As citizens and businesses we are living in an unusually dangerous and distorted world. I am not talking about whether it is wise to go to Egypt on holiday , or the fact that in Scotland we live in a one party state but about the economic backdrop in which as citizens we live our lives and as businesses try to make profitable progress.
Many of these dangers and distortions are created by governments and central bankers trying to keep the show on the road for the voting public. The media go along with this mass reassurance plan and , it helps that in the UK we actually have some economic growth . So why does everything feel for many of our citizens, bluntly, fairly lousy ?
The overarching problem is that from roughly the mid 1980’s to 2007 we stole growth from the future by borrowing excessively. Not every person and not every country - but most of us - and we loved it. The period of growth which the UK enjoyed up to 2007 was the longest since the Industrial Revolution, it felt normal but it wasn’t. The result is that we have too much debt. A staggeringly horribly huge amount of debt, the deflationary effect of which threatened, and still threatens, to destabilise the modern economic world as we know it.
The authorities’ response, to stave off deflation, has been to make money essentially free. Interest rates are so paltry they are really just an admin charge. This therapy has kept the economic patient alive but, unsurprisingly because it is free, debt levels worldwide have grown not shrunk. Stock markets are significantly higher than they were in 2008 as investors search frantically for yield. London house prices have been driven to absurd levels - the house my son rents - which looks like it is from Coronation Street - is apparently “worth” over £1 million. Of course it is not worth that sum but that is its current price in the bubble which has been created. Savers meanwhile have little to show for years of thrift - if you are 65 a pension pot of £500,000 will buy you an inflation protected annual income of less than £15,000 - the longest cruise you can afford will be to Rothesay. After the initial relief of falling interest rates consumers face the harsh reality that their real wages have gone nowhere for nearly 10 years, their costs are rising and they must save more to get less in terms of pension.
Signs of stress in the financial markets are there for all to see - just look at the overreaction upwards by the Japanese Yen and downwards by the Japanese stock market last week when the Central Bank of Japan decided to do absolutely nothing. Confidence is fragile and well it should be because the authorities are running out of ammo - each dose of heroin has less and less effect. The central bankers sit in a petrol soaked room fiddling with their lighters and hoping for a little bit of inflation. There is a significant danger that what we will eventually get is an awful lot of inflation.
What to do? I suggest two things. As an individual, over the next five years perhaps focus on preserving the value of your savings in real terms rather than trying to obtain significant gains. As a company be wary of borrowing against the value of fixed assets and if you do borrow have a good look at interest rate hedging - in the recent past that has been a waste of money so it has fallen out of favour - just the time to have a re-think.
Pinstripe is a senior member of Scotland's financial services community
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel