The Credit Cruncher

President Obama shifts the blame to Europe

noreply@blogger.com (jay) — Wed, 28 Sep 2011 21:44:00 +0000

Right at the start of this post, I want to make it clear that I have generally been in favour of President Obama, from this side of the pond, he looks like a great choice for US president. Intelligent and dignified are not necessarily attributes that other recent candidates can claim as their own. However, I have to take issue with his recent attack on Europe, particularly as the whole sub-prime fiasco is firmly rooted in his own back-yard.

The left-wing view has been that huge national debt is an acceptable price to pay for the mismanagement by our banks. Cut-backs have been looked upon with disdain by the socialists as if there is a way to continue to over-inflate the economy despite the glaringly obvious fact that there is nothing left to do it with unless we sell the family silver... The balanced view is surely that we must do what we can to pay down the debt including down-sizing where the markets are proving unsustainable.
I have been unemployed, so I can empathise with those that are suffering, but the truth is that the economy was over-inflated by debt - the whole of the Western economy was simply living beyond its means, shored up by bad debts. The only fix is to try and get the economy back to a sustainable size, painful though that will undoubtedly be.

Look at it like this, let's say for a simple example that the economy is 10% over-inflated - effectively we have been living 10% beyond our means for a sustained length of time. This is supported by bad debts - in other words, there is money floating around in the economy that simply should not be there, buying goods and services that we can't actually afford - persuading employers to employ 10% more workers than are sustainable. This money is secured against property that is worth less than the value of the debt. The American (Obama) solution is to try and shore up these bad debts, ie. to try and continue the unsustainable economy to the point where defaulting on the debt becomes a very real possibility.
The irony of Obama's criticism is that countries like Greece face exactly the same problems that he himself has experienced recently. It was only a few short months ago that the US itself was staring at the possibility of defaulting on it's debt. Obama has presided over the US whilst it's credit-rating has been reduced - an achievement that hardly qualifies a man to urge the rest of the world to follow his example. The situation in Europe is serious because Economic Europe has taken weak economies under it's wing believing it has the resources to protect them. The UK is outside of the European Economic currency, but will not be immune if economic collapse comes knocking.

Even Gordon Brown understood the value of 'talking up' the economy, I doubt that Obama's outburst will shake the world, but it takes a certain arrogance to put your own political ambition for re-election ahead of the stability of the world economy. I hadn't appreciated Obama the political animal until now - I stand corrected, maybe he's not the shining example, he's a politician after all..

It remains to be seen how Europe will deal with this crisis, but the majority view of the voting public is that they don't want to bail anyone else out of debt. What the individual voters in neighbouring nations don't appreciate is that much of the debt is owed to them. I have heard fellow-Europeans saying 'let them default' without appreciating that Greece now owe EUR120bn to the IMF and the European Union - In contrast many Greeks still believe that Germany 'owes them' for the damage done in WWII, so there is a strong contingent in Greece saying 'let's default'. Ironically the position of the average man in the street in both Greece and Germany is that Greece should default. The Germans not appreciating that the debt is owed largely to them - and the Greeks not really appreciating that their government is not really in a position where they can pump money into their own economy and just not bother to pay their debtors.
Of course, it's not just the Germans who are complaining, there is a strong view in the UK that we should be exempt from further Euro-bailouts as we have our own currency to protect, but it should be made clear that the UK will suffer alongside it's European neighbours common currency or not..

More Quantatative easing on the way?

noreply@blogger.com (jay) — Wed, 21 Sep 2011 22:50:00 +0000

The Bank of England have maintained the base rate at 0.5%, resisting pressure to match the US rate and drop to 0.25%. In the light of general economic doom and gloom, more quantatative easing measures are likely to be considered although no action is planned immediately.

In short, all the signs are that any previously perceived recovery has been long forgotten in the shadow of a potential double-dip recession.

Double Dip Recession?

noreply@blogger.com (jay) — Mon, 05 Sep 2011 21:39:00 +0000

It seems that everybody is now talking us towards a double-dip recession which is probably worth a quick explanation.

Firstly, we need to understand that recession is in place when a national economy records a drop in GDP (Gross Domestic Product) for two consecutive quarters. Historically, this was announced in the UK in January 2009. A year later (Jan 2010), and the UK was officially out of recession and on course to build a slow recovery - however there is a danger that following on the heels of the fledgling recovery is a second period during which the GDP drops sufficiently for the economy to officially enter a second episode of recession before recovery has fully taken root.

At the end of the day, whether recession is announced (again) or not, the delicate balance of the economy of course is the real issue and there is little doubt that we are precariously balanced. What is more difficult to assess is what the long term prospects are.

Certainly, the economy has taken a big hit, equally certain is that the politicians will do their utmost to introduce a quick fix for their own political good, but the continuing existence of the western economies is dependent on some careful steering of the individual nations through difficult waters, and taking some measures that will not be wildly popular with the voters.

Call it double-dip, call it credit crunch or call it a depression - the name is not really important, the only thing that matters is that those with power realise that they need to put aside their personal agendas and concentrate on keeping their national economy solvent.

The recession is over

The recession begins

UK GDP falls

Interest rates could stay this low until after 2012

noreply@blogger.com (jay) — Wed, 10 Aug 2011 09:20:00 +0000

Financial commentators are starting to speculate whether interest rates will move at all next year (2012). This implication being that it could be 2013 before we see any chance in this unprecedented low base rate. The UK has never seen interest rates held at such a low rate, to sustain this rate for the forseeable future is testament to how seriously the BoE take the crisis, it also indicated that the crisis is far from over.
Nett investors will be pulling their hair out - those with a mortgage will be delighted to hear the news. Those with tracker-type mortgages will be able to continue with thier miniscule repayment rates - even those with fixed rates should be able to negotiate a better deal as the long-term prospects start to look more certain. I would urge those who are making good savings to consider making over-payments (after consultation with a financial advisor of course..) to lower the principle amount of the mortgage. This has the effect of lowering repayments in the long term, and is especially important if, like me, you have an endowment mortgage that will not materialise into a pot big enough to pay the mortgage off in full.
I have used the principal of retaing the level of payments that we were paying about three years ago even though the actual interest payment has dropped dramatically. The extra we are paying is reducing the original debt (principal) which is good for two reasons:
It means the amount raised by the endowment will be closer to the actual amount owed
As the principal is being paid off, the amount of interest keeps falling even when the interest rate is steady.
Of course, one has to bear in mind that the endowment itself will grow in a very restricted rate during this time of low interest, but at least by over-paying whatever happens, we will be doing our best to overcome any of the negative effects. One other thing to bear in mind is that when rates eventually climb again, all the overpayer has to do is reduce the overpayment to maintain the same standard of living. The temptation is to spend the 'extra' money released by low interest rates - which will mean an adjustment of spending patterns when the rates come back up - an adjustment I would rather not have to cope with..

Euro-zone troubles

noreply@blogger.com (jay) — Mon, 08 Aug 2011 16:09:00 +0000

In what can only be described as a short-term measure, the Central European Bank is preparing to buy up Italian and Spanish debts in an attempt to stabilise the Euro. This comes in the wake of the down-grading of the US credit-rating - which to be fair, is nowhere near as bad as actually defaulting on debt re-payments.
However, the market is jittery and some steady nerves are needed along with some strong leadership. Like it or not, you cannot spend your way out of debt, and the over-spending of recent years is starting to reveal itself.
The parallels with personal spending are obvious, we the consumers have been overspending, this has triggered government and municipal overspending, and once the debt starts to get to the unmanageable stage, some hard-hitting cuts have to be made whether you are talking about a household or as a national economy.
Member nations of the European economy must face cost-cutting head on, jobs will be forfeit as over-spending produces unrealistc demand for employment - when the spending is curbed, the jobs will go. Of course this is not a perfect model as the fallout is not limited to the specific over-spend areas, the effect will be economy wide.
It has long been my belief that much of this overspending is a result of the over-riding appetite for consumable gadgets that is prevalent in the Western economies. However, demand is so insistent, that consumer choice may dictate that gadget-related jobs can be sustained and more fundamental consumer goods manufacturing and marketing might be under threat. I'm not saying that people prefer iPads to food, but somewhere along the line, gadgets are becoming more of a necessity in the public consciousness and less of a luxury. Personally I am quite sure that this is not a good thing when along with the desire for the gadget, comes the likelihood that in 6 months time, the same piece of kit will be on eBay for a quarter of it's original price, sold to partially-fund the purchase of the next generation must-have kit (which, it turns out, the consumer can ill-afford).
The only good thing to come out of the uncertainty (if you are NOT a nett investor), is that interest rates remain abnormally low, and the BoE have not the stomach to raise them and the mortgages of half the nation along with them..

Time to remortgage

noreply@blogger.com (jay) — Sat, 09 Jul 2011 08:50:00 +0000

Mortgage rates are about as low as anyone can remember right now as lenders seek to entice home owners with attractive interest rates. With the slow-down in the housing market this is hardly surprising. Normally you would expect lower house prices to attract house buyers almost regardless of the mortgage rates. Sellers are seemingly holding out for higher prices and just not selling at the rate that demand dictates, therefore the market has slowed in it's activity. In order to keep the market going, lenders are having to offer great deals.

