Welcome to TheCreditCruncher.com

The Credit Cruncher will help you to keep up to date with credit crunch and recession developments, it will provide some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Please feel free to leave comments where relevant.

15 Jun 2014

Finally interest rates set to rise

Increasingly, even the most pessimistic observers are finding that the main economic indicators are signalling a strong recovery from the financial crisis some six or seven years later...

I am sure there will be politicians queuing up to take the credit just as there were those ready to apportion blame, but these things are notoriously cyclical - we always knew it would eventually resolve more or less regardless of the economic action taken by the various politicians.
The good news also comes along with the 'bad' news that interest rates are set to rise...and fairly soon. Again, we always knew this would be the case, but for those of us who have benefited from low mortgage rates, the reality of the end of the gravy train is just around the corner.
No definite dates as yet, but indications are that the end of this year or possibly early next year will bring a tentative rise in the current 0.5% base rate currently applied in the UK. I expect that it will be several years before the base rate reaches anything like it was before the dramatic drop five years ago.
Of course, I am calling it bad news as a mortgage-payer, but a net investor will be thankful that there is a prospect of getting a better return on investments at long last - also as my mortgage has an element of endowment, there is actually a kind of 'leveling out' of the good news versus bad news scenario even for me.
There is also speculation that this will slow down the property price rises that are starting to kick in particularly in London where housing is so tight, and seeing as it was in part, property prices that led to the original recession, this is possibly no bad thing...

Two basic questions remain then:

'When?' and 'How much?' there is a suggestion in the media that the rise will come before the general election in May 2015, maybe even well before. As for the new level, it will probably be set at 0.75% or possibly 1.0%. A full 1.0% would be more of a bold statement of intent and could be seen as a level that could be maintained longer-term, a mere 0.75% might leave the markets nervous wondering how long before the next 0.25% is added...
For those who have recently bought property on low interest mortgages, a rise in rates will be a new and unwelcome experience - although such a small change in rates is surely not likely to leave home owners without the means to pay their mortgages.
Personally I am currently still overpaying my mortgage, so for me it will simply be a matter of reducing my over-payment so that the overall outgoings remain the same.

Related posts:

Feb 2009 - imminent drop in interest rates
Mar 2009 - base rate set at 0.5%

21 Jul 2013

Signs of recovery

I have always said that recovery from this financial crisis was always going to be slow, and I don't mean months, but years maybe 5 or 6 realistically - and that's just an indication, not a prediction. So I don't take too much regard of the 0.5% growth predicted in the UK economy, to be fair 0.5% is better than -0.5%, but equally it's not a lot to get excited about. having said that, the evidence of building work going on around us at the moment is encouraging. I walked to work four times this week, and was struck by the amount of construction work that is going on. On the other hand, I walked through some flats that had been built in the last 6 or 7 years that were intended for the upwardly mobile - however they have seemingly now become part of a large social housing project, and starting to look a little less cared for.
Savings are down, which is no great surprise seeing as there is little available in the way of return for your investment, but inflation seems to push on regardless as wages are more or less static and therefore the nett result is that we are a little worse off year on year. The way that energy prices have risen over the recession is quite unbelievable, energy companies it seems, are determined NOT to be affected by the financial crisis and continue to hold us all to ransom, squeezing every last penny out of it's 'customers' or more accurately 'victims'.
We will come out of this, but it will take time, thankfully the lower interest rates are still keeping the mortgage payments low, so I am still able to overpay my mortgage - as with most people who have a mortgage, as a nett borrower, I am happy for interest rates to be low. In the long term however, investments such as pensions are also squeezed to pitiful growth figures.

27 Sep 2012

False Economy?

Whilst the economy needs steady management with long-term goals in mind, Modern politics does not really allow for long-term planning. Already the Greek population are striking against the government they only recently voted in, rebelling against austerity measures which are aimed at keeping the national economy solvent.

This feeling is not limited to the hardest hit of the European economies, grumbling about cut-backs is widespread, and if I am allowed to express opinion, I believe it is short-sighted to rebel against measures that will ultimately create a 'meaner and leaner' economy. The problem here is that the public are finding it hard to understand why the public purse has been tightened so suddenly, especially when they find themselves out of work when there are very few jobs to be had.

There needs to be a two-pronged approach, introducing more efficient use of public funds whilst enabling businesses to grow, however there is a problem in that putting more controls on bank lending means it is harder to obtain small business credit. Ironically, interest rates are at an all-time low, yet money is not avaiable to those that need it most

Here is another problem, we want to control the way that the banks take risks with loans, but on the other hand, we need the banks to fund regeneration in the economy - or do we?

With the reluctance (whether voluntary or forced) of the banks to lend out the required cash, other organisations are stepping in to lend a hand and provide a much-needed injection of cash. Maybe this will be a long-term change, a change in the way that industry is funded, maybe it will all get back to 'normal', but whatever happens, we are by no means in control of the economy yet which is why I believe only hard graft will get us back to an economic plateau, and only extraordinary diligience will stop this happening again in the future.

7 Jul 2012

The struggling economy

It is no surprise to this pessimistic blogger that the western economy is still not showing the vital signs of growth. From the start, it has been blatantly obvious that this current economic crisis is NOT 'man-flu' on a huge economic scale, but a serious disease that requires not only a painful cure, but a subsequent change in lifestyle. What ails the western system is more akin to a kidney disease, not only requiring on-going dialysis, but a donor kidney and if surviving... a new healthy regime.

Whether that new lifestyle involves bringing the bankers to heel is a moot point - George Osborne (UK Chancellor) is about to argue that Europe is wrong to strangle the banking sector by capping the bonus culture. Controlling pay is certainly an odd idea for what is supposed to be a 'free economy', and although I would like to see the banks take a hit, I would prefer to see them taxed rather than shackled.
Meanwhile the investigation into 'Libor' rate rigging is extending into Europe with Deutsche Bank also coming under scrutiny, while the Euro currency struggles to keep pace with rival currencies.
Let's be blunt - right from the start (barring a few rather silly optimistic predictions) it was clear that the credit crunch was no ordinary economic 'blip', and always had the potential for fatality (of the entire economic system). Every slight recovery was welcomed as a possible 'cure' when in reality we are looking at shallow remission at best. Every dip has been hailed as evidence of political incompetence, whereas it has just been the normal course of the disease.
The disease has been one of indulgence, so maybe a liver complaint would be a better comparison, where the patient will have to lay off the booze if they want to see a future? We are not out of the woods yet, anybody with an economic clue should be able to accept this, the fact that the crisis is not playing to our political agenda of 5 year plans is just a fact we have to get used to. Western democracy has only to look 5 years into the future because that is the normal period between elections - If I had a disease that was going to take 10 years to cure, I would rather not choose a Doctor who only has 5 years left to live himself...!

29 Jun 2012

UK banks under pressure

As Europe tries to sort out bail-outs and attempts to keep the Euro afloat, UK banks have scored a number of 'own-goals' in recent weeks.

We have Barclays being handed a massive fine of £290million, for it's dodgy dealings with banks rates.. within days we had RBS having catastrophic software problems that meant a massive backlog in their payment system. This has prompted the CEO of RBS to turn down any bonus that he would have been entitled to this year (whilst still maintaining that this was the result of previously existing systems).
Today we have the news that the big four banks have all mis-sold complex 'products' to small businesses designed to 'protect' the businesses from interest-rate fluctuations, but ending up as a massive weight around the neck of many a small business.

These news items taken separately are not earth-shattering revelations, but in the wake of the bank-inspired credit crunch, and the ensuing financial mayhem - we are reassured that the banks have done little to put their financial houses in any sort of good order. The banks seem regardless of their public image, ignorant of popular feeling and may yet feel the wrath of both regulatory authorities and the popular vote.

7 May 2012

What is double-dip?

It may sound like an option you might see on the sweets menu, but double dip is a sobering reality in the UK economy right now.

It has recently been announced that the long-anticipated double-dip recession is here - this gives us, initially, two questions to answer:
1) What exactly is a double-dip recession
2) What impact will it have on the economy

The answers are relatively simple whilst retaining the complexity that all things economic tend to gather around them. Economic terms are not deliberately 'woolly', but whoever wrongly termed economics as a science instead of an arts subject should be (in my humble and simplistic opinion) soundly whipped with their own economic model.
Recession is already defined in this post (click for the link) as being two straight quarters in which a decline in GDP (Gross Domestic Product) has been recorded. The most recent recorded recession has been blamed mainly on the Credit Crunch and in the UK, officially begun three years ago:
...and ended two years ago:

In real terms (spot the 'economic-speak'), the economy has been plotting a very wobbly course with tiny amounts of 'growth' being recorded and always threatening to drop straight back into decline.. When the figures for the last quarter were announced, it was the second negative figure in a row, therefore technically we are back in recession after a relatively short time of 'growth', and therefore we are in 'double-dip'.

