You will no doubt have had a belly full of the press, T.V. news pundits, self proclaimed experts and politicians telling you how bad the economy is and whose fault it is, (or isn't). For you as an individual, trying to make sense this 'objectively' and in a manner that will help you implement a strategy to deal with it, is about as easy as platting fog. After all, to the news hounds, good news is not news. They are always looking for the drama and shock stories. This does not lessen their importance but if you are only hearing one side of the story, how can you be objective in your decision making.
I can already feel you are expecting me to deliver an all seeing revelation. A parting of the sea's no less. Well you may be right, or at the very least I aim to deliver a more objective overview so you can make your own minds up.
Today I am not too interested in how we arrived at this point, other than to consider the impact it has had on the behavior of the population. Effects; 1. Reduced spending in general as nervous about security of future income. (Unfortunately, many have already lost their jobs). Ironically, we are all contributing significantly to the problem, thus making matters much worse than they need be and many readers may well be 'saving themselves' into being made unemployed. With all of the gloomy news, it is understandable that people feel threatened and 'react' by tightening their belts and looking for bargains. This is totally irrespective of how real the threat is to them as individuals. Unfortunately, in doing so, many high street retailers, car dealers and manufacturers are either going out of business or laying off staff as a result, as the turnover is not sufficient to meet their operating overheads, let alone make the necessary profit to invest for the future. First the Bad News Given all of us operate as part of the same economy; we will all be affected if we all insist on sticking to this approach. The private sector will not make the profits to employ its staff and pay its taxes. The public sector will not have the monies raised from the private sector to continue to employ the huge number of staff it employs. As a result there will be many more redundancies in both the private and public sector. This will lead to many more not paying taxes and instead placing an even greater strain on the public purse. The Government, having already committed us to a huge debt and tax burden, will not be able to raise even more taxes, as it will drive more businesses to failing point. Neither will it be able to go to borrow the monies, as it is not likely to be able to convince the money markets it can service even more debt. This would effectively be a race to the bottom with deflation, wage reductions and a contracting economy. Now the Good News. Before I go on, please take a careful look at the world population chart, which can be found on the website of the Optimum Population Trust. ref optimumpopulation.org/worldpop.2007.gif You may notice something interesting happening toward the right hand side. We have a world population that has progressively exploded since the industrial revolution. This has been helped on the way by huge improvements in medical care, food supplies, infrastructure and more latterly, a lack of large wars. You will also have worked out the world is not getting bigger and the available resource to support the population by default must shrink as we will have less land to harvest and keep livestock on. So why is this relevant? 1. Property prices have taken a tumble, yet we have a growing population and a finite amount of land. I Know, I Said This Was The Good News. Bear With Me. In all of this there are opportunities to both help both yourself and the economy to stabilize and recover. 1. Banks cannot maintain this 'lending embargo' indefinitely. Like all businesses they need to make profits. They will be under pressure from several angles. Their shareholders will want a return on their investment. The executives will want their bonuses, as well as securing real value of their share options. They will also be concerned as to their own careers if they do not perform to a degree that at the very least justifies their remuneration package. In Short they will progressively need to relax their lending rules and start to take some reasonable measured risks again and our competition based economy will help to drive this. 2. In the interim, this could be a very good time to change your car for a new or near new one. You may well not get much for your old car but the savings that can be secured on these newer stock cars, can be huge. In doing so, you will help a car salesman keep his job, help keep a dealership afloat employing the staff they do and helping the manufacturer to shift stock and be able to restart production. Once banks improve their lending, more people will buy and the deals will no longer be as keen. 3. If you move house or buy a property, you may find you lose money on the one you are selling, (assuming you are also selling). However you may well save a lot more on the one you are buying. If you are concerned about the risk of redundancy, ask yourself if you could afford to pay your current mortgage if you lost your job. If not, is there any real difference except in your mind. Bear in mind you could also build in various financial cushions to protect yourself. Again, for reasons stated earlier, banks will need to progressively relax their lending policies. When they do, many people who currently want to buy but cannot secure the required level of finance, will begin to buy. At that point prices will move upwards. My belief is they will do so quite sharply, as most builders have stopped or dramatically slowed building projects and by and large are not submitting planning applications. Given the Governments own forecasts of a significant increase in future housing needs, there is likely to be a huge shortfall in supply once the market and the general population recovers confidence. (Don't forget the old adage. By the time the banks think something is a good idea, the opportunity has been and gone). 4. On a smaller scale, applying greater financial prudence in these difficult times clearly makes sense; however, think of the impact on the economy if you and those you know apply a small change to your current spending habits. Take what you were planning to spend each week and then add on a discretionary spend. Even a nominal £20 could make a huge difference. Spend this money where you were not planning to do so, (that is to say not at the supermarket). Go for a meal of drinks with friends or treat yourself to a massage or some beauty treatment. Even go to an electrical or clothing store and buy an item. In doing so, you will be helping those in the retail and service sector survive these difficult times and not join the ranks of the unemployed. Thus they will not become a burden on the state and will in fact be able to contribute to the revenues needed to bail us out of the current situation. More Good News The pound is now very weak against the Euro and Dollar. Although not good for those of us planning a holiday abroad, it does make domestic holidays attractive. I would book early, as I think the good accommodation will soon be booked up. This situation is likely to be compounded, as the poor exchange rate should also make the UK a very attractive place to visit for foreign tourists. Thus bringing in much needed revenue. The weak pound will mean what manufacturing base we still have, will be able to compete more competitively in the export market. This will help secure more jobs, particularly in car manufacturing. Our traditional deficit of exports-v-imports should also be helped by foreign goods costing us much more, thus we are likely to import less of them, hopefully seeking home produced goods instead, again helping our economy. It is all of the above will help us recover from the current mess the country is in, not a 2.5% reduction in VAT. So Karl's wisdom is simple. Ask yourself why you are not doing things you would normally be doing and why you are not buying, when it may be a good idea for you to do so. If, when you have looked at your situation objectively, away from the overwhelming negative noises, you feel you are able to help yourself and the economy, decide how best to do it and make a start. You may also wish to share this letter with others so they might have the chance to consider a different perspective. They too may also decide they can make a difference. Here's to people power and a much happier and more positive 2009 to you all.
2. Holding off spending as waiting for prices to be reduced further to get a better bargain.
3. Not moving house as concerned will not be able to afford new mortgage if they lose their job or because banks have toughened up their lending policies.
4. Not buying a new car for either the same reason or struggling to get a bank to lend.
5. Reducing or stopping discretionary spending on nights out and holidays.
2. Food and oil and commodity prices are down, yet over the medium to long term there is a growing demand for them.
3. Changing weather patterns have started to and will continue to transform some marginal lands into arid uninhabitable regions, causing migration to more habitable regions, which may already be under pressure from the established population.
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