False Economy?

Whilst the economy needs steady management with long-term goals in mind, Modern politics does not really allow for long-term planning. Already the Greek population are striking against the government they only recently voted in, rebelling against austerity measures which are aimed at keeping the national economy solvent.

This feeling is not limited to the hardest hit of the European economies, grumbling about cut-backs is widespread, and if I am allowed to express opinion, I believe it is short-sighted to rebel against measures that will ultimately create a 'meaner and leaner' economy. The problem here is that the public are finding it hard to understand why the public purse has been tightened so suddenly, especially when they find themselves out of work when there are very few jobs to be had.

There needs to be a two-pronged approach, introducing more efficient use of public funds whilst enabling businesses to grow, however there is a problem in that putting more controls on bank lending means it is harder to obtain small business credit. Ironically, interest rates are at an all-time low, yet money is not avaiable to those that need it most

Here is another problem, we want to control the way that the banks take risks with loans, but on the other hand, we need the banks to fund regeneration in the economy - or do we?

With the reluctance (whether voluntary or forced) of the banks to lend out the required cash, other organisations are stepping in to lend a hand and provide a much-needed injection of cash. Maybe this will be a long-term change, a change in the way that industry is funded, maybe it will all get back to 'normal', but whatever happens, we are by no means in control of the economy yet which is why I believe only hard graft will get us back to an economic plateau, and only extraordinary diligience will stop this happening again in the future.

The struggling economy

It is no surprise to this pessimistic blogger that the western economy is still not showing the vital signs of growth. From the start, it has been blatantly obvious that this current economic crisis is NOT 'man-flu' on a huge economic scale, but a serious disease that requires not only a painful cure, but a subsequent change in lifestyle. What ails the western system is more akin to a kidney disease, not only requiring on-going dialysis, but a donor kidney and if surviving... a new healthy regime.

Whether that new lifestyle involves bringing the bankers to heel is a moot point - George Osborne (UK Chancellor) is about to argue that Europe is wrong to strangle the banking sector by capping the bonus culture. Controlling pay is certainly an odd idea for what is supposed to be a 'free economy', and although I would like to see the banks take a hit, I would prefer to see them taxed rather than shackled.
Meanwhile the investigation into 'Libor' rate rigging is extending into Europe with Deutsche Bank also coming under scrutiny, while the Euro currency struggles to keep pace with rival currencies.
Let's be blunt - right from the start (barring a few rather silly optimistic predictions) it was clear that the credit crunch was no ordinary economic 'blip', and always had the potential for fatality (of the entire economic system). Every slight recovery was welcomed as a possible 'cure' when in reality we are looking at shallow remission at best. Every dip has been hailed as evidence of political incompetence, whereas it has just been the normal course of the disease.
The disease has been one of indulgence, so maybe a liver complaint would be a better comparison, where the patient will have to lay off the booze if they want to see a future? We are not out of the woods yet, anybody with an economic clue should be able to accept this, the fact that the crisis is not playing to our political agenda of 5 year plans is just a fact we have to get used to. Western democracy has only to look 5 years into the future because that is the normal period between elections - If I had a disease that was going to take 10 years to cure, I would rather not choose a Doctor who only has 5 years left to live himself...!

UK banks under pressure

As Europe tries to sort out bail-outs and attempts to keep the Euro afloat, UK banks have scored a number of 'own-goals' in recent weeks.

We have Barclays being handed a massive fine of £290million, for it's dodgy dealings with banks rates.. within days we had RBS having catastrophic software problems that meant a massive backlog in their payment system. This has prompted the CEO of RBS to turn down any bonus that he would have been entitled to this year (whilst still maintaining that this was the result of previously existing systems).
Today we have the news that the big four banks have all mis-sold complex 'products' to small businesses designed to 'protect' the businesses from interest-rate fluctuations, but ending up as a massive weight around the neck of many a small business.

These news items taken separately are not earth-shattering revelations, but in the wake of the bank-inspired credit crunch, and the ensuing financial mayhem - we are reassured that the banks have done little to put their financial houses in any sort of good order. The banks seem regardless of their public image, ignorant of popular feeling and may yet feel the wrath of both regulatory authorities and the popular vote.

What is double-dip?

It may sound like an option you might see on the sweets menu, but double dip is a sobering reality in the UK economy right now.

It has recently been announced that the long-anticipated double-dip recession is here - this gives us, initially, two questions to answer:
1) What exactly is a double-dip recession
2) What impact will it have on the economy

The answers are relatively simple whilst retaining the complexity that all things economic tend to gather around them. Economic terms are not deliberately 'woolly', but whoever wrongly termed economics as a science instead of an arts subject should be (in my humble and simplistic opinion) soundly whipped with their own economic model.
Recession is already defined in this post (click for the link) as being two straight quarters in which a decline in GDP (Gross Domestic Product) has been recorded. The most recent recorded recession has been blamed mainly on the Credit Crunch and in the UK, officially begun three years ago:
http://www.thecreditcruncher.com/2009/01/uk-in-recession.html
...and ended two years ago:

http://www.thecreditcruncher.com/2010/01/so-recession-is-over.htm
In real terms (spot the 'economic-speak'), the economy has been plotting a very wobbly course with tiny amounts of 'growth' being recorded and always threatening to drop straight back into decline.. When the figures for the last quarter were announced, it was the second negative figure in a row, therefore technically we are back in recession after a relatively short time of 'growth', and therefore we are in 'double-dip'.

So onto the second question... My own reading of the situation (for what it is worth) is that the economy although technically was out of recession for two years had never really established sufficient growth and therefore this latest headline announcement makes little difference to us. There is still not massive growth, everything is still very tentative although here and there, there maybe growth, in other places there is still decline to balance it out.
I think most economic observers will have to admit that an economy bumbling along with practically no growth, is pretty much the same as one that has just recorded a decline in growth as long as all the figures are so small.
To my mind, we are still in 'steady as she goes' mode whilst we wait for the emerging industries to shine through and the declining industries to reach their inevitable plateau.

Here's another question then... what happens if we come out of this and quickly into another period of decline - will it be triple-dip or double dip with a cherry on top?

Economy Update

The latest news is that the UK economy is managing to steer a course around the rocks of a double-dip recession. Standard & Poors have endorsed the UK by retaining their triple A rating, having previously reduced both the USA and France to double A ratings.
Although we are some way from being able to state that the economy is firmly in recovery mode, there are a few green shoots showing through. There are still going to be bouts of closures and redundancies to be endured, but the overall picture is tentatively positive.

Of course, the UK is also still 'enjoying' the extended base-rate 'holiday' as the 0.5% rate is retained for the foreseeable future. Keeping this lower rate as a long-term policy helps to reinforce the 'steady as you go' feeling that has been a feature of the UK economic recovery. Admittedly, it is not great for net investors, but I suspect that there are very few of those around at the moment..!

Credit Cards

Guest post

I know way too many people who abuse their credit cards, and then end up accumulating debt that is way more than they are able to handle. Thankfully, I was taught fiscal responsibility at a pretty young age, and think I have a good handle on my bills. This does not mean that I don't use my creditcard, in fact, the opposite is true. I use my credit card for most of the purchases I make. The difference between what I do and what others do is that I do not buy anything outside of my means just because I have a credit card that can delay the payments. I only buy things that I would be able to pay for in cash or using my debit card. I choose to use my credit card because, this way, I am able to accumulate points that I can use towards paying off my balance, gift certificates, hotel reservations, or even airline tickets. I always make it a point to pay off my balance in full each month, so I am never accumulating interest, which is really just a death sentence in the credit card world. This is not to say that I haven't accidentally developed a bill that was much higher than I anticipated. I always know that, even when I am really not happy about it, I have enough money to cover it somewhere. Generally I have enough in my checking account to pay the bills, but in those unfortunate circumstances where I do not, I can always transfer money from my savings account to cover the difference. I even have it set up so that if I forget to go on and pay the bill it automatically deducts from my checking account. I can see how sometimes you start to rack up your bill quickly if you are not carefully monitoring your spending, but I also have a hard time understanding how people make huge purchases that they know they do not have the money to cover with their cards. I have seen very few circumstances where that has ended well for the buyer, and I hope to avoid ever having to do that with my credit card.

Budget 2012

The Government have learned a lesson this year, the lesson is that if you leak all the good stuff before the budget is announced officially, the media will concentrate on all the stuff you don't want highlighted...
The Good Stuff includes an increase in the amount we can all earn before tax, a staged reduction in corporation tax, removing child benefits from higher earners (not everyone will regard this as 'good stuff'...) and new taxes for gambling and gaming machines.
The biggest 'shock reaction' was to news that pensioners are not going to continue to enjoy their previous tax breaks. In actual fact, pensioners are merely being brought in line with everyone else when it comes to tax - although it has been called a 'granny tax' and presented as pensioners losing money, it has been done in such as way that the pensioners will not enjoy increased tax allowances until they are in line with working incomes.
The other big talking point has been the removing of the top-tier 50p tax rate - said to be intended to actually increase tax revenue - time will tell whether this is true, but whatever else it is, it is certainly a bold step. All-in-all, this looks t me like a budget that gives a lot to low earners, a little to middle-earners and what looks like a boost to top earners too. Of course, it will not please pensioners, but it also manages to boost small businesses too with the reduction in corporation tax.
Time will tell whether this is a 'good' budget, but I think I am willing to concede that it is not a bad one...

Bank of England meets this week

Quantitative Easing will be one of the main topics on the agenda with views spilt over whether more is needed in the light of recent tentative signs of economic stability, and uncertainty over the rate of inflation and the impact of oil price rises.

Most observers are not expecting a change to the Bank Base Rate any time soon, which is great news for some house owners (me included). When pushed on when the base rate may be raised, the general view is that rates will be stable at the all time low 0.5% for at least another 18months.

QE and base rate being two of the main weapons in the Banks armoury, it looks like a economic cease-fire might be called sending a 'steady as you go' message to the markets.