noreply@blogger.com (jay) — Fri, 21 Aug 2009 09:57:00 +0000

I know that this is more of a political issue than an economic one, but it is hard NOT to say anything about the current attack on the NHS by US politicians funded by private insurance companies.
Let's face it, the NHS was a Utopian idea which has not quite reached the pinnacle that some may percieve it was aimed for, but nevertheless is an absolutely fantastic institution to which many, many people owe their health and their lives.
Sure, there are queues for non-emergeny procedures, but then the option to go private is there for those who want it. On the other hand, when you are rushed into hospital from the site of an accident or as a result of illness, at what point in a British hospital are you asked for your insurance details? Answer: NEVER! There is never any question about who is going to pick up the tab for your visit to the doctors surgery or to outpatients or A&E it's all free - and how on earth can you knock that??
How on earth does a privately funded commercial enterprise even come close to the NHS? the same NHS that takes in private patients when the private hospitals mess up and suddenly have to rush their customers to the nearest A&E... Yes, for those who have not considered this before - what do you think happens when things go seriously wrong in the private operating theatre? The answer is that they rush their clients into the nearest NHS hospital and let them pick up the peices. How can they do this? Well the NHS is free for every UK citizen (even those with a private health plan) and the surgeons are of course trained in NHS facilites and NHS procedures and have contacts (if not actually a position) themselves in the local NHS facilities. It is easy for them to get their private patients admitted to an NHS facility when things go wrong.
There are even NHS surgeons who have been known to get their NHS staff to assist in private procedures and then get their 'overtime' approved as if they had done the work in an NHS facility - they basically use their NHS-acquired knowledge and skills, not to mention materials and staff for personal gain. This could be the next great scandal to follow on from MPs expenses if there were any media-interest...
However I digress, my point is that criticsism of the NHS from a country that only has privately funded healthcare is completely ludicrous and is inspired by fear from the private insurance companies. The possibility of free healthcare has shaken the very roots of the insurance companies that pass themselves of as healthcare professionals - this is very big business and business with a lot of influence, after all every Senator, Governer, professional politician and commentator (in fact anyone with any influence) HAS private healthcare and regards it as their right because they can afford it. They don't want to take a hospital bed next to a car mechanic, a housewife or a road-sweeper and are concerned that their life will be somehow cheapened by free healthcare available to anyone that needs it.
Take a moment and consider the people who are turned away at the hospital door, those who are discharged too early and those who do not even attempt to get any healthcare because they know they can't afford it - these are not the people with influence but these are the people who need healthcare the most. These people don't live in pristeen germ-free houses on guarded private estates, working in air-conditioned offices kept apart from the streets and their dangers. These people do not have membership of a private Gym and do not have their heart and cholestoral intake monitored on a weekly basis. These people are more likely to live exposed to violence and disease, eating the worst kind of food and exposed to pollution on a daily basis. These are the people without a voice in this debate and these are the people that would massively benefit from a free health service.
My fear is that despite Obama's attempts, middle-America will reject these plans to help those who are worse off than themselves, without appreciating what they are throwing away. The worst aspect of the debate is that the NHS is being slurred without any justification. I personally rejected private healthcare offered by my employers simply because I see no need for it. Any time I have needed a medical professional I have been able to turn in full confidence to the NHS and have found an institution which entirely meets my needs. Any time I have needed attention, attention has been there free and immediate, efficient and without consideration of cost. I have had a few short days in hospital as a child, X-rays, eye exams, help with tinitus, innoculations and the friendly advice of a GP or nurse any time I have needed it. I have been patched up at A&E departments around the country and have taken others to be attended with never a thought of cost to me personally - all I can say is 'Long may it continue' and to those in the US, I grieve that you will probably reject free health care - a more perfect example of 'throwing the baby out with the bath water' would be hard to imagine....