What this means, is that if you don't have a tracker mortgage, you may want to remortgage to take advantage of the low rates.

Bank base rate is still holding at 0.5%, so there has never been a better time to remortgage - this rate has persisted for nearly two and a half years now and shows no indication of rising before the end of 2011.

Some fixed deals are available for about 3 or 4%, depending on the term of the mortgage, the longer term, the higher the rate indicating the expected course that interest rates will take. Be warned though, unless you will be making an interest saving of £1000, the cost of the remortgage will be higher than the savings you can make.

There are tracker deals about too, but unless you got yourself a tracker BEFORE the rates dropped so low, this is more of a gamble. Those who managed to secure a tracker before the rate dropped, may have one that tracks about 1% or even less above base rate, however base rate is so low now, that you will be lucky to find one that tracks less than 2% above.

If you are thinking of remortgaging, by all means take a look at all the offers out there, but also get the advice of a good independent advisor. At the same time, don't be frightened to tell the advisor exactly what you want - take a wish-list with you, and ask the advisor to find a mortgage that fits your requirements.

Twice I was persuaded (against my better judgment) to go with fixed mortages, until I insisted last time that I wanted a lifetime tracker mortgage. Again it cost £1000 (I just hate those sign-on fees - which is why I insisted on a LIFETIME tracker), but we have made tremendous savings since the rate went so low. This has allowed me to overpay my mortgage for the last two years. There is a kind of financial karma in this since we have a endowment mortgage which is unlikely to pay off the loan when it matures - overpaying means there will be less of a loan to pay off. I reckon we have paid off about 6 or 7% off the principal in the last two years through overpayment, another year of this and we will have paid off 10%.

It goes to show that no-one knows what will happen over the term of a twenty-five year mortgage - it tells you to be wary of the markets, but also tells you that whilst you are on the swings now, the roundabouts are just around the corner...

Interest rates remain stable

noreply@blogger.com (jay) — Fri, 06 May 2011 16:08:00 +0000

Despite a growing concern that interest rates will be on the way up, the Bank of England have kept UK base interest rate at 0.5%. This is great news for those with a tracker mortgage, not so good if you are a net investor...
I am continuing with my philosophy of over-paying my mortgage whilst the going is good, in the hope that it will stand me in good stead when my endowment matures. Whatever happens, I am quite sure that it will not do me any harm at all to try and lower the amount I will have to pay back to the bank in about 10 years time...
I anticipate that further measures will be needed before I can be sure that I can cover the full cost of the mortgage, but at least the impact will have been lessened by this bonus period of low interest rates.
The reason that the BoE have not raised interest rates is the continuing doubts about whether the UK economy is strong enough to accept higher rates. Whilst we have avoided double-dip recession this time, there are still concerns that GDP is not growing as was hoped.

RBS still happily handing out bonuses

noreply@blogger.com (jay) — Tue, 19 Apr 2011 13:16:00 +0000

UK Financial Investments (UKFI), which manages the Government's bank assets, is expected to give its approval of RBS CEO Stephen Hester's (near £8m) pay packet at the group's annual meeting in Edinburgh. Mr Hester took over the job from Fred Goodwin in 2008, and has been awarded an additional £4.5m potential shares windfall on top of his £2m annual bonus and £1.2 million salary. He and eight of his top team will share a bonus and shares windfall totalling £28m for its 2010 financial year.

RBS is 83% owned by the taxpayer following the bank's near collapse at the height of the financial crisis, and is expected to face wider shareholder anger when the remuneration motion (of almost 400% of salary) comes to a vote.

Identity Theft

noreply@blogger.com (jay) — Mon, 18 Apr 2011 11:34:00 +0000

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Data such as names, addresses, phone numbers, Social Security numbers, and much more are protected via this system.

Whilst there are always those who will be happy to carry out online transactions and not worry too much about having their peronal details compromised, there is a reluctance by much of the online community to expose themselves to the risk of identity theft. A protection service as offered by IdentityHawk offers peace of mind to even the most cautious of individuals. IdentityHawk even offers $1m insurance to it's members as part of it's comprehensive package.

