I’m usually an optimist. My glass is either half full, or the glass is too big.
I’m no economist, politian or expert in such things. However, I can do maths and my gut instinct is generally reliable. This whole economic mess we ’suddenly’ seem to be up to our eyeballs in worries me enormously.
There are some eyewatering numbers. 1 Trillion pounds of public debt, VAT coming down to 15%, 3 Billion capital spending brought forward, a new high band of tax at 45%, National Insurance tax rises… we’re really in uncharted financial territory here.
At a personal level, financially, I’m extremely risk averse. My parents struggled through the 1970’s oil crisis, and the early 1990s interest rate explosion. Times were hard. Even when I left university in 1992, it was hard to get a job. I’ve been made a redundant a number of times. Lessons observed, learnt and taken to heart. Don’t live on the edge, don’t borrow beyond your means, have a safety cushion for when (not if) trouble looms over the horizon.
I don’t take my salary as a ‘given’. I have plans and money in place to cater for a ‘worst case scenario’. I think I could last a year without a job, hopefully giving me plenty of time to take mitigating action.
My mortgage is less than 2x my salary, I overpay and aim to get cut it down to ‘insignificant’ as soon as possible (Why? Because it’s a liability, that’s why!). It’s my only debt. I drive a nine year old car. I haven’t been tempted to indulge in ’spending my equity’ as so many seem to have done.
It appears our problems boil down to “I want it now, but I can’t afford it, so I’m borrowing from my future income in order to have it now.”
This makes the big assumption that the ‘future income’ will be there to repay the debt, and that you won’t be needing your future income for something else by that point.
As you reflect on your life to date you realise you’ve made some stupid mistakes in your time. As a late 30-something, I could give my late 20-something self some extremely good advice. 
As a late 30-something, I would love to know what my late 40-something would be saying to me right now. Unfortunately, given the lack of a time-machine I’m out of luck, however I can shrewdly think of what my priorities will be around that time.
1. My kids will be leaving school (Cars, house, Higher education)
2. I’ll be looking to downsize my working time and spend more time at home
3. I want the mortgage paid off
4. I need to be chucking more money at my pension/savings etc etc.
According to my bank’s figures, I could go out and write a cheque for £100,000 and spend it on anything l like tomorrow. Most of it is ‘equity’ in my house (even though house prices are coming down). I could probably borrow a further £50,000 without too much trouble.
So I could go out and buy that Porsche now, gut the house and redecorate - but that would completely screw up my ‘future self’. I have spare money now, but I need to consider my 40-something, 50-something and 60-something counterparts.
And this is my problem with the situation facing the wider economy. It’s ’short termism’. We’re doing exactly the same thing. Borrowing from our future selves in order to have stuff now.
We seem to be under the impression that we need to ‘restore’ the economy to the state it was in a couple of years back. There seems to be little realisation that we’ve been living beyond our means as a nation and as a planet for too long. We’re going to undergo a period of recession, in order to get back to a ‘normal’ position. If we try to get back to where we were, we’re going to make it worse in the long run rather than better.
If you look at the classic ‘bad news’ scenario, you go through various stages. Shock, anger, denial, realisation, planning and recovery. I think we’re still in ‘denial’. I don’t think people have yet realise that we’re not going to get back to what they think is ‘normal’. All that credit, all these stratospheric house prices, spare money to buy 42″ plasma tellies, iPods, a new car every three years - that’s the real aberation. Normality is (or should be) replacing stuff when it breaks, not when you get bored with it. Buying stuff when you ‘need’ it, not when you ‘want’ it.
We need to realise the “Buy now pay later” days are over.
Borrowing to get out of debt? Borrowing from our future selfs to spend now? Reducing taxes only to put them up dramatically in a few years time? Expecting us to start spending more when we’re facing increased job insecurity again?
I can’t base this on anything solid, but my gut instinct is really telling me that our future selves will not be thanking us for what we’re doing now.
It’s an uncomfortable thought, but part me of me wonders whether or not a deep recession might not actually be a bad thing in the long term. It might shatter the illusion that many of us are under.
My grandfather would have said, “Batten down the hatches and prepare for winter.”
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