Our 'shallow' economy

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

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)