Is the so-called “credit crunch” a little exaggerated or is there really cause for alarm?
This article examines some of the apparent truths to do with the credit crunch but also suggests that their is more to it than meets the eye.
Some Unfortunate Truths
There is a problem, that much is clear. It is harder to get a mortgage now. There are more home repossessions than ever, prices are escalating worldwide, apart from in housing, where they're tumbling and more and more people are feeling the pinch.
It all started, they say, with problems in the “sub-prime” mortgage market in the States. People who really couldn't afford mortgages were given them and defaulted on their payments. This had a snowball effect on other markets.
So, the banks run out of money. They start to put the squeeze on their customers, reducing their spending power, which slows everything down.
Bankruptcies are forced, so debts are not actually repaid. Firms go under and even if they sell up before they go bust, it's just putting the problem in another space. Homes are repossessed, but who is going to buy them as you can't get a mortgage these days? The money gets stuck.
It looks grim, but if we unpick it a bit, it looks better.
Blame it on Oil
Why shouldn't the less wealthy own their own homes? It creates a healthy self-interest. What has probably scuppered them more than anything else is the rise in the cost of living. Which has been been caused to a large extent by the rise in the cost of transport. Even a giant like British Airways is in trouble because they're currently paying far too much for aviation fuel.
If petrol goes up, everything goes up. Here's a thought. Why are we still using oil? There are plenty of alternatives. A counter argument is often that it costs more to develop the alternatives than it does to carry on using the same old tools. Not in the long run, it doesn't. Plus, by using something other than fossil fuels we might also tackle another 21st Century problem.
We ought to remember that electricity is actually a very efficient way of converting energy. You just find the best possible way at the time of making it. Burn a little oil for a few years, use natural gas for another few, whilst it's there, and what about all the sunshine on the plain in Spain? The Atlantic waves? The autumn winds?
The sun is, ultimately, our primary source of energy. Last time I looked, greenhouse effect or not, she was still shining brightly and will do for millions of years to come. She is, also, slowly, responsible for our water.
Beware the Power of the Press
Well, journalists do have to make a living and they have to find a story. It's not that they tell untruths. It's that they don't tell the whole of the truth. They cannot possibly. Sadly, it's part of the darker side of human nature that bad news is more interesting than good news - except on Sundays. It may be because by hearing bad news you can fell better about your own life and be grateful for not having it quite so bad. Sundays are just a bonus. Maybe the press can be forgiven, then.
Actually, though, at the moment, they are making the “credit crunch” worse. They go on and on about it. So, even those people with no financial problems stop spending - creating financial problems for others.
We need to find out the truth by listening and reading carefully and looking at the gaps in the lines.
What do you make of this for instance?
On a long car journey recently I listened to two financial reports on the same radio channel, actually read by the same newsreader. One said that more money than ever had been borrowed in this financial year. Another said that only half the number of mortgage applications had been successful this year compared with a year ago. Those two statements do not contradict each other but they do give two different pictures of the economic climate.
Remember the Baby Boomer Effect
There are natural economic cycles and they are often to do with population. A golden generation was born after World War II. Attention, including financial considerations, were poured into these people because they were the hope for the future. There were a lot of these people. We were trying to replace those lost in the war.
They came of age and went into their first jobs in the 1970s. They got on to the property ladder quite easily, but in the mid-seventies were paying 14% interest. They could afford it, being the golden people, but weren't they beginning to pay back all that had been poured into them?.
