I'm no economist but I've believed the abyss was coming for a couple of years. The transparently perilous increase in house prices, flatly ridiculous availability of cheap debt ("credit" is just a euphemism) and the fact that the US and UK economies, in particular, were fuelled virtually 100% by this unsustainable supply of debt combined with vast financial institutions perching their lives on top of derivatives whose quality was based on a set of pitifully rosy assumptions was simply a time bomb. Real economists recognised this and I followed them.
I'm in a position where my sole exposure to this economic - infuriatingly self inflicted - earthquake is a couple of blocks of expensive debt (expensive from the start because it's unsecured) and a job. The job, I believe is fairly protected against this recession but I can't guarantee it.
I don't own a property or car or anything like that so, provided I stay employed, I can't see massive problems for me personally (famous last words...).
Still, sitting here and watching the world cave in is something to behold, it really is.
As of this week, the UK government has announced its pre-budget report containing a VAT cut, gifts to pensioners and those on benefits and borrowing that will soon mire the nation in a trillion pounds' worth of national debt ($1.5 trillion). Meanwhile, the US government has committed nearly $2 trillion in bail outs and ameliorating measures and this is before the $700bn infrastructure plan is announced that will be implemented by the Obama administration.
These figures are simultaneously eye-watering and stomach churning. The stomach churning part is the fact that it appears that the financial institutions who engineered this calamity are standing to gain the lion's share of these gargantuan sums. Precious little is going to directly or indirectly benefit little old you and me.
And, in case you were tempted to sit back finally and think that all this phenomenally expensive bailing out will solve the problem and we'll get back to normal in 2010 or so, not so fast. Even the governments proposing and announcing all these measures can't even come close to suggesting that success is even likely, let alone guaranteed.
The trouble is, we really have to change our economic psychology. We're going to have to live in a post-loan, post-mortgage society. Why have Germany, France and Italy comparatively skated over this black hole? Because mortgages are the exception and loans where not handed out like penny chews in those countries. We and America are going to be forced back into the more prudent European consumer borrowing model.
I was never really for a "house owning" society because I saw the risks of such massive loans in the hands of so many. It drives property prices to eventually unbearable heights, it places incompetents in possession of huge debt mountains they'll eventually mess up and it makes it harder for those who want to rent to afford rent. I fail to see the problem with renting - except you can't always keep pets.
As several people have said, if the government had built lots and lots of social housing whilst the money was there it would have given us a safety net and would have slowed down the rise in house prices (more supply and less incentive to buy when quality rental housing was about). On top of that, there would have been more jobs out there. This didn't happen and so we're left with the Chancellor begging the lenders not to kick people out of houses they should never have bought.
From inflation of 3%, interest rates of 4.5% and growth of about 2-3% two or three months ago we have gone to projections for the middle of next year of deflation, interest rates of 0.5% and a retracting economy by -1.1%.
It's like the world has simultaneously woken up and is in a bad dream. Thanks to none other than greedy idiots.
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