Unemployment and hopes for a V shaped recession

December 30, 2008 | Leave a Comment

In recent months, the financial crisis has made job security for huge swathes of workers a thing of the past. In the months of June to August 2008 (inclusive) there was the biggest increase in unemployment since the middle of the last recession in 19991. It was also highly ominous that there was the biggest slide in the numbers of people in jobs since 1993.

Over this Christmas season we have seen further business closures. The cheapness of goods in the shops leading up to Christmas beg the question, will any more of the familiar retailers in the malls be going into liquidation in the New Year? Nearly 2 million people were unemployed in the U.K last week.

How far will the fingers of unemployment be reaching?

In the build up to Christmas, job losses in the financial, housing and service sectors have been the most obvious to happen. Alongside this it has become clear that economic hardship has taken its toll on the retail outlets as well as manufacturing. Even exporters, who were expected to benefit from the falling value of the pound, have not enjoyed the boost they hoped for as potential buyers abroad cut back on their own expenditure.

How do our unemployment levels compare with abroad?

U.K unemployment is still a lot lower than our competitors abroad with, for example, 5.7% compared to Germany’s 7.3% unemployment. With U.K workers being perceived as more flexible in recent years, this stands the U.K in good stead for recovery. The hope is that we will have a short sharp V shaped (rather than U shaped) recession and will come out of it quickly…. although predicting the outcome of this unique financial crisis is very tricky to do as we are all, globally, in uncharted territory.

Saving money on electricity (Part 3)

December 27, 2008 | Leave a Comment

Here are some final ideas for saving money on electricity. Please feel free to post other ideas for saving on electricity to share with other readers.

• If your electricity bills seem excessively high, an energy audit may be in order to check if there is some form of leakage or theft of electricity from you.
• A programmable thermostat plus thermal linings to shoes and slippers will both reduce the temptation to nudge the heating up and this will save electricity.
• Shutting down the water heater at night may not help to reduce electricity used as you have to heat the water you use whenever you use it. A good insulating jacket / tying old duvets to your water tank may me a more helpful way to save on electricity by keeping the heat in the water for longer.

Saving money on electricity (Part 2)

December 24, 2008 | Leave a Comment

As energy costs continue to rise, finding ways to save money on electricity can help to release funds for the more fun things in life.

Here are a few tips for saving money on electricity:

• Using small kitchen appliances such as microwaves, slow cookers and toaster etc can use up to 75%  less electricity than turning on the large electric oven will.
• Using lids on pans will save cooking time resulting in saving money on electricity. Likewise, using the small hob on your cooker rather than the large one for small pans will save electricity too.
• Turning off all appliances when they are not in use will save electicity…televisions, dvd players, computers etc all draw small amounts of electricity just to operate that little light that tells you it is plugged in. Every little helps when saving money on electricity.
• Replacing old incandescent bulbs with new energy saving light bulbs can save up to 25% of your lighting costs for those rooms.
• Turning your thermostat for the furnace down to 68 or lower will save money on electricity.
• When you have finished baking, prop open the oven door to allow the remaining heat from the oven to warm the room (only do this if there are no young ones in the house).
• If using a tumble dryer, dry one load after another to avoid the machine needing to re-heat. This will save some electricity.
• On the same principle, if your hot water tank allows it, take showers one after the other in the household to avoid wasting as much warm water sitting in the pipes after a shower finishes.

 Remember…..little amounts do matter….50 cents per day saving amounts to $15 per month and $180 per year…so it’s worth doing!

Saving money on electricity (Part 1)

December 20, 2008 | Leave a Comment

With rising utility bills and generally tighter budgets for many, it is important to consider how to cut back on the quantities of fuel that we use – especially when securing cheaper prices as a way to save money on electricity is becoming harder to do.

How can I save money on electricity?

Over the coming days, Credit Crunch Helpdesk is going to examine some ways of saving money on electricity that may work for you. Give them a try….its the only way to find out what will work for your home…

• One of the most common ways of wasting electricity in most homes is the failure to turn off lights when they are not in use. Turning off unused lights may seem obvious – but, just reflect how many times you walk back into a room after dark to find a light on and nobody using the room. This can be a particular issue with young children leaving lights on everywhere they go. Encouraging new habits will save a lot of money on electricity. The only exception to this would be some light bulbs that have been designed to be more efficient when left on in spaces where people are coming and going a lot. Check your manufacturer’s instructions for details on this.
• If you are in the habit of leaving an external light switched on for when you return home, changing this light fitting to a movement sensor will save money on electricity as the bulb will only be switched on when needed.
• If using electricity for heating a room, ensuring windows are well covered and draught proofed in winter will help to prevent the cold coming into a room off the glass. This will mean that you save money on electricity by not having your heaters on so high / so long. This technique will also save for other forms of heating as well.
• If your hot water is heated by electricity in an immersion tank, heating water on a timer saves money on electricity in comparison to leaving the water heater on all the time. A morning and evening slot for water heating will normally suffice day to day needs and a well insulated tank should hold the heat in the water for several hours.
• It is worth contacting your electricity carrier and checking prices for electricity consumption during off-peak hours. There are lots of things you can plan to do at these time such as charging batteries, using the tumbler dryer or washing machine etc. Every little action helps to save money on electrcity.
• On a similar theme, you can  save a lot of money by hanging your clothes out to dry instead of using the tumble dryer to completely dry them. Just 10 minutes on a timer in the dryer once they are dried through will be enough to soften most items and get superficial creases out.         

The spectre of deflation on the horizon…what’s the problem with deflation?

December 18, 2008 | Leave a Comment

Deflation in context

Deflation. Its the lastest word being bandied about by politicians yet, only a couple of months ago, it was inflation that we were all worrying about (currently at 4.5% and still above its 2% target). So what does all this mean? If deflation means falling prices surely we should all be cheering and start shopping again? 

Maybe. In the short term people may react in just that way to deflation. In  the medium to long – term it should be making us nervous. I was noticing that twinge of concern the other day. I went into a store that I use regularly to but a top for my daughter. Whilst there were a lot of marked down goods, the one I chose had not been. Its price was just under $14. I go to the checkout and the assistant tells me that the price is now $4. How did I feel? Pleasantly surprised I mean everyone loves a good bargain don’t they? I double checked the price was correct and it was confirmed that everything was marked down to this extent. I then felt nervous. All shops mark down stuff….but to this extent of new stock?!!! Something felt wrong. How can stores survive with sustained mark -downs at this level?

 So what is deflation and what does it mean for the economy?

 In the short term, deflation (falling prices) is not a huge issue for the economy provided it does not last more than a few months. The UK economy has not seem a fall in the Retail Price Index (RPI) over a period of a year for over 40 years. No long term damage was done then…just a slowdown in the economy. 

The Bank of England predicts that the Retail Price Index will fall below zero sometime in the coming year. This is a natural consequence of the drop in interest rates filtering through on the cost of mortgages and other borrowing.

However, the Consumer Prices Index (CPI) is expected to fall to around 1% some time next year (instead of the government target of 2% for inflation. The CPI falling below target levels is just as worrying for the Bank of England as being 2.5% above target. If deflation happens in the coming year, the Bank of England will become obliged to raise the interest rates so as to bring inflation back into line. If they don’t, retailers will be forced to lower their prices to such an extent that profit margins become too tight or, worse still, disappear. How can the economy start to grow again then?

Japan’s experience of deflation

In the early 1990s Japan was experiencing falling property prices and business failures. The government failed to intervene early. Failed business’ assest were being sold off in fire sales making an already weak economy even weaker. By the time Japan’s central bank started to to take action by cutting interest rates, increasing spending and reducing taxes it hardly had an impact. Japanese banks were taking all the failed loans off their balance sheets and owning up to haw much money had been lost but it was too much too late.

By the late 1990s deflation had set in for an already stagnant economy. People start holding out on buying goods for longer at times like this waiting for prices to fall. As they fall, profit margins are squeezed then eventually some businesses will be unable to sell their goods at a profitable price compared to more efiicient competitors and their business will fail. Resulting unemployment leads to less spending power in the community and this exacerbates the problem.

 It took Japan a nearly 7 years to see positive inflation after that. Losing 10 years of potential economic growth is the last thing that the government wants to see. That is why tax cuts and major interest cuts have happened quickly in the UK.

Government to underwrite loans to businesses?

December 15, 2008 | Leave a Comment

David Cameron (Conservative leader in the U.K) has, again, commented on the problem of banks being unwilling to lend to businesses in the current economic climate. The problem is that the banks’ fingers have been so badly burned by the credit crunch and resulting financial crisis that they are scared stiff of being caught out again – especially when the full impact of all that has happened in the economy has yet to reveal itself.

Cameron argues that intervention is needed to kick-start the process of lending to businesses and that the only way to give the banks the confidence to do this is for the government to act as guarantors on appropriate business loans thereby taking away the risk from banks.

 He has argued that  a national loan guarantee was “a massive state intervention to help the banks lend again.”  This seems like a great idea…however, with a government up to its neck in debt as a result of   spending, taxation  and bank bailout decisions, where is the money going to come from if called on for bad debts.

I am with Cameron when he  called for “new rules and incentives to create a new culture of responsibility” which need to be enforced by the regulating body. However, it seems like a high risk plan (if recession is leading to the fall of many businesses) for a highly in debt government to act as guarantor to high risk loans.

I know that some risk taking has been necessary to intervene in the economic downturn – but surely it needs to be low risk?

Santa to blame for the credit crunch?

December 12, 2008 | Leave a Comment

Netmums.com surveyed 1,000 parents this year and found that around 40% are saying that Santa has had to tighten his belt too this year. Around 5% were planning to have a frank conversation with their kids and shattering the myth of Santa so that their kids don’t build false expectations.

However, nearly half of respondants claimed they would do whatever it took to ensure that their children still has a good Christmas and would deal with the consequences later. It is precisely this attitude that has caused hundreds of thousands of people to ratchet up inappropriate levels of debt in order to live out some form of ideal of being able to instantly buy the things they and their family want perceiving is as a need. “I need to get my child present X or Y (or even X and Y) for Christmas” is the refrain whilst putting the cost onto the plastic and facing the mounting debts later. Dare I suggest that the most valuable gift that we can give out children this Christmas is love, quality time and humble gifts teaching them the true value of the season as well as the importance of being financially responsible?

Central bank drops interest rates again. What does this mean?

December 9, 2008 | Leave a Comment

Central banks drop interest rates again.

The Central Banks dropped interest rates again (having only left a very short period since the last interest rate cut). What does this mean? Whilst we are used to occasional announcements saying the central bank has dropped / increased interest rates by  X %, we are used to just thinking about it in terms of “Great! That  changes my mortgage payments by $x or £y.” then forgetting about it.

So why should alarm bells be ringing when interest rates are cut this fast?

For a start, this is totally unprecedented and shows the extent to which the banks are scared stiff by the nightmare that they have caused. They are not passing on these interest rate cuts to the extent that was hoped which means they are covering their own backs first.

This global financial crisis that we find ourselves in has not even begun to reveal its full enourmity yet. On the front line in industry and retail we are hearing of long standing businesses that are leading brands going to the wall. A recent survey of recruitment consultants has revealed that the job market is heading downhill at a terrifying pace. U.S manufacturing is at a 26 year low. In Italy, industrial electricity consumption is down by almost one third. $70 trillion of cash has been injected into economies world wide and virtually disappeared into thin air!

Whilst interest rates being cut can have a positive impact by preventing this vicious circle from travelling deep into the economy, they are certainly not going to stop the process. It feels we are all on a rollercoaster ride and, like kids unable to determine the path of the ride and scared by the prospect, we are yelling “Stop the ride I want to get off!” But it can’t happen. The switch to start the ride was pulled by the banks that started selling dud mortgages. As we keep doing loop the loop past the same horrors revealed in different countries, even the engineers of this ride don’t know where it will end or how to stop it. We all have to just hold onto our hats and hope for the best. The world will seem quite a different place when we get off.

Credit crunch rise insurance claims

December 7, 2008 | Leave a Comment

Why would the credit crunch raise insurance claims?

It is feasible that, in the wake of the credit crunch and the start of a recession that insurance claims will rise. As people planned holidays then find they have either lost thier job or are nolonger able to pay for it using credit, there is potentially a rise in fraudulent travel insurance claims.

The Observer Newspaper recently quoted Direct Line Insurance and the Absolute Fraud Management (AFM) service as expecting a rash of claims from unscrupulous policy holders. Of course, this problem will not only be reflected in people trying to recoup what they have paid on failed holiday plans….a rise in household policy claims as a means for unscrupulous people to raise funds claiming loss of expensive items is also expected.

How will the rise in insurance claims affect customers?

Chris Price at Direct Line added: “It is generally said that during an economic downturn insurers see an increase of fraudulent claims on their books.” As a result, we can expect an increase in the time takes by insurers over legitimate claims as everybody’s insurance claims will be carefully scrutinised and authenticated. Customers seeming vague or nervy in during telephone claims will be expecting a face to face interview…otherwise premiums could end up going sky high to compensate for fraudulant claims.  

For the rest of us this may simply mean that we have longer to wait for genuine claims to be settled. The current financial crisis also means that customers are more likely to claim for loss or damage to lower value items making the claims process slow down due to claims volume.

Automobile Industry Affected by Credit Crunch and recession

December 5, 2008 | Leave a Comment

Falling car sales leading to manufacturing cutbacks in the automobile industry

I suppose it stands to reason that as credit becomes less easily available, those big ticket items like new automobiles are going to be one of the first industries to suffer. The credit crunch and recession seem to be feeding off eachother now. In the U.S, the U.K and Australia there have been announcements about cut backs in automobile manufacturing. The result? Redundancies / shorter working hours, less income  available to spend in the economy and retail outlets suffer further.

So what is the fallout of cutbacks in the automobile industry (amongst others)?

I don’t know about you but I have really noticed (when out and about) how grim peoples’ expressions are. There is a lot of pressure on most households’ income ….Thanksgiving, Christmas, school recess (an needing to entertain the kids)….all these factors are a pressure financially at the best of times….let alone when credit bills are hitting the doormat and there is uncertainty about how many more paycheks might be coming in if the recession bites hard.

So how do we move forwards from here? When can we feel safe to spend again? Public perception is that the VAT reduction in the U.K is not expected to have much impact on the spending of many households …the main benefit might be on heating bills (but any saving is quickly offset by rising household fuel costs). Banks are enjoying lower interest rates but passing only a fraction of them on to the customers. Everyone is scared.

Well, back to the Christmas preparations…this year it all seems much more balanced…a bit of giving but having the space to remember the reason for the season.