IMF announces start of global recovery

noreply@blogger.com (jay) — Tue, 18 Aug 2009 16:59:00 +0000

Although recession is still a reality for much of the global economy, the IMF has recognised that there are signs of growth. In fact a handful of economies are already officially out of recession already including France and Germany.
Olivier Blanchard made the announcement which is due to be officially published tomorrow, but takes the opportunity to urge caution against a false dawn which could happen if support in terms of support from Governments ceases too soon. He recognises that the economies emerging from this abnormally steep financial crisis will carry the scars for many years.
This comes at the same time that the Department for Children, Schools and Families statistics is announcing unprecedented levels of 'NEETs' amongst it's young population (Not in Employment Education or Training). It is believed that by the end of the year the number of youngsters in this bracket could rise to a million. This level could continue to rise for a sustained period leaving a legacy of a generation of aimless youth which could give rise to some severe social and economic problems.
The conclusion must be that we are 'not out of the woods' by a long way and the consequences of this financial crisis could effect a generation despite Governments and the IMF telling us that the 'crisis' is over, in many ways it has just begun...

Related posts:
G20 prepares for recovery
Recovery or false dawn
Is the credit crunch over?

Is the Credit Crunch over?

noreply@blogger.com (jay) — Fri, 07 Aug 2009 10:59:00 +0000

The banks are reporting high profits, and house prices are on the up - does this mean the credit crunch is over?
Not according to the Bank of England who have expanded the quantitative-easing program in a step that implies that further measures are required to get the economy back on track. By contrast, the European Central Bank has taken a more optimistic approach believing that the Euro economy is gradually correcting itself. Both banks have left their base lending rate unchanged.
High street banks have started to behave as if the recession is over, but whether this is leading to them extending significant amounts of credit to borrowers again is yet to be made clear. Estate agents are also keen to publicise the fact that house prices are on the up again, but a short-term rise in prices, may cause a mini-peak if significant amounts of sellers rush to flood the market with properties.
What is it then that makes the BOE so cautious? Possibly the fact that bank revenues are not being converted into lending for businesses, possibly the fact that despite a recovery in consumer and business confidence, the UK unemployment figures are set to rise after surveys revealed the following statistics:

One firm in ten (of the 450 surveyed) confirmed certain redundancy plans yet to be actioned
Four out of ten are considering making job cuts
The Chamber of Commerce is set to announce unemployment figures close to 2.5 million and experts are predicting a possible peak of 3 million unemployed this year.

Even if house prices are going up and banks are reporting billions of pounds of profit, the continuing unemployment trend will require significant investment if it is to be 'bucked'.
Businesses who are not used to having to make redundancies or lay workers off may have been slow to respond to a drop in orders, the effects on these businesses will take longer to trickle through to the economy and it could be months and months before they are forced to take action. The smart ones will have to move quickly, the less smart may end up with closing down entirely if they do not cut their wage bills to suit the orders coming in.

Related Posts
Banks return to bonus culture mind-set
UK Inflation results
House price recovery?
BOE questions national debt

Make the internet work for you...

noreply@blogger.com (jay) — Thu, 06 Aug 2009 14:43:00 +0000

I have just started to think about upgrading to an 'unlimited' web site hosting account. Once you are paying for a number of hosting plans (like I am) it makes sense to gather all your sites together under a single hosting account. Although there are obvious drawbacks of having all your internet 'eggs' in one basket, the savings can be tremendous. However it is not just savings that I am thinking of, it is the way in which I will be able to expand my internet activities with virtually no additional cost.
One way to make money in the recession is by using the web to generate income, and I plan to create a number of sites that will help me to do exactly this. This will be made simpler with an 'unlimited' account which typically offers:

Unlimited bandwidth
Unlimited domain hosting (domains to be purchased separately)
Unlimited subdomains

and often also include:

Unlimited MySql databases
Wordpress support
Cpanel control

etc...
The cost of this type of hosting is at an all time low at the moment, and I am kicking myself because I have renewed hosting for three sites recently at a cost of about £80 a year in total. I have recently discovered that I could have one of these unlimited hosting accounts for around £25 a year!! The best deal I have found has been webhostingpad, they offer an amazing package for a very reasonable rate. Whether you need blog hosting or any other hosting, now is a great time to be looking round for great deals to make money whilst the global economy is finding it's feet. In fact, even though I feel I have wasted some money on my standard hosting, I am very seriously considering cutting my losses and switching to my new all-singing all-dancing hosting plan fairly soon as it will give me a chance to play with Wordpress which I am really looking forward to exploring.