'Tame' budget forecast

noreply@blogger.com (jay) — Wed, 23 Mar 2011 13:14:00 +0000

There is unlikley to be any surprises from George Osbornes budget as he delivers his 'budget for growth'. There is talk of raising the tax threshold by £600, which is worth about £45 per year... Slightly more interesting is the speculation that the government may push for National Insurance to be integrated into income tax. The difficulty here though, is that there are significant numbers of people paying NI who don't pay tax, the NI payments entitle them to benefits and state pension should they need them.

There will be small movements on fuel duty, first reports coming out of Westminster suggest a cut of 1p in duty from this evening, most of the rest of the budget has been aimed at encouraging investment - or maybe just not discouraging investment... some changes to gift aid to encourage giving, more money to be spent tackling tax-avoidence.

No doubt a fuller picture will emerge soon...

Loans

noreply@blogger.com (jay) — Tue, 22 Mar 2011 20:28:00 +0000

With the Bank of England base interest rates keeping low, it is still a good time to get a short -term loan although it is worth noting that a low base-rate does not mean that ALL interest rates are automatically reduced to such a low level.

Specialist short-term lenders still charge a premium for their services because they are specifically addressing the need for rapidly approved loans for the duration of just a few short weeks or months.

Such services are offered by payday loan lenders uk and frequently are able to approve a loan automatically online via a website. Although payday loans in the uk would not be the solution to all lending needs, they may be ideal for a short term where a payment is expected imminently, hence the name 'pay day loans'.

Project Merlin

noreply@blogger.com (jay) — Fri, 25 Feb 2011 01:00:00 +0000

The idea of Project Merlin held some hope of holding the banks to account for the misery they have spread through the economy, although in reality the measures could never be as punitive as the larger population would like.
We rely too much on our financial trading to make it unprofitable, it is one of the few remaining sectors that the modern UK now excels at...

What concessions have been drawn out of Project Merlin?

To lend more money in 2011
To lend more to small businesses
To pay less in bonuses than they did last year
To be more transparent about their pay packages
To make a greater contribution to regional economies and society.

Who has signed up?

HSBC
Barclays
Royal Bank of Scotland
Lloyds Banking Group

Santander have also been involved in the project

To add in some specifics, the banks that have signed up will commit to making £190bn of credit available to businesses in 2011, up by £11bn, £76bn will be made available specifically to smaller businesses.

The banks will also provide £200m capital to David Cameron's Big Society Bank, which is supposed to finance community projects, and they will provide an extra £1bn over three years to the Business Growth Fund, which aims to help small business in hard-pressed parts of the UK.

And bonuses?

To be fair the banks have agreed some realistic controls, but there is not going to be a huge reversal of the bonus culture. Millions will still be earned by the few in salaries and bonuses

Was it worth the effort?

The agreement is a realistic 'moral victory', something was required politically, and this was the result. It will not make tremendous waves through the financial sector, and as one of the leading 'industries' of the UK, it makes little sense to 'hamstring' the banks. The banks have been in the spotlight, they created much of the mess, they have been the first to see a turn-around in fortunes. It would make little economic sense to stamp on the growth that is now starting to show. On the other hand, the banks have been caught out, and made to publicly acknowledge their part in the financial crisis - it's time to move on.

Spectacular Bank Failures

noreply@blogger.com (jay) — Sun, 23 Jan 2011 14:14:00 +0000

Economist John Vickers, chairman of the Independent Commission on Banking has slammed the British banking sector in a speech to the London School of Economics, he said:

"Ultimately, financial risks have to be borne, and in a market system they should not be borne by the taxpayer providing a generous safety net."

This at a time where banks feel they are ready to start paying themselves huge bonuses again, many CEO's already raking in millions in so-called 'performance-related' payments. The question that the nation is asking is "what do you give back when your performance is so dismal that the nation ends up footing the biggest tax bill ever generated?", the answer is of course, a resounding 'nothing' - even those who have skulked away in disgrace have already feathered their nests to such an extent that they are in danger of choking on their own hollow affluence.

In the meantime, the nation suffers with cuts to services in every sector, industries losing workers and long-established companies failing. Whilst many will regard this as just 'politics' or 'economics', for some this is their life... Some families will suffer hardships, real hardships - the cause of which can (whether it be directly or indirectly) be traced back to foolhardy, gung-ho actions of the financial institutions.

Admittedly, the economy had become over-inflated and therefore some workers owe a few years wages to the over-inflation, nonetheless, I believe on balance, it is likely that there has been more harm done than good.

Interest rates set to rise

noreply@blogger.com (jay) — Thu, 23 Dec 2010 09:28:00 +0000

It looks like the Bank Of England is trying to prepare the public for a rise in interest rates back up to what it feels is a normal level - which will mean the rates returning to a level of about 5% from the current 0.5%...

BoE official Paul Fisher is quoted as saying:

"...what we need to do is to trigger the mindset in people that that's where rates will eventually go back to,"

As if 'people' were stupid enough to think that this artificially low figure is the norm... I would have thought that the message would have been loud and clear if the BoE simply raised the level by 0.25% or 0.5% rather than just talked about it... If they were worried about 'people' panicking, they could have always stated that their 'target' figure is 5% at the same time as announcing an actual raise.

The way this has been done makes it sound like they are unsure of the impact of raising the rate and want to get an idea of what the reaction will be before they do it. The likelihood is that the raise will be implemented in small steps, but no indication whatsoever is given over how long this will take.

The background to policy changes are a relatively static economy showing little growth, a low sterling market value and creeping inflation - with the VAT hike about to strike, one must question the impact this statement by Paul Fisher will have on the householder. There is not much in the economic climate that is going to encourage householders to part with their cash (other than Christmas, which as far as I am aware is not as a result of Government policy..)

Personally, I think we are still in uncertain territory here in economic terms with the threat of the dreaded 'double-dip' still a possibility. I am making the most of the low interest rates by overpaying my mortgage, not by consuming more goods - any change in the interest rate for me will just mean an adjustment to my overpayment.

£7bn from UK to bail out Ireland

noreply@blogger.com (jay) — Mon, 22 Nov 2010 10:34:00 +0000

Chancellor George Osborne has said that Britain was prepared to commit seven billion to the Irish bail-out plan. The EU and IMF agreed on Sunday to help bail out Ireland with loans to tackle its banking and budget crisis in a bid to protect Europe's financial stability.

"What we have committed to do is to obviously be partners as shareholders in the IMF in an international rescue of the Irish economy,"

Osborne told BBC Radio 4....

"But we have also made a commitment to consider a bilateral loan that reflects the fact we are not part of the Euro ... but Ireland is our very closest economic neighbour."

Osborne was questioned about reports that Britain was going to contribute around seven billion pounds to Ireland, he replied:

"It's around that (figure), it's in the order of billions not tens of billions but the details of the entire package, not just the UK contribution, but the euro zone and IMF contribution, that is all being worked out as we speak and we should by the end of the month have the details on that."

Osborne was keen to stress that Britain should not have to provide further help to Ireland or any other Euro zone countries that got into trouble. However this contribution by Britain is causing trouble at home amid an atmosphere of spending cuts - there are claims that this bail out makes a mockery of the hardships Britain will endure as a result self-imposed austerity measures. The criticism is heightened by claims that this is a problem that arguably should be resolved primarily by the Euro-currency countries.

Short-term debt

noreply@blogger.com (jay) — Sun, 21 Nov 2010 11:03:00 +0000

As the economic crisis reaches a new stage, many individuals may suffer from unemployment and loss of earnings in the coming months. In many cases, workers may be forced to take lower-paid jobs and be forced into debt whilst trying to adjust to the new level of income.

In most cases, significant changes to life-style will be required, others may consider a short-term debt solutions like pay day loans. There are problems with this type of borrowing in that it can be a relatively expensive way to borrow and may result in several loans being taken out without the principal being effectively cleared. This type of debt should be cleared promptly and may require payday loan consolidation.

You may need payday loan help if your borrowing has got out of hand, and the only long-term solution is to seriously curb your spending. If you are experiencing problems with short-term (expensive) debt, you should make this a priority. Take an overview of your total income and outgoings and make adjustments that will allow you to love within your means.

Interest Rate warning!

noreply@blogger.com (jay) — Tue, 26 Oct 2010 21:43:00 +0000

Official figures just released show that the economy is growing at its fastest rate for a decade. Growth over the past six months reached 2 per cent, the fastest pace of expansion over two consecutive quarters since 2000, according to the Office for National Statistics .

Economists warned that the 'good news' could be result in interest rates rising earlier than expected. Andrew Sentance, a member of the Bank of England's monetary policy committee, said "I am in favour of gradually moving interest rates up from their very low level which I think can be done without disrupting business or consumer confidence."

Interest rates have been at historically low levels since the credit crisis took hold, with the Bank of England keeping rates at 0.5 per cent since March 2009. It had been previously reported that there would be little chance of a change before the end of next year, but on the back of yesterday's strong growth figures some economists are now predicting a base rate of at least 1 per cent by the end of 2011.

As always with interest rate rises, the bad news for borrowers is good news for savers. The majority of savings accounts currently on the market fall some way short of offering customers a decent return on investment. Recently I came across a saver who had £11return on a three year bond of £3000.

David Kern, chief economist at the British Chambers of Commerce, reminded us that we have not yet seen the real impact of the Governments deficit cutting measures. True to form, the coalition are claiming the upturn as a result of their actions whilst the previous administration claim that this is as the belated result of their actions... The truth is that few people (from either party) predicted these most recent results, and at the end of the day, the economy wends its own merry way regardless of those that believe they are at the helm of national affairs.

Inflation Steady at 3.1%

noreply@blogger.com (jay) — Tue, 12 Oct 2010 09:59:00 +0000

Inflation has continued to exceed the Bank of Englands target of 2%, standing at over 3% since July in line with market expectations.

Lower prices for air fares, petrol and second-hand cars were offset by rising costs for clothing, footwear, food and drinks. For individual families, the worrying trend indicated here is the fact that 'luxuries' are getting cheaper, necessities are becoming more expensive...

The BoE have continued to hold the base interest rate at 0.5% (as they have for the last 19 months), but opted against pumping out more cash. Nevertheless, the threat of the return of 'Quantitative Easing' is ever-present. To date, the bank has injected £200 billion into the economy, by purchasing government bonds and high-quality private sector assets to boost lending.

Base Rate holds at 0.5%

noreply@blogger.com (jay) — Mon, 09 Aug 2010 10:34:00 +0000

The record low rate of 0.5% is set to stay for another 12 months or so according to best estimates. It is felt that 2011 could see a rise, but it is far too early to make a realistic prediction.

This is good news for variable rate mortgage owners, but I guess a bit of a sickener for those with a fixed rate, as it looks unlikely that they will get any benefit from their fixed rate for quite a while. Of course, most new mortgages are fixed rate as the bank have no wish to pass on the benefits of the Bank of England base rate. This in itself is a topic worthy of a great deal of debate....

For those who are benefiting from a variable rate, my advice is to overpay your mortgage (subject to advice from your properly qualified advisor of course!!) if you can. I switched to a variable rate mortgage shortly before the financial crisis took hold, so my repayments are extremely low. However I have taken the step of deliberately paying a similar rate to what I was paying before the crisis in an effort to pay off more of the principal debt.

The uncertainty around what will happen to the rate is heightened by the uncertainty about the knock-on effects of Government cutbacks which must be made by this new administration.

The mood for now seems to be 'steady as she goes' as we launch our economic ship into uncharted and potentially stormy seas...

Our 'shallow' economy

noreply@blogger.com (jay) — Wed, 14 Jul 2010 11:49:00 +0000

I don't really want to come across all left wing and anti-capitalist, but there is a worrying element to the drivers behind the Western economy that may indicate that it is becoming unsustainable.

In thinking about what drives us to earn and consume, it is becoming clear that it is 'unsustainable' consumer behaviour that drives larger and larger sections of our economy. These can be illustrated by the clamour to posess the latest 'Apple' product whether it be a phone (never knowingly advertised as a device for making phone calls of course..) computer, or media player. It is also illustrated by our taste in transport, ever faster, slicker, uber-designed capsules for transporting us around the globe - in reality used for dropping the kids off at school and getting in the shopping. Do we need to spend between £10,000 and £20,000 for a main vehicle let alone a 'second' car that will be the kids taxi and motorised shopping cart?
Have you also noticed that a TV used to cost a little over £100, yet now you can get a 'bargain' widescreen HD-ready TV for just £500?

Don't get me wrong, I am not knocking consumerism, I am a 'victim' and active participant... I am trying to point out that one day we might wake up to the reality, and stop buying these luxuries, at which point, our entire economy is in danger. The additional point to make is that the products themselves are contributing to the demise of the species. I don't have figures for the damage done to the environment by cars alone, but you don't have to be a greenpeace protester to be aware of these facts:

We have too many cars
Cars are bad for the environment
Any 'convenience' factor of having access to a motor vehicle is now surely seriously outweighed by the damage it does to our planet.

The problem is that the voices of reason will not be heard above the clamour for the latest gizmo or gadget that is going to make one individuals life so much better at the expense of everyone else. This is where democracy fails us, no politician can speak up against the manufacturers that fuel the economy. The battle can only be won, one consumer at a time...if we all stopped doing it tomorrow, the economy would stall catastrophically - every great 'empire' has it's weakness in the end - I believe that this is the major weakness in the Western World, our rapidly increasing desire for bigger, better, faster, more advanced 'stuff' will end up with consumers eventually questioning their own sanity.

The Recovery

noreply@blogger.com (jay) — Mon, 12 Jul 2010 11:17:00 +0000

The recent financial crisis is becoming a faded memory, but there are some significant points about what has just happened that will have an impact on the coming years. Oddly enough, during the recession, UK householders actually experienced a significant increase in spending power because of the incredibly low interest rates. Any mortgages that have been linked to the Bank of England base rate have dropped significantly allowing families to ride the storm with comparitive ease (assuming that income has been maintained).
Mortgage rates are not set to move just yet, but it must be accepted that these low rates cannot be retained indefinitely and sooner or later will rise at least part way back to the previous level. THIS is when the impact will start to hit home a little more. Personally I have decided to overpay my mortgage while the level is so artificially low, in my opinion, regarding this boost as avaiable income may be a huge mistake. The rate has been below 1% for nearly 18 months, and I am guessing that this has put a couple of hundred pounds or more into many households pockets during the recession. If this money has been incorporated into the household spending, when the base rates resumes it's previous levels, this extra budget will have disappeared, and spending must follow suit otherwise we may find ourselves exposed to debt.
My own plan is to gradually cut back on the overpayment as the interest rises until I am left with no overpayment. The added bonus of the overpayment is of course, that I am paying off the capital at a faster rate than if I pay the minimum rate that my mortgage demands. The result of this is that the actual interest on the diminishing principal is falling too.
In the light of financial measures that will be taken to resolve the national debt issues, average incomes are likely to be more or less static for the next few years, a rising interest rate may leave families feeling the effects of the recession that they previously managed to avoid.

related posts:
bank rate drops to 1% (Jan 2009)
declining base rate (Feb 2009)
interest rate news (Jan 2009)

UK budget revealed today

noreply@blogger.com (jay) — Tue, 22 Jun 2010 14:25:00 +0000

VAT to rise by 2.5% to 20% next January - a rise in VAT makes far more sense than Gordon Brown's cut in VAT. Please note that life essentials are not VATable, basic foodstuffs and kids clothes are not taxed - this means that the revenue generated is not made off the backs of the poorest tax-payers. Gordon's cut in tax made absolutley no impression on the poor - it was surely only done to massage inflation figures.

Tax threshold to go up by £1000 - (but this won't come in for another 12 months ) Adding to the tax threshold is to be welcomed, but maybe indicates a less than iron grip (a token gesture which will need recouping elsewhere), and while he was at it, why not take the chance to screw more taxes out of drinkers, gamblers and smokers as well as taking a pot shot at the bankers. (levy to be made on bankers, expected to raise a couple of billion)
(no change to tax on the tobacco and alcohol)

Rising capital gains for higher rate-payers with immediate effect - this should raise a bit of revenue, and no-one is going to defend the rich who are getting their hands on yet more capital... nice move, but a risk of alienating some in the Conservative party...
There will be some capping of housing benefit, and some changes to Child Tax Credit which will affect those earning more than £40,000.

I think this gets the 'well done, but could do better' from me - so early in this governments tenure, it would have been easy to come in hard with an awsome budget that would make a real dent in the deficit, I believe what we have been given maybe a budget that will make a tiny dent in the deficit, meaning that a few more austere budgets will be needed. Every new budget is a step closer to re-election and obviously no-one is going to want to deliver a Mr Nasty budget when there is an election around the corner...

Related Posts
Dec 2009 budget

Home Information Packs (HIPs) scrapped

noreply@blogger.com (jay) — Tue, 15 Jun 2010 11:13:00 +0000

In May, the UK government scrapped the scheme that obliged house sellers to have a costly 'Home Information Pack' produced to give to prospective purchasers. The scheme had some good principles behind it, but it has long been the aim of a campaign by estate agents to have the scheme scrapped, however the EPC (Energy Performance Certificate) will be retained. In the meantime the housing market seems buoyant - average prices seem to be rising and instructions to sell are also on the increase, it is widely felt that HIPs was getting in the way of prospective sales, and removal of this obstacle could free the market up a little.
In an economy that is so closely linked to the financial markets, it is hoped that measured stimulation of the housing market could help to stabilise the conomy as a whole - it is difficult to see what 'industries' will get us out of the current doldrums as the UK is desperately short of any industry of any type...

A Con-Lib Alliance is is then...probably

noreply@blogger.com (jay) — Wed, 12 May 2010 11:20:00 +0000

With fine details yet to be thrashed out, a Conservative - Liberal Coalition is undoubtedly going to be the UK's next government. Gordon Brown resigned (again) yesterday after saying he would resign in September anyway. I must say I feel a little sorry for Gordon as I feel that his resignation yesterday was his own decision, the one the day before was I am sure foisted on him as a last-ditch attempt at attracting the Liberals. No doubt a scheme dreamt up by arch-idiots Mandy and Campbell.. Only a few days ago, Campbell was trying to claim that Gordon had the 'perfect right to be Prime Minister'. Only the great unelected (Such as Mandy & Campbell) could believe a man twice unlected could legitimately hold the right to an elected position. At least that should be the last we see of them in the corridors of power for a while (unless you include the House of Lords of course).
I have long believed that the House of Lords holds a valuable place in UK politics, and that's probably because I don't have the great faith in 'Democracy' that the majority seem to have. However, since they put Mandy in there (what to do with a man you have sacked, reinstated and sacked again?... make him a Lord!!), I am that much more in favour of it's abolition.

So what does the future hold for the UK? Presuming that the EEC survives the growing economic volcano, it will be a period of cuts and protest, Cameron has acknowledged this right at the start. The real trouble starts if we are plunged into a second recession in the EEC bankruptcy fallout. If Greece and other teetering nations cannot be bailed out, there is no knowing what will happen. Looking at this purely politically, the labour party did not lose as many seats as they might have, and the liberals did not gain as many seats as they might have, so the door is still open for a reversal of fortunes if the coalition does not deliver what the electorate want. Economically, we are in for a tough time and that could also unsettle the electorate especially when the government clashes with the unions as it will inevitably do. The unions would do well to bear in mind that we are in the midst of hard times. The attitude of 'Unite' over the British Airways dispute is not likley to draw much sympathy. True, some privileges have been withdrawn, but in the light of dwindling revenue in the travel industry particularly, further pressure by the unions is unwelcome and unwarranted. Public service unions are going to clash with the goverment over cuts in services, but at the end of the day, we have to get the national debt back on to a manageable footing before we build up public services again. This next two or three-year period is not the time to cry over losing your increments and priveleges if you have managed to retain your job. Pay will be down, revenues will be down, employees that can't accept that, and still feel that their pay must be comparable with someone else's, run the risk of comparing someone else's pay with their dole money...
There is still a very real danger that this coalition may prove unsustainable when real pressure is applied, we wait to see what will happen.

A new direction?

noreply@blogger.com (jay) — Sun, 09 May 2010 17:43:00 +0000

UK General Election 2010
As new power axis begins to emerge, this election has delivered a hung parliament necessitating an unholy alliance to bring in measures that will require a strong and resolute governorship.
There are a number of observations we can make at this point, namely that this hung parliament does not look good for a time during which some unpopular policies will have to be endured in order to rectify the financial crisis. The financial crisis that we now face is a massive national debt, and a global economy facing uncertainty following the problems in Greece and the possible effects on the Euro - some commentators are even predicting a new recession following on immediately after the one we have just left behind us. Let's state for the record - anything can happen in a free economy - another recession is not as unlikely as it might seem, and this time...who will bail us out?
Domestically, we are hamstrung without strong Government. To be quite frank, right now my advice to David Cameron would be to make it look like you were trying to make a fist of it...then step back and let a Lib-Lab alliance actually take the parliamentary reins. A totally unsustainable government would then have a disastrous six months after which you could come back with a massive majority. I am very much bearing in mind the warning issued by the governor of the Bank of England that the next party to come to power will be so unpopular as to be unelectable for a generation.
This would be a costly and risky strategy, and I am banking that no politician can resist power even when it is likely to be hamstrung and short-lived.
There is no real danger of a Lib-Lab alliance however, I am personally of the opinion that the two losers of an election have NOT earned the right to rule. Like it or not, the fate of the country currently rests with the Conservatives having won the election without managing to 'win' a majority of seats. I use the term 'won the election' very deliberately - there is no doubt in my mind that the Tories have won, at least in the sense that they got the most votes and surely no-one else thinks there is another party that has won?
We will no doubt see a Tory/Lid Dem alliance take the reins, and maybe the labour party should prepare themselves to return to power when this alliance falls on it's face? I don't know how this can possibly work, however economically all three leading parties recognise there is a hard road ahead and spending must be reined in. In fact, when you think of it further belt-tightening domestically, coupled with the threat of national bankruptcy in European countries sounds like a certain recipe for a second recession close on the heels of the one we are just recovering from.
The period that is to come was always going to be hard.. a weak government (as a hung parliament surely is) will not have the backbone to administer the unpalatable medicine, and could well end up just offering a placebo.

Related posts:
Economic Fix?
Slow Recovery
End of Recession