Can someone answer this seemingly simple economic question?
Discussion
Firstly, I'm not an economist/banker/accountant etc. but I am an engineer so, not entirely stupid 
Can someone explain the following two related queries, please?
1) The cost of living is (in general terms) falling. Food prices have stopped rising, petrol, VAT and the cost of other essentials has come down, gas and electricity will probably come down in the new year as well.
Most people on a salary have not seen their monthly income reduce, so at the end of each month their personal "balance sheet" should be healthier than it has been over the last year or two.
Therefore, in my simplistic view, most people are better off now than they have been for the last 24 months, so what is all the fuss about? Why are people not spending money?
2) Why have Woolworths and MFI gone bust in the last few weeks? Is it simply that people have stopped spending money, or do they/did they operate their finances in a way that was reliant on bank lending which has now dried up?
Can someone explain the following two related queries, please?
1) The cost of living is (in general terms) falling. Food prices have stopped rising, petrol, VAT and the cost of other essentials has come down, gas and electricity will probably come down in the new year as well.
Most people on a salary have not seen their monthly income reduce, so at the end of each month their personal "balance sheet" should be healthier than it has been over the last year or two.
Therefore, in my simplistic view, most people are better off now than they have been for the last 24 months, so what is all the fuss about? Why are people not spending money?
2) Why have Woolworths and MFI gone bust in the last few weeks? Is it simply that people have stopped spending money, or do they/did they operate their finances in a way that was reliant on bank lending which has now dried up?
The MFI situation was on the cards for some time, the recent economic mess just sped up the process. They were offsetting accounts on future earnings, holding unsold old stock in warehouses so that it would not appear as losses on their balance sheet, their SAP implementation cost double what it should because they consistently refused to listen to good advice.
They were also trying to move their brand upmarket without the quality of goods to back it up.
They were also trying to move their brand upmarket without the quality of goods to back it up.
Also an Enigineer but will attempt a simple answer. A large percentage of the people who bought items in those types of store were moving credit around from one zero percent finance balance transfer to another and paying off store cards etc. Now credit is harder to come by and their overdrafts have been called in or reduced they don't have any liquid assets (real cash) to spend. Add in mortgage payments going up and gas/electric increases a lot of people don't have much cash and don't want to take on or can't get more easy credit. Also a lot more staying at home and buying online.
1. MEW - mortgage equity withdrawal. Lots of people were doing it in bucketloads, not now.
Mortgages - plenty were on low fixes around say 4%, now looking at hikes up as high as 6-8% depending on LTV.
Inflation - still positive despite the commodities you mention. We are seeing the delayed effect of price rises still passing through the chain. That chain takes a far longer time to pass along price declines. Inflation has been >5% and wages have not yet caught up.
Bonuses - not happening this year for many.
Plenty of people have FAR fewer £ in their sky rocket now, versus a year ago.
2. Not reliant on bank lending - reliant on consumer spending, see 1.
Mortgages - plenty were on low fixes around say 4%, now looking at hikes up as high as 6-8% depending on LTV.
Inflation - still positive despite the commodities you mention. We are seeing the delayed effect of price rises still passing through the chain. That chain takes a far longer time to pass along price declines. Inflation has been >5% and wages have not yet caught up.
Bonuses - not happening this year for many.
Plenty of people have FAR fewer £ in their sky rocket now, versus a year ago.
2. Not reliant on bank lending - reliant on consumer spending, see 1.
There's also the fact that most people who haven't previously relied on loans/finance they cannot sustain (i.e. are fairly sensible with their money) have recognised 2 things:
1) Prices of things are falling
2) There's a greater risk of losing their job
As a result, they're saving rather than spending until things seem more certain (ironically as their reduction in spending will worsen the situation).
1) Prices of things are falling
2) There's a greater risk of losing their job
As a result, they're saving rather than spending until things seem more certain (ironically as their reduction in spending will worsen the situation).
Goochie said:
Firstly, I'm not an economist/banker/accountant etc. but I am an engineer so, not entirely stupid
Can someone explain the following two related queries, please?
1) The cost of living is (in general terms) falling. Food prices have stopped rising, petrol, VAT and the cost of other essentials has come down, gas and electricity will probably come down in the new year as well.
Most people on a salary have not seen their monthly income reduce, so at the end of each month their personal "balance sheet" should be healthier than it has been over the last year or two.
Therefore, in my simplistic view, most people are better off now than they have been for the last 24 months, so what is all the fuss about? Why are people not spending money?
2) Why have Woolworths and MFI gone bust in the last few weeks? Is it simply that people have stopped spending money, or do they/did they operate their finances in a way that was reliant on bank lending which has now dried up?
1) Those with jobs will feel better off if they get an inflation rise. Those without will feel worse off.Can someone explain the following two related queries, please?
1) The cost of living is (in general terms) falling. Food prices have stopped rising, petrol, VAT and the cost of other essentials has come down, gas and electricity will probably come down in the new year as well.
Most people on a salary have not seen their monthly income reduce, so at the end of each month their personal "balance sheet" should be healthier than it has been over the last year or two.
Therefore, in my simplistic view, most people are better off now than they have been for the last 24 months, so what is all the fuss about? Why are people not spending money?
2) Why have Woolworths and MFI gone bust in the last few weeks? Is it simply that people have stopped spending money, or do they/did they operate their finances in a way that was reliant on bank lending which has now dried up?
Those with jobs will save their money. just in case they end up in the second group.
2) Both. Their product ranges tend to be things people want rather than need, so there is not a constant stream of cash flow it people only buy what they need. Good management does a what if senario. In engineering you are encouraged to look at the break even demand levels for new capital, and do a best worst case senario.
So you have a business with good assets, you split it into 2, and make the retail business rent money off the property side, but when sales drop that business fails, because it can't pay the rent. But because the property company had land and building which are over valued, they could borrow money against that, but suddenly values drop and they have borrowed more than they are worth, so bang.
Goochie said:
Therefore, in my simplistic view, most people are better off now than they have been for the last 24 months, so what is all the fuss about? Why are people not spending money?
In my case I'm not spending because of the threat that the future may hold in 3-6 months time rather than the threat it carries right now.Goochie said:
Firstly, I'm not an economist/banker/accountant etc. but I am an engineer so, not entirely stupid
Can someone explain the following two related queries, please?
1) The cost of living is (in general terms) falling. Food prices have stopped rising, petrol, VAT and the cost of other essentials has come down, gas and electricity will probably come down in the new year as well.
Most people on a salary have not seen their monthly income reduce, so at the end of each month their personal "balance sheet" should be healthier than it has been over the last year or two.
Therefore, in my simplistic view, most people are better off now than they have been for the last 24 months, so what is all the fuss about? Why are people not spending money?
2) Why have Woolworths and MFI gone bust in the last few weeks? Is it simply that people have stopped spending money, or do they/did they operate their finances in a way that was reliant on bank lending which has now dried up?
My company is looking for 3500 redundancies, and the sector I work in now is not nearly as healthy as it once was.Can someone explain the following two related queries, please?
1) The cost of living is (in general terms) falling. Food prices have stopped rising, petrol, VAT and the cost of other essentials has come down, gas and electricity will probably come down in the new year as well.
Most people on a salary have not seen their monthly income reduce, so at the end of each month their personal "balance sheet" should be healthier than it has been over the last year or two.
Therefore, in my simplistic view, most people are better off now than they have been for the last 24 months, so what is all the fuss about? Why are people not spending money?
2) Why have Woolworths and MFI gone bust in the last few weeks? Is it simply that people have stopped spending money, or do they/did they operate their finances in a way that was reliant on bank lending which has now dried up?
Chrimbo party cancelled.
Bonuses and approved pay rises cancelled.
Fuel prices have simply returned to the rediculous level they were at just 12 months ago (circa £5 a gallon). Fuel isnt actually cheaper than it was, its just not so crippling.
House now worth approx £100,000 less than it was 24 months ago. Cant afford to move anyway as not got enough equity to reach LTV for new loan.
Hmmm, now, let me see. Couple of pence off VAT (which doesnt affect food shopping anyway).
Yes, going to blow a wad on Chrimbo this year. Not.
Edited by Tony*T3 on Tuesday 9th December 14:00
NobleGuy said:
In my case I'm not spending because of the threat that the future may hold in 3-6 months time rather than the threat it carries right now.
Likewise. I come to the end of a fixed rate mortgage in a few months, and in theory should be better off, as I was sensible and *should* have a half decent LTV. However, falling house prices and the threat of job loss (real or perceived) means I'm taking no chances. Pretty much my only objective at the moment is to get a decent chunk out of the mortgage and build up a decent cash reserve as a buffer for the unexpected. Everything else is on hold. I'm damned if I'm going to rush out and buy shiny things at the moment!The problem is that many individuals are heavilly in debt - whether through maxed out credit cards or overstretched mortgages. This might be coupled with negative equity in their properties and job/work insecurity.
So, even if prices are falling, that on its own is not enough to allow people to feel that they are in a position to resume the lifestyles they may have been pursuing in the "good old days" i.e. before August 2008.
So, even if prices are falling, that on its own is not enough to allow people to feel that they are in a position to resume the lifestyles they may have been pursuing in the "good old days" i.e. before August 2008.
Edited by Eric Mc on Tuesday 9th December 15:17
Goochie said:
Firstly, I'm not an economist/banker/accountant etc. but I am an engineer so, not entirely stupid
Can someone explain the following two related queries, please?
1) The cost of living is (in general terms) falling. Food prices have stopped rising, petrol, VAT and the cost of other essentials has come down, gas and electricity will probably come down in the new year as well.
Most people on a salary have not seen their monthly income reduce, so at the end of each month their personal "balance sheet" should be healthier than it has been over the last year or two.
Therefore, in my simplistic view, most people are better off now than they have been for the last 24 months, so what is all the fuss about? Why are people not spending money?
2) Why have Woolworths and MFI gone bust in the last few weeks? Is it simply that people have stopped spending money, or do they/did they operate their finances in a way that was reliant on bank lending which has now dried up?
1). Are you taking into account job losses?Can someone explain the following two related queries, please?
1) The cost of living is (in general terms) falling. Food prices have stopped rising, petrol, VAT and the cost of other essentials has come down, gas and electricity will probably come down in the new year as well.
Most people on a salary have not seen their monthly income reduce, so at the end of each month their personal "balance sheet" should be healthier than it has been over the last year or two.
Therefore, in my simplistic view, most people are better off now than they have been for the last 24 months, so what is all the fuss about? Why are people not spending money?
2) Why have Woolworths and MFI gone bust in the last few weeks? Is it simply that people have stopped spending money, or do they/did they operate their finances in a way that was reliant on bank lending which has now dried up?
NoelWatson said:
Goochie said:
Firstly, I'm not an economist/banker/accountant etc. but I am an engineer so, not entirely stupid
Can someone explain the following two related queries, please?
1) The cost of living is (in general terms) falling. Food prices have stopped rising, petrol, VAT and the cost of other essentials has come down, gas and electricity will probably come down in the new year as well.
Most people on a salary have not seen their monthly income reduce, so at the end of each month their personal "balance sheet" should be healthier than it has been over the last year or two.
Therefore, in my simplistic view, most people are better off now than they have been for the last 24 months, so what is all the fuss about? Why are people not spending money?
2) Why have Woolworths and MFI gone bust in the last few weeks? Is it simply that people have stopped spending money, or do they/did they operate their finances in a way that was reliant on bank lending which has now dried up?
1). Are you taking into account job losses?Can someone explain the following two related queries, please?
1) The cost of living is (in general terms) falling. Food prices have stopped rising, petrol, VAT and the cost of other essentials has come down, gas and electricity will probably come down in the new year as well.
Most people on a salary have not seen their monthly income reduce, so at the end of each month their personal "balance sheet" should be healthier than it has been over the last year or two.
Therefore, in my simplistic view, most people are better off now than they have been for the last 24 months, so what is all the fuss about? Why are people not spending money?
2) Why have Woolworths and MFI gone bust in the last few weeks? Is it simply that people have stopped spending money, or do they/did they operate their finances in a way that was reliant on bank lending which has now dried up?
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