Business as Usual

noreply@blogger.com (jay) — Wed, 05 Aug 2009 12:11:00 +0000

Banks are seemingly returning to their old ways after having soaked up £38bn of public money in the UK, Barclays and HSBC have reported profits of around £3bn each and are now in the process of paying out huge bonuses again. The taxpayer is left asking 'What have they learned?' and the cynical response is 'They have learned that the Government will bail them out when their greed outruns their value'
Astonishing figures have been reported that indicate despite cutting more than 7,500 jobs, Barclays wage bill rose by a staggering 36% to almost £5bn - that by anyone's standard is quite an incredible achievement (and not in a good way). What it really indicates that whilst they have got rid of a mass of lower-paid employees, they have continued to feed the fat cats that got the economy into the state that it is now...
I am sure that banks are firmly of the belief that they are forging ahead in showing that the economy is on the way to recovery whilst the workers continue to swell the ranks of the unemployed and have their homes reposessed. And indeed, it does seem like there is recovery in some financial sectors, but it has been remarked that the 'bonus culture' is here to stay. The danger is that we emerge from this recession with a quite literally 'leaner and meaner' (especially meaner) banking system and a decimated manufacturing base (not that there was much left to be ravaged).
The blame for letting the banking sector off the hook can be firmly laid at the feet of Prime Minister Gordon Brown, he is guilty of believing that the banking 'leopard' could change it's spots and show remorse for it's rash behaviour - think again Gordon...

Related posts:
RBS toxic assets underwritten
Sir Fred's full pension revealed
Quantitative easing on it's way
RBS investigation

Optimism in the housing market

noreply@blogger.com (jay) — Thu, 30 Jul 2009 09:57:00 +0000

There is a degree of cautious optimism creeping into an apparently recovering property maket, however, like a recovering addict, the emphasis is on 'cautious' rather than 'optimism'.

The Nationwide have released figures indicating that July was the third month running in which house prices have risen. The July figure is a 1.3% rise bringing down the annual rate of decline to 6.2%. The change over the last three months indicates a rise of 2.6%. The figures can only be interpreted loosely as the peculiarities of the current climate are likely to throw up anomalies. Nevertheless The Nationwide are predicting the possibility of prices being higher at the end of the year than they were at the start - a bold prediction..
Why is this prediction so bold?
Whilst demand is pushing prices up in the short-term, supply has been repressed by the evident drop in prices. If prices are shown to be on the increase, the market could be flooded once prospective sellers start entering the market again...this could result in prices being driven down yet again.
Low interest rates are being cited as an incentive, yet many house buyers are finding it difficult to take advantage of the Bank Of England low lending rate through obstructive practices by the mortgage vendors.
Earnings are not rising in line with house price rises, so prospective buyers (already cautious) may be restricted in their buying power.

The news that mortgage approvals are on a high, has to be offset by the fact that throughout the economy, the rate of increase in consumer borrowing is in serious decline. The worry-factor has prevented people from over-stretching their resources in the way that we have become accustomed over the last decade or so. In my opinion, that is not a bad thing, however a decline across the economy is unavoidable if borrowing is to even out to a reasonable level.

Related posts:
When will the property market recover?
25% house price drop expected
Worse-case scenario for house prices
Sub-prime mortgages to blame?