So onto the second question... My own reading of the situation (for what it is worth) is that the economy although technically was out of recession for two years had never really established sufficient growth and therefore this latest headline announcement makes little difference to us. There is still not massive growth, everything is still very tentative although here and there, there maybe growth, in other places there is still decline to balance it out.
I think most economic observers will have to admit that an economy bumbling along with practically no growth, is pretty much the same as one that has just recorded a decline in growth as long as all the figures are so small.
To my mind, we are still in 'steady as she goes' mode whilst we wait for the emerging industries to shine through and the declining industries to reach their inevitable plateau.

Here's another question then... what happens if we come out of this and quickly into another period of decline - will it be triple-dip or double dip with a cherry on top?

16 Apr 2012

Economy Update

The latest news is that the UK economy is managing to steer a course around the rocks of a double-dip recession. Standard & Poors have endorsed the UK by retaining their triple A rating, having previously reduced both the USA and France to double A ratings.
Although we are some way from being able to state that the economy is firmly in recovery mode, there are a few green shoots showing through. There are still going to be bouts of closures and redundancies to be endured, but the overall picture is tentatively positive.

Of course, the UK is also still 'enjoying' the extended base-rate 'holiday' as the 0.5% rate is retained for the foreseeable future. Keeping this lower rate as a long-term policy helps to reinforce the 'steady as you go' feeling that has been a feature of the UK economic recovery. Admittedly, it is not great for net investors, but I suspect that there are very few of those around at the moment..!

15 Apr 2012

Credit Cards

Guest post

I know way too many people who abuse their credit cards, and then end up accumulating debt that is way more than they are able to handle. Thankfully, I was taught fiscal responsibility at a pretty young age, and think I have a good handle on my bills. This does not mean that I don't use my creditcard, in fact, the opposite is true. I use my credit card for most of the purchases I make. The difference between what I do and what others do is that I do not buy anything outside of my means just because I have a credit card that can delay the payments. I only buy things that I would be able to pay for in cash or using my debit card. I choose to use my credit card because, this way, I am able to accumulate points that I can use towards paying off my balance, gift certificates, hotel reservations, or even airline tickets. I always make it a point to pay off my balance in full each month, so I am never accumulating interest, which is really just a death sentence in the credit card world. This is not to say that I haven't accidentally developed a bill that was much higher than I anticipated. I always know that, even when I am really not happy about it, I have enough money to cover it somewhere. Generally I have enough in my checking account to pay the bills, but in those unfortunate circumstances where I do not, I can always transfer money from my savings account to cover the difference. I even have it set up so that if I forget to go on and pay the bill it automatically deducts from my checking account. I can see how sometimes you start to rack up your bill quickly if you are not carefully monitoring your spending, but I also have a hard time understanding how people make huge purchases that they know they do not have the money to cover with their cards. I have seen very few circumstances where that has ended well for the buyer, and I hope to avoid ever having to do that with my credit card.

12 Apr 2012

Budget 2012

The Government have learned a lesson this year, the lesson is that if you leak all the good stuff before the budget is announced officially, the media will concentrate on all the stuff you don't want highlighted...
The Good Stuff includes an increase in the amount we can all earn before tax, a staged reduction in corporation tax, removing child benefits from higher earners (not everyone will regard this as 'good stuff'...) and new taxes for gambling and gaming machines.
The biggest 'shock reaction' was to news that pensioners are not going to continue to enjoy their previous tax breaks. In actual fact, pensioners are merely being brought in line with everyone else when it comes to tax - although it has been called a 'granny tax' and presented as pensioners losing money, it has been done in such as way that the pensioners will not enjoy increased tax allowances until they are in line with working incomes.
The other big talking point has been the removing of the top-tier 50p tax rate - said to be intended to actually increase tax revenue - time will tell whether this is true, but whatever else it is, it is certainly a bold step. All-in-all, this looks t me like a budget that gives a lot to low earners, a little to middle-earners and what looks like a boost to top earners too. Of course, it will not please pensioners, but it also manages to boost small businesses too with the reduction in corporation tax.
Time will tell whether this is a 'good' budget, but I think I am willing to concede that it is not a bad one...

5 Mar 2012

Bank of England meets this week

Quantitative Easing will be one of the main topics on the agenda with views spilt over whether more is needed in the light of recent tentative signs of economic stability, and uncertainty over the rate of inflation and the impact of oil price rises.

Most observers are not expecting a change to the Bank Base Rate any time soon, which is great news for some house owners (me included). When pushed on when the base rate may be raised, the general view is that rates will be stable at the all time low 0.5% for at least another 18months.

QE and base rate being two of the main weapons in the Banks armoury, it looks like a economic cease-fire might be called sending a 'steady as you go' message to the markets.

28 Sep 2011

President Obama shifts the blame to Europe

Right at the start of this post, I want to make it clear that I have generally been in favour of President Obama, from this side of the pond, he looks like a great choice for US president. Intelligent and dignified are not necessarily attributes that other recent candidates can claim as their own. However, I have to take issue with his recent attack on Europe, particularly as the whole sub-prime fiasco is firmly rooted in his own back-yard.

The left-wing view has been that huge national debt is an acceptable price to pay for the mismanagement by our banks. Cut-backs have been looked upon with disdain by the socialists as if there is a way to continue to over-inflate the economy despite the glaringly obvious fact that there is nothing left to do it with unless we sell the family silver... The balanced view is surely that we must do what we can to pay down the debt including down-sizing where the markets are proving unsustainable.
I have been unemployed, so I can empathise with those that are suffering, but the truth is that the economy was over-inflated by debt - the whole of the Western economy was simply living beyond its means, shored up by bad debts. The only fix is to try and get the economy back to a sustainable size, painful though that will undoubtedly be.

Look at it like this, let's say for a simple example that the economy is 10% over-inflated - effectively we have been living 10% beyond our means for a sustained length of time. This is supported by bad debts - in other words, there is money floating around in the economy that simply should not be there, buying goods and services that we can't actually afford - persuading employers to employ 10% more workers than are sustainable. This money is secured against property that is worth less than the value of the debt. The American (Obama) solution is to try and shore up these bad debts, ie. to try and continue the unsustainable economy to the point where defaulting on the debt becomes a very real possibility.
The irony of Obama's criticism is that countries like Greece face exactly the same problems that he himself has experienced recently. It was only a few short months ago that the US itself was staring at the possibility of defaulting on it's debt. Obama has presided over the US whilst it's credit-rating has been reduced - an achievement that hardly qualifies a man to urge the rest of the world to follow his example. The situation in Europe is serious because Economic Europe has taken weak economies under it's wing believing it has the resources to protect them. The UK is outside of the European Economic currency, but will not be immune if economic collapse comes knocking.

Even Gordon Brown understood the value of 'talking up' the economy, I doubt that Obama's outburst will shake the world, but it takes a certain arrogance to put your own political ambition for re-election ahead of the stability of the world economy. I hadn't appreciated Obama the political animal until now - I stand corrected, maybe he's not the shining example, he's a politician after all..

It remains to be seen how Europe will deal with this crisis, but the majority view of the voting public is that they don't want to bail anyone else out of debt. What the individual voters in neighbouring nations don't appreciate is that much of the debt is owed to them. I have heard fellow-Europeans saying 'let them default' without appreciating that Greece now owe EUR120bn to the IMF and the European Union - In contrast many Greeks still believe that Germany 'owes them' for the damage done in WWII, so there is a strong contingent in Greece saying 'let's default'. Ironically the position of the average man in the street in both Greece and Germany is that Greece should default. The Germans not appreciating that the debt is owed largely to them - and the Greeks not really appreciating that their government is not really in a position where they can pump money into their own economy and just not bother to pay their debtors.
Of course, it's not just the Germans who are complaining, there is a strong view in the UK that we should be exempt from further Euro-bailouts as we have our own currency to protect, but it should be made clear that the UK will suffer alongside it's European neighbours common currency or not..

21 Sep 2011

More Quantatative easing on the way?

The Bank of England have maintained the base rate at 0.5%, resisting pressure to match the US rate and drop to 0.25%. In the light of general economic doom and gloom, more quantatative easing measures are likely to be considered although no action is planned immediately.
In short, all the signs are that any previously perceived recovery has been long forgotten in the shadow of a potential double-dip recession.