The Credit Crunch And Luxury Gifts - Can We Have Both?
Here we are at the beginning of 2009 - many of us wondering how the world arrived at such economic calamity, so quickly. For years we had been told how well the economy was growing, how stable those economic foundations had been set and how amazing those clever, clever bankers clearly were.
In the US & UK in particular, those big-brained bankers had been creating ever more imaginative methods of generating credit for over a decade. The banks were released from many of the regulatory shackles that had rather impinged on their quest for instant profit and they bolted away from safety like greyhounds out of the pen. Unemployment was at the lowest point for decades; house prices were rising by double-digit percentages every year and goods just kept getting cheaper, as China became the workshop of the world. Credit became almost as easy to obtain as a skinny latte and the political leaders promoted stability and prosperity for all.
These were truly the times of excess and indulgence and we were all encouraged to gorge ourselves on the seemingly limitless supply of cheap credit. For several decades various governments actively encouraged the nation to move further towards the service industry and away from manufacturing. The subsequent reduction in exports and massive influx of cheap imported goods from China and the Far East has left the UK with the largest trade deficit margin since records began more than 300 years ago... Not a good position to be in when entering a global recession.
As a nation, we have revelled in the party atmosphere and become addicted to the desires for instant gratification. It was in the interest of many of those with influence and in a position of authority to keep the party rolling, rather than calling time and getting the house back in order.
Where else can you catch a better glimpse of consumer spending than with that mobile status symbol, the car. For decades Ford and Vauxhall had dominated the small saloon sector with cars such as the Mondeo and Vectra. These mechanical workhorses were affectionately known as ‘rep mobiles' and their drivers would look on the offerings from BMW with envious eyes. If they made the right decisions, were given the right breaks, they too may soon be driving a much rarer car that clearly stated ‘I'm on my way up'.
Fast forward to the later half of this decade and we find that the scenario has dramatically changed. The BMW 3 Series still has the coveted kudos to which many people aspire, it offers the best performance in the class and has that premium price tag over its rivals. Surprising then that in this decade the BMW has quietly moved ahead of the cheaper rivals in sales volumes and became the best selling small saloon car in Europe. If the car still has a premium price tag over its rivals and it is significantly outselling its rivals for the first time in history then clearly society as a whole has become dramatically more affluent - but for how long.
The housing markets on both sides of the Atlantic took off into the stratosphere, as people found themselves with access to credit that would have seemed inconceivable over a few years earlier. Unfortunately, as more and more people were given credit that they couldn't afford to repay the housing market looked increasingly like a wobbly house of cards and when enough of the sub-prime mortgage holders were unable to make their unrealistic payments, the whole house of cards came crashing down.
The banks had been making attractive short-term returns from this housing bubble extravaganza and chased the lucrative profits blissfully unconcerned that they were threatening their own existence if the sub-prime market turned bad. So when many of those sub-prime mortgages turned toxic the devastating financial effects have been felt like a domino effect in every sector in the increasingly global economy.
There were a few people warning of the impending disaster and the fact that this financial prosperity was an emperor who was indeed wearing no clothes. Among them was the impressive Peter D. Schiff, who became affectionately known as ‘Dr Doom' and was routinely wheeled onto TV programs in order to scoff at and prod with a pointy stick. Naturally, all those scared to upset the apple cart roundly shouted him down.
Now that the party has been dramatically brought to an end, we have discovered that we have been collectively living well beyond our means. As a nation, we are being hit with a very large bill and an economic hangover of immense proportions. Suddenly, we are hearing about trillions of dollars needed for bailouts - just how many zeros is that?
As the old saying goes - if it looks to good to be true, then it probably is.
So what next? The inescapable truth is that the nation's finances need to return to some sort of equilibrium with the assistance of that not so friendly, traditional UK recession. How large and how long this will last is difficult to predict and it is clear that attempting to re-inflate the credit bubble will only prolong the inevitable, or even make things worse.
The standard of living will no doubt return to a less affluent level and luxury goods return to being exactly that - luxury. Does this mean that we should choose the cheaper alternatives? Does it mean that luxury is for the few? A clear and resounding NO! Cheap goods means more imports from the Far East, increased trade deficit, poorer quality and a shorter life span (for the product, not you).
It is simple; just buy less of the good stuff. The desire to enrich your life with beauty and high quality craftsmanship is eminently sensible and must now be acted upon when we have saved for those special occasions. We should not turn our backs on the special things in life; just make sure that we are not reliant on the credit of others to enjoy them.
About the Author:Ian Webster
Article Source: ArticlesBase.com - The Credit Crunch And Luxury Gifts - Can We Have Both?