Credit Cards for the Credit Crunch

noreply@blogger.com (jay) — Tue, 28 Jul 2009 23:45:00 +0000

I have spoken on many occasions about how I have crawled out of the pit of debt by using 0% credit cards and am now very very close to paying the entire original debt off (although I have recently started to build up a balance on my 'normal' credit card which I will now have to work hard to pay off!!).
I am reminded however about my first application for a 0% card... I saw adverts for the wonderful 'Capital One' card which was advertised on the TV and I decided that this was the card for me. I duly applied and was turned down as I had a poor credit rating which turned out to be due to a number of still active credit accounts I had more or less forgotten about. I got a report from Experian or one of those agencies which listed accounts which, although I had not used them for years, were still having an effect on my creditworthiness.
Imagine you have four accounts each with a £10,000 limit that you no longer use - a potential lender can see that you have potential access to £40,000, therefore if he extends your credit even further, you could end up with debts that are beyond your means... So I took the step of formally closing any accounts that I wasn't using. Generally banks do not reconsider once they have decided not to open an account for you, so I went cap in hand (and with a better credit risk) to the nice people at Virgin Credit Card and they took all my debt and placed it in a 0% account, Hoorah for Richard Branson!
However, that is not the end of the story, Oh no... Capital One were still to play their hand. I had applied to them originally, so they knew exactly how much debt I had - they also assumed that I might not be able to get a 0% deal (if my apparent credit risk remained) so what did they do?? They plagued me for months with offers to lend me money (not at 0% I hasten to add). So not only do they NOT give me the account I wanted, they sought to exploit the knowledge they had about my financial position by trying to get me to take out a loan. There's something suspect in my opinion about a bank that thinks you are not worthy of their credit card, and then proceeds to persisently try and get you to take out a loan, and so I have vowed NEVER to enter into any agreements with Capital One under any circumstances. I do not know that any other banks would have behaved any better, but I know unethical practice when I see it and I firmly believe in voting with my feet so to speak... I also resent the implication that I would be so devoid of alternative plans that I would gladly grasp at whatever crumbs Capital One would throw my way. I have news for Capital One - I have had three o% cards in succession over the last few years and am within £100 of seing a zero balance - and have never even had to consider them as a credit provider in all that time.
For anyone who has a debt like this that is on the verge of becoming unmanageble, my advice is to take the same route and explore the possibility at least initially of getting the debt transferred to a 0% card and paying off what you can during the 0% offer (definitely DO NOT SPEND anything on this card...). When the offer expires, don't let the principle attract interest - move it on to another 0% deal straight away. The psychological boost one gets from seeing every penny of your payments coming off the debt rather than being sequestered away to pay off interest, is tremendous and just the ticket to make you want to pay off as much as you can as soon as you can..

related:
more posts on 0% interest
more posts on credit cards
tracking my debt

UK inflation falls below target

noreply@blogger.com (jay) — Tue, 14 Jul 2009 12:23:00 +0000

Falling food prices have been cited as one of the reasons for inflation dropping below the Bank of England target rate of 2%. The figures have dropped to 1.8% from 2.2% in the last month. The likelihood is that this trend will continue as retailers try to stimulate demand in a slowing market. Some areas of the market, notably electronics and fuel prices have experienced rises, but when recession hits the proportion of our outgoings spent on food is likely to increase as it is far more difficult to cut food consumption than the consumption of non-essentials.
Even credit crunch inflated mortgage fees have dropped this year as mortgage companies try to entice more business, and insurance has followed suit. I have just switched house insurance companies and made a huge saving, it is certainly worth shopping around at the moment - in a telephone conversation one company even said 'what can we do to make this insurance more attractive to you? to which the answer would naturally be 'make it cheaper...'.
The Retail Price Index is naturally linked to inflation but measures the effect on specific goods and services, this month the RPI has just recorded it's lowest ever figure of -1.6% (yes that's MINUS 1.6%).

So things are getting cheaper which is good for consumers, but it also means that companies are cutting margins and may even cut jobs as a result. This is an entirely 'natural' process (in terms of the free market) which forces the manufacturers to make themselves leaner and meaner to compete effectively in the market. Those companies carrying surplus 'weight' will be forced to trim back the waste - hopefully this will see an end (at least in the short-term) to the 'fat-cat' culture of self-reward and lack of concern for the wider business and economy. If only we could extend this concern to the environment too, this recession could have a really positive impact.

Related posts:

Government Intervention
CBI predicts 'shallow' recession
25% house price drop expected
Mortgage safety net
Quantitive Easing
UK budget 2009

Bank of England expresses concern

noreply@blogger.com (jay) — Thu, 25 Jun 2009 12:41:00 +0000

Bank of England Governor Mervyn King states that the UK economy is 'more uncertain then ever'
describing the level of Government debt as 'extraordinary'. According to leading economists the UK will sink into more debt than any other developed country in the world next year.
If this were coupled with an upturn in the economy in general then you could offset the cost against tangible results, however although some industries are reporting stability, there are likely to be significant job losses yet to come in many sectors.
Any hopes that the government had of significant progress before the next election were never really realistic, but look even less likely as each day passes. Right now, Gordon Brown's personal political capital is vastly diminished even the most unbiased political observer must concede that the current administration are in considerable trouble. I would not make so bold as to say that ANYONE could have steered us around the obstacle of global recession, but I maintain that the massive commitment that we have made in order to try and stave off the worst effects of the crisis has always been likely to lead to throwing good money after bad - a precise definition of 'gambling' if ever I heard of one. The trouble is that gambling very often ends up in financial ruin - one thing to subject yourself to that type of fate, entirely another when you do it with a national economy.
Nobody knows what the worst possible scenario might be, but I have a sneaking feeling that we might yet find out. Even a change of government at this stage guarantees NOTHING, much of the damage has surely already been done. It is likely that even the Governor of the Bank of England is not above trying to make some political capital out of the situation, and his comments may well be timed to tip the balance of doubt over New Labour and Gordon Brown specifically. The fact remains however that whatever happens, this administration will be leaving a heck of a legacy in terms of unprecedented national debt which no pretender to the throne should disregard. It is not enough for opposition leaders to shout about recent failings, we need to hear something positive about where a new leadership (from ANY party) will take us which will help us out of this mess.

Related posts:
Is this the new Great Depression?
How to survive recession
Government Intervention
The unsinkable Gordon Brown

Sir Fred gives in...

noreply@blogger.com (jay) — Fri, 19 Jun 2009 04:39:00 +0000

Under threat of legal action from his former employers Royal Bank of Scotland, Sir Fred Goodwin has handed back over half of his £703,000 pension 'entitlement' leaving him just £342,000 a year to survive on (living abroad in retirement since living in the UK apparently doesn't agree with his health or well-being...).

The bank's chairman Sir Philip Hampton said: "I am very pleased that we have resolved a situation that has been a difficult and unhappy one for all the parties involved, and it is to Fred's credit that he has done this on a voluntary basis."

I am not clear on what constitutes a voluntary basis, folding under threat of legal action is voluntary enough apparently. As far as the British public are concerned, Sir Fred has emerged from this mess as disreputable and intransigent, a magnanimous gesture hardly fits the display of arrogance that we have seen so far in this sad affair. The pressure should more or less dissipate now, although for many, little short of cutting him off without a penny, or better still a spell 'inside' would have been sufficient punishment.

Sir Fred has been in many ways a shining example of how we cannot afford to run businesses in the future, we should be grateful at least that his apparent greed and arrogance will serve as a warning to company bosses who will be taking over the reins as the UK economy struggles to it's feet once more.

Need a new line of credit?

noreply@blogger.com (jay) — Wed, 10 Jun 2009 18:58:00 +0000

Whilst it is true that credit cards have been one factor in bringing about the Credit Crunch that has wrought havoc on economies over the globe, selecting the right credit card for you can help bring you out of personal financial difficulties.
I will say right at the start, that this advice is not aimed at those who are seriously in debt and struggling to meet repayments - this is for those who are slipping into a 'manageable' debt but would like to be debt free. If you find yourself relying on a credit card for every day purchases like food and consumables, then you may need to seek professional financial assistance.
If you have a small debt that you are determined to pay off then a 0% interest on transfers credit card would be perfect for your needs. I have had three 0% credit cards over the last few years and have managed to shrink a $13000 credit card debt down to around $300 in that time without paying a cent in interest.
In order to do this too, you must be determined to cut out excess spending and certainly to stop using your credit card for purchases - if you do this, then every cent you pay each month will come directly off your debt. If you can't manage to pay off your debt within the 0% interest on transfers period, then you can just switch the remaining balance to another 0% card at the end of the offer.
If on the other hand, you manage to pay your card off every month and have no debt, then you could actually save money by using one of the many cash-back credit cards available. Also worth considering are other incentive and reward schemes such as air miles cards.
The fact is that you can make credit cards work for you if you control your card rather than allowing your card to control you. If your card is not working for you, then ditch it right now and get one that does.

The 'unsinkable' Gordon Brown

noreply@blogger.com (jay) — Wed, 10 Jun 2009 15:44:00 +0000

Gordon has defied the critics by keeping his job this week despite the current intense heat of British Politics, but what exactly has he done wrong, and what are the consequences of his weakened position?
Gordon Brown has apparently ridden the waves of a rumbling storm over the way he has been freely berating his colleagues who have been caught short by the MP's expenses row. He was not however first the one to 'strike a blow for justice' over this issue as David Cameron beat him to the draw mercilessly applying high standards and demanding retribution from errant Conservatives giving him the moral high ground. Gordon is guilty of not only agreeing with Mr Cameron after the fact, but also appearing to go about the task with some relish and gusto. Somewhat piqued at having been caught with hands in the till, some prominent MP's set about starting a rebellion to bring down their illustrious leader - setting a fire which would smolder until the recent electoral results were announced.
Of course, everyone knew the results were going to be bad for labour, so the surfacing of this rebellion at this juncture was always a dead cert. The results were bad for labour and bad for Gordon Brown's support of the policy of spending our way out of the recession. Across European and local elections hard-line right-wingers were gathering votes left right and centre. Gordon will go down in history as the man that gifted the BNP two seats in the European Parliament, yet he retains his position and shows that he has learned something from 'Teflon Tony'.
Nationalists and Conservatives have potentially been handed a mandate by the voters to scupper any further plans for 'Stimulus' packages. The unfortunate thing about these expanding spending plans is that if they are not maintained, then the money is basically wasted. We are caught between continuing to pursue a policy that will cost untold billions or scrapping it and declaring the money we have already spent 'wasted' - even a slowing down of the policy of stimulation could set us right back to square zero!
I feel that the Stimulus packages were at least doing a PR job to show people that something was being done, however I seriously doubt that the taxpayer is getting value for money. My fear now is that getting off the 'stimulus train' without having reached any destination will still cost the same, yet give the momentum back to the dark forces that make up 'recession'.

Earning opportunities

noreply@blogger.com (jay) — Mon, 25 May 2009 22:09:00 +0000

Regardless of the current economic difficulties, the internet remains one of the most lucrative seams of income still worth exploiting if you can find your niche. I firmly believe that this economic crisis will lead to a rise in online purchasing as most consumers regard online purchasing as a way to save money. Certainly, if your existing business does not have an online presence, then you are definitely missing out on an inexpensive way of promoting your business.
If you are under the impression that webhosting is a costly business, then check out the service at webhostingrating.com where they compare webhosts and basically tell you which offers the best deal. If you don't have software to create a website, then you can use this service to find the best place to get webhosting which includes a CMS service such as Joomla or Drupal.
There are many types of websites that could potentially make money in the credit crunch - a trading or auction website such as eBay which represents bargain purchases is an obvious one. However there are a number of different types of websites that could be used to generate income from blogs and forums to sites that resell webhosting. Webhostingrating.com compares hosts for the ones that offer the best deals in each of the different areas that you might be thinking of investing in.

Is the buy-to-let market dead?

noreply@blogger.com (jay) — Sun, 24 May 2009 12:00:00 +0000

Buy-to-let was a buzz-word that became a market of it's own in the last decade or so as many individuals discovered it as a means of generating huge amounts of money, and as a side-issue, huge amounts of debt.
Whilst it is certainly true that the 'Buy-to-let Boom' is over, buy-to-let as a concept is still a feasible business model as long as not taken to the extremes that have left individuals with millions of pounds of debt and a declining property portfolio. One such person was interviewed on British television this week, stating that their debt stood at something like £6.5m and losing properties to repossession on a daily basis.
In retrospect the mistake was fundamental and is basically at the root of the global credit crunch - an over-reliance on property prices to generate capital. Your typical buy-to-let mogul who emerged in the last decade proceeded in the following manner:
After a windfall of some type or other, the budding property magnate decides to buy a property (generally reasonably cheaply) with the intention of renting it out. A few renovations make the house habitable and a tenant is installed. It is probably the case that a small mortgage was taken on the property as the cash windfall would have probably covered a lot more than just the deposit. Let's assume the property was bought for £100k and £5ok of that was mortgaged... in the time between the purchase and the tenant being installed, the property has been improved, the market has gone up and the property is worth £120k, the mortgage is effectively being paid by the tenant and the owner has £70,000 equity in the house...
If this equity is 'realised' (and here is the bit where it all goes wrong...eventually) the house gets remortgaged and the £70,000 goes to be used as a deposit on three more properties where the exact same cycle is repeated.
If, two years later, the property is worth £150,000 then all is well and there is plenty of equity probably in each one of the properties - and this is how things went for a number of years. However if you have stripped equity out of a property and then the market declines, it is a very different story. The incredible part of the story is that mortgage companies seemed perfectly happy to allow property buyers both domestic and commercial to remortgage their houses with no thought as to what would happen if prices went down.
So I return to the question: is buy-to-let dead? No, emphatically no... what IS dead is remortgaging up to 100% of the current market price of your property whether it be your home or one in a string of properties. It is the purchasing of property with the assumption that 'the only way is up' that has hit a brick wall.
There is no reason at all why someone would not invest their nest-egg in a property that will provide rental income along with a (long term) capital return.
There is every reason not to use the equity to invest in another property without doing a lot of careful calculations. With a decline in house prices comes a decline in rental prices as renters become buyers, if you have a mortgage on your rental property you cannot guarantee that your tenants will cover the mortgage and you cannot guarantee that the value of your property will automatically rise in the short-term. If you understand these simple concepts then maybe you are ready to plunge into the market of buy-to-let..

Related posts:
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25% house price drop expected
Worse-case scenario for house prices
Sub-prime mortgages to blame?

Japans recession

noreply@blogger.com (jay) — Wed, 20 May 2009 12:00:00 +0000

The world's second largest economy has reported it's sharpest drop on record yet remains positive about recovery. Economists are apparently in agreement that Japan is over the worst despite a decline in GDP of 4% in the last quarter, marking a full 12 months of decline totaling more than 15%. In contrast the UK and US only declined by 1.9 and 1.6 per cent respectively in the first quarter of 2009.
The crisis is now impacting on domestic spending as the effect of falling global demand takes it's toll and exports plummet. Workers are being laid off as production is cut back but the cycle of a cut in spending leading to joblessness, leading to further cuts in spending has (if economists are to be believed) already 'bottomed out'. This seems to be a bold statement straight after a 4% drop in GDP has been recorded and may be an attempt to 'spin' some confidence into the market.
Spin has played a major part in battling the economic crisis right across the globe, yet it has proven to be fairly ineffective when negative publicity about the crisis is readily available in the media. The people are not going to have the wool pulled over their eyes when staring uncertain job prospects in the face no matter how much spin you employ.
Practical measures are being taken as Prime Minister Taro Aso has announced a $150bn stimulus package to reinvigorate demand and re-inflate the economy, and economists are banking on the stimulus to work. If the experience of the Western Economies are anything to go by, whilst the stimulus packages do indeed serve to give the impression that 'something' is being done - they do not actually lever tightly grasped coins out of our hands, if anything the enormity of the situation can be highlighted by the quantity of cash being fed into the economy. The publicity caused by the billions and trillions of dollars on the table can actually make people cautious about how they spend the cash that they have. After all, even those who don't understand the minutii of macro-economics have probably worked out that in years to come, these huge amounts of cash will be coming straight out of our pockets. True to form, it is expected that when the Japanese economy recovers, purchase taxes will be hiked to help pay for the stimulus packages. Currently Japan's national debt outstrips any other major economy and currently stands at 200% of their GDP.

Related posts:
Government Intervention
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Is this a recession?
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Economy Update

noreply@blogger.com (jay) — Wed, 13 May 2009 11:21:00 +0000

The Bank of England has not made any changes to the bank base rate at the last two opportunities and there are both encouraging and discouraging economic signs in the news.
Whilst Sainsburys supermarkets have just reported above-expected profits, the job-less figures in the UK have risen to 2.2million. It is of course arguable that with large companies laying off staff, short-term profitability could be a direct result of lay-offs...
It is the job-less figure which causes concern, as having a large proportion of the workforce not working is a big drain on the economy as a whole - we must hope that the government will concentrate it's efforts on getting people back into work as quickly as possible.

In the meantime, the whole MP's expenses debacle threatens to undermine the UK political system in it's entirety. It's all very well everybody firmly agreeing that the system was wrong, but they didn't seem too bothered to correct they system until suddenly the electorate is in possession of the facts. Everyone is at pains to point out that expenses claimed were in line with the rules, and the rules were at fault - but if we step back and take a look at who came up with the rules, that would presumably be these same parliamentary politicians wouldn't it??

The phrase 'fiddling' while Rome burns has now taken on a slightly different nuance...

To get back to the economic forecast, it has to be said that we are very likely in for 12 months of job-losses and hardship before the economy (GDP) finds a new level. Following this plateau, we can expect a slow build-up in GDP and eventually a leveling of house prices. I would hesitate to say that the worst is over, because that can be very subjective. If you are about to lose your job next week, then the worst is hardly over for you personally.. However, it seems that the bulk of the major crashes that were going to happen have happened, notwithstanding there will no doubt still be significant job losses in the coming months.

Related posts:
25% house price drop expected
How long will the credit crunch last?
Economic meltdown
When will the property market recover?