Economic crisis: The light at the end of the tunnel just got dimmer

Posted on: 15 June 2010 by Gareth Hargreaves

BP shares have been hammered in the past week, the economy is having another wobble and we haven't even seen George Osborne's Emergency Budget, yet!

It's a bitter sweet day today. The good news is, government borrowing is less than expected. But that has been tempered by the news that the recovery is not going as well as expected. Net result – a much tougher budget next week.

I don’t understand why it has taken the pundits so long to arrive at this conclusion – if you live in London it's plain to see. Here's why:

  • London is full of tourists and more keep coming – cause, the weak pound.
  • High street shops have sales on and prices are rock bottom. 
  • It’s dead easy to get a taxi – companies cutting back. 
  • Night clubs are closing – youngsters feeling the pinch or under threat of unemployment. 
  • Restaurants are 50 percent empty – everybody is economising. 
  • Housing market is static – people unsettled by continued downturn.

I hate being a smart arse... but, I have been writing that this is far from over for six months, now. There is still pain to come. BP's ineptitude in the Gulf of Mexico is going to cost the company billions upon billions to sort out. No doubt the US President, Barack Obama, is going to make this as expensive as possible:

  1. Because it will make him look good ahead of the primaries.
  2. So the oil industry can sort itself out big time. This money is going to cut the tax that BP pays to our government by billions over the next five years.

As if that is not bad news enough, the massive bailout for the Euro is going to ricochet around Europe and reduce demand and imports – the eurozone is the UK’s biggest export market. Sooner or later there will be another banking crisis when the commercial property market starts to implode – and this one is going to be Big.

So, how do our lives look for the future? Pretty bleak. Retired people or those on fixed incomes have been hit hardest out of the financially viable sectors (excluding those unemployed) as we have had interest rates on the floor for more than two years. This is not going to change in the foreseeable future – interest rates are going to stay low!

At times like this in the past, many people saw the opportunity of investing their money in the stock market while it was low and hoping for the upswing. Now is not the time for that strategy – share prices are still very volatile and will stay as such for a while to come. Think about it – BP has lost half its value in the past two months – a staggering £30 billion – that, folks, was somebody’s money.

No, the answer for us ‘old folks’, is keep hold of your cash and hunt for the best deposit rates; shop for bargains and discounