dunroving

Yep, unfortunately, many Western economies are dependent on a thriving service industry and consumerism.

I rarely shop (except for food), and rarely go out to eat, and it strikes me if everyone did the same, the country would probably go down the pan!

bingobob777

I fully agree and Australia is in a much better position to get out of it than the UK, however the politicians in both seem equally clueless about how to solve the problems.

Bud the Wiser

Does anyone know how to solve the problems? Austerity? Investment? Bail outs? or is that just kicking the can down the road? Quantitive easing? Deflation? Inflation? Protectionism?

What would you do? a) if you were in government and b) to protect and secure yourself against the uncertaincy of financial security.

N.B. This is an open question and not a question just to bingobob777.

To offer my own tuppence.

a) I would start to chip away at the dependence culture of benefits and offer more incentives to the lower paid. Once the differencial between what one can earn through labour and what one can receive through not working is a big enough incentive to encourage entrepreneurship and commitment then we will see natural growth.
Of course, one of the problems with democracy is that, with the odd exception, people vote for what is best for them personally, regardless of the bigger picture, or indeed the short term picture. Easy to give some one a benefit, harder to take it away.

b) Kill off any personal debt. If you're not a debt slave your options will be much greater.

chris955

I think that is largely irrelevant though, even if Australia is better placed to get out of it and Im not sure that is the case they seem unable or unwilling to do anything about it.

bingobob777

yeh that's exactly what I said

bingobob777

Raise interest rates back to historical norms, reward people who save instead of bailing out those who're in debt. Hundreds of thousands of people would be fu**ed, but so be it.

As you say cut benefits, and drastically. I would go as far as issuing food vouchers and stuff, anyone receiving benefits shouldn't be able to buy afford fags and booze

Invest in large infrastructure projects that will provide some long term benefit

either pay off some of the PPI contracts holding back schools and hospitals or tell the company leeching off the taxpayer to eff off

dunroving

The problem is that if interest rates were raised, the housing market would stagnate completely because people would not be able to afford a mortgage at current house prices, sellers would not be able to sell at lower prices (because they would put themselves in negative equity).

This in turn would lead to a lack of mobility and a knock-on effect on the economy.

Additionally, a rise in interest rates would mean many people's mortgage payments would become unaffordable, leading to large-scale defaults, another banking crisis, and personal misery for lots of homeowners who don't deserve it.

The economic crisis was created largely by the housing bubble but we can't just flip a switch and change house prices to pre-bubble levels. Some were lucky enough to ride the bubble and now have a mortgage that is a half, or a quarter of their house's current value. Others were greedy enough to use their house as a cash cow through remortgaging and the extra money has been spent and gone, on holidays, cars, tellies, whatever.

I agree that something must be done about welfare reform. I think on STV the other day they were saying that one third of the Scottish budget was spent on welfare payments. Although I realise that not all benefits are "undeserved" (I support disability benefits, and unemployment benefits in principle), too much money is being spent on people who could give to society but choose not to. The interviews I see on telly of people whingeing about what a "disgrace" it is to suggest cutting their money make my blood boil. Either benefits need to be cut or the rewards and incentives for working must be increased.

Lothianlad

Tell that to Red Ed Miliband, current leader of the Labour Party Opposition as their annual Conference begins today, Sunday 30/09, in Manchester.

That guy is going to be stuck between a rock and a hard place - his party is largely responsible for the massive budget deficit the current UK Government inherited...that famous note left behind by the outgoing Labour UK Treasury official following Labour's election defeat in 2010 was not written in jest...."Sorry - no more money left!" turned out to be only too true.

Miliband relies on huge financial support from the Trades Union Movement in the UK, and Organisation which has seen its overall UK membership decline in recent years, an Organisation which bases its strike calls on a small minority of TU members who actually vote for strike action out of a small minority of Union members who even turn out to vote in strike calls inthe first place. Is that democracy at work? Hardly!

And now the weakened Trade Union Barons are now beginning to call the shots in the way Labour should treat the financial mess they left behind in May 2010. That does not include very necessary cuts in welfare spending, a substantial proportion of which goes to people who really do not deserve them.....there really is a sizeable number of idle scroungers out there. Balancing things out there we also have welathy p[eople in receipt of benefit payments they really do not need - eg winter fuel payments and child benefits.

The present Government islso dedicated to the cause of ensuring that tax evasion by the rich is given very high priority, and that is now being put into effect.

Will Red Ed actually manage to deal with the ludicrous demands placed before him by his Trades Union Paymasters? Allow welafe spending to continue unabated at a time like this? Continue to allow strikes to go ahead under the current system I hjave described above?

I reckon Pretty Boy Miliband is going to have a diffiicult time this coming week, no mistake. I guess we shall see all his weak spots comes to the fore in the face of his Paymaster Heavy Gang.

Every Labour Government in our history has left this country in a poorer financial state overall on leaving office following a General Election defeat.

Pistolpete2

Ref: Bud the Wiser:

Does anyone know how to solve the problems? Austerity? Investment? Bail outs? or is that just kicking the can down the road? Quantitive easing? Deflation? Inflation? Protectionism?

What would you do? a) if you were in government and b) to protect and secure yourself against the uncertainty of financial security.

Rome wasn't built in a day! One has to look at ALL angles to get the picture.

The economic crisis was created by a combination of factors:

The ongoing level of trade imbalances between the western developed economies (except Germany) and the developing nations, principally China, meant (and still means) that there was an explosion of debt being held outside of, in the main the US, unemployment and underemployment and an export of jobs to faraway places. As a result, without domestic stimulus those developed economies were destined to languish in the doldrums for an indeterminate period. The answer lay in extending cheap finance through loose monetary policy (Thank you Alan Greenspan and Gordon!) to keep property prices high (for equity withdrawal and appearance of wealth) and thus a stoking of the consumer-based economies.

The US powers that be (both sides - started under Clinton) decided for political reasons to artificially stimulate property ownership further (the American dream) through the extension of mortgages to minorities and then previously unqualified loan applicants (the sub-prime market) and fraud played its part in expanding this effort further when application forms were adapted (flattered) to make loan approval more certain.

Along came a bunch of whiz-kids at JP Morgan who developed "fool-proof" (they truly believed they had discovered the Holy Grail) methods for allowing banks to take the debt risk and actual mortgage financing off their books while at the same time booking huge profits through the fees they made for re-packaging these mortgages. The mortgages were often sliced up so that their valuation was almost unauditable - and yet their securitisation was rated AAA, giving rise to a feeding frenzy - but the whole exercise was based upon the obvious false premise that in general, properties would continue to rise inexorably. False at the very least because nobody considered the impact of putting sub-prime mortgages into the mix.

When Lehman Brothers and AIG failed or was pushed to the brink, the finance-induced US property bubble came to a head because other banks/lenders became precarious and their property loans a major issue (FreddieMac and FannieMae, Countrywide and Wachovia in particular). UK banks which participated in investing in the same property junk or were hit by the rapid increase in retail financing costs post the failures had to also be bailed-out.

This and the ill-judged takeover of ABN-AMRO by RBS (they simply paid too much and CEO Fred Goodwin was revered like a god after his very successful takeover of NatWest) caused it to near collapse and Lloyds TSB nearly fell as hard due to its involvement with H(alifax)BOS.

Any future stimulation of economies will have to be done the hard way.

Nothing has changed in terms of the trade imbalances as of today (not helped by the continuing high price of oil such that the Middle East is also a huge holder of debt) and the West is still mired in debt at the government, corporate and personal level which has meant that only the rich and very rich are now really participating in their consumer economies while others are struggling with day-to-day living costs through the use of credit cards and personal loans in part because inflation is still out there but employees have no bargaining power. A quick look at the share price of LUXURY goods producers such as Coach (handbags) and Diageo post 2008 as compared with say Best Buy will show you where the profits are now being made.

Many of the jobs created today in the UK are only part-time or minimum wage or non-earning, meaning that unemployment comparisons with prior periods are not trustworthy. This is not going to change for the UK while it is not producing the calibre of homegrown job applicants in sufficient numbers to meet start-up businesses' (THE BIG OPPORTUNITY) requirements so that they pass them over and seek imported labour to fill the gaps and there is a Tory last election commitment to control inwards migration numbers, no matter who.

To make matters worse, the recessionary conditions have caused even more burden to be placed upon state benefit systems coupled with a decline in tax revenues due to declining taxable profits. There is no money left to stimulate economies without risking downgrades from rating agencies which could add billions to the cost of further government debt issuance while the UK government borrowing requirements continue upwards unabated.

Part of the reason there is no money is because major corporations and the very rich have of late come up with even smarter ways to take their cash and taxable earnings offshore, often in cahoots with their own governments who rely on them for party financing so have tended to turn a blind eye until now.

The present UK governmental decision-making process (or the lack thereof) is not helped by the fact that there is a coalition government within which individual party "ideology" has often been diametrically opposed. The Lib-Dems have to put some sort of mark on things now or risk being completely annihilated at the next elections. So, they put the breaks on Tory initiatives which might have had a positive effect.

UK finances are so weak (worse than Greece in terms of budget deficit percentage-wise) that the proposed (civil service) cuts have hardly scratched the surface yet as their implementation would further cripple the economy, so, like the delayed foreclosures in the States, they act as a break on consumer and business confidence.

I would add that I'm not sure the number crunchers realised exactly how much it would cost to let a senior government employee or General/Admiral/Air Marshal go these days at a time when some council senior managers with just over a year's service are widely reported to be getting redundancy packages of around half a million pounds.

Making the UK an easier place to do business through removal of umpteen needless rules and regulations would certainly help today, as would well-directed investment in technology infrastructure which would enable the UK to capitalise on the growth of markets in Asia and the BRICs. There are allegations that lack of investment in transportation (air (Heathrow/Boris Island) and rail (London to the North)) infrastructure is going to hold the UK back from its competitors. The tax breaks given to the energy sector to continue exploration and re-working of existing wells in the North Sea was one such good idea.

Investment in better quality education for all so that the workforce can easily adapt to changing opportunities and innovations and even become innovators is going to take time. Hopefully this is something that is now being embarked upon sensibly enough that it wins the confidence of all stake-holders and does not get trashed at the earliest political opportunity.

There is no question but that the enhanced education quality and social mobility initiative has to be implemented to create greater opportunities for ALL home-grown applicants including those generations of workless families who have lived entirely off benefits who need to be specifically and skillfully targeted for a change of outcome and mentality.

Those on benefits have to now clearly see that they will be better off by becoming part of the workforce and not that it is easy to come up with an excuse for not working or training or studying or internshipping? for work when there are benefits to fall back on. Of course opportunities need to present themselves to such people when they have readied themselves.

Employers need to be able to see UK-sourced employees for their having at least equal levels of work ethic and productivity, within reason, to those they are looking at to hire from overseas for an equal wage.

The current EU arrangement where EU employees can enter and work in the UK is simply not a level playing-field when they typically learn English as a #1 language in school and find the UK is a step-up in terms of standard of living as there is no reciprocity for UK citizens. This at a time of scarce employment which is likely to remain that way for a while to come. I accept the difficulties in the hospitality industry.

A UK government sponsored development bank would help to finance new start-ups at a time when the banks see no potential gain to be had from relaxing their lending requirements in the face of increased borrower failure risk.

IF one were to raise domestic interest rates, not only would the property market collapse but Sterling would likely take a huge leap to make UK exports far less competitive at a time when a manufacturing-led recovery seems to be the only way out after the low-interest rate environment leading to growth option (incl QE) seems to have been exhausted. Anyway, interest rates right now should be low in spite of QE if only due to the current weak market conditions.

The UK being out of the Eurozone, benefits in part from low government debt costs due to its safe haven status (like the US is THE reserve currency) and good (current) credit rating which increases demand for UK government debt.

I haven't even mentioned Europe and the Euro! or the US debt cliff.

Need a lie-down!

Bud the Wiser

Some excellent posts, from which I can add very little. Suffice to say your inputs, for me at least , have been greatly appreciated.

I suspect the majority of the baby boomers will be able to ride out their remaining days in a comfortable, if not ideal fashion. My concern is for future generations and how they will cope with the legacy we have left behind.

Pistolpete2

Fine if you are in line to inherit from a baby-boomer!

Indeed there are legacies for the next generation that are a cause for concern for them:

Increased pensionable age
Need to make their own pension provisions
No more final salary pensions for most - less certainty under def cont
Maybe NHS cutbacks and rationing
Fewer on the property ladder
Fewer pursuing their chosen career for which they had studied
Governments will no longer be able to afford current social programmes - period
Student debt

also the demographic of aging population, so fewer taxpayers/contributors

But to me the biggest concern is that there is not going to be enough work to go around for the average worker so that we end up with a good number at the top very well-off end and few in the middle and most at or close to minimum wage bottom end. This is made more extreme by the emerging labour economies in their grabbing manufacturing and some service delivery. So if the UK makes it or does it then it has to be the best by far in terms of overall value.

Sure there are new opportunities in Leisure/Recreation and in Health Service/Care delivery but most are not good wage opportunities as we have witnessed on forums here.

We are a long long way from everything being made in Birmingham and we need to remember why exactly that was the case when it was, what with empire and all. The Uk (ok Scotland!) was once THE nation of inventors and we need to get back to being a nation of similar ilk in innovation for as long as it can last.

Pit Bull.

Inflation has dropped to 2.5% that's good news. Lol

Pistolpete2

Per Andrew Sentance (Andrew Sentance is senior economic adviser at PwC and was a member of the MPC from 2006 to 2011) in today's Telegraph:

"the recent fall in inflation has been helped by the pound rising against the dollar and the euro, holding back import prices. In the past year, sterling has appreciated by more than 6pc against our trading partners. "

Previous high inflation was in part due to the then decline in Sterling making commodity prices higher.

Could be not so good news for returnees on MBTTUK who are looking to convert their home funds into Sterling. However, it does relieve a great deal of pressure from UK consumers.

Again per Andrew Sentance:

"Inflation is the biggest threat to growth in the current environment when incomes are rising slowly – not deflation."

dunroving

Anyone who uses facts, words with more than two syllables, and paragraphs must be a doomsayer and a traitor to this sceptred isle. Think positive!

chris955

Yep, I agree