Are we heading into a recession, or is it Mind Games?
My wife made a fantastic observation at the weekend which to a degree can summarise much of what is happening in the media about the Credit Crunch we are experiencing at the moment, and I think this has a lot to account for with the downturn in the economy.
Her Father is widower on a fixed insurance income and pension. He is not employed, so not likely to get made redundant and has no mortgage. What I want to demonstrate is that he is one the least likely to be affected by a downturn in the economy than anyone.
The bad press and media coverage of the Credit Crunch has worried him, so he has started cutting his spending. When he goes shopping he has stopped buying the extra’s he would normally purchase and is only buying essentials, and when he puts petrol in his car he no longer fills up but only puts a tenner or so in at a time. He is cutting his spending in fear of the economy downturn, despite this downturn having very little overall effect on his personal finances.
All that my Father-in-Law is inadvertantly causing is a reduction in consumer spending brought on by csaremungering of the press and media. By reducing his spending, he is reducing the income into the economy, who in turn are reporting reduced consumer spending to the media, who in turn are spreading doom and gloom stories to people like my Father-in-Law who then cut their spending fearing the worse. Do you see what is happening here? Now put that on a national scale, where hundreds of throusands of people around the nation are fearing the worse and cutting their expenditure into the economy, holding onto their pennies for a rainy day. Businesses then have to pull in purse strings and make redundancies to counter act the reduced spending, which then again leads to ever more bad media coverage of the economy.
Before anyone mentions the downturn in the property market, this was bound to happen. The property market could not sustain unrealistic property inflation which was pricing first time buyers out of the market and making it practically impossible for them to get onto the property ladder. For example, I purchased my first home (a 2-Bed Semi) for £43,000 and sold it 8 years later for over £160,000. How on earth can that be sustainable? The property market needed a reality check, and that is what I believe this now is. It is just a terrible shame that people have to suffer redundancies because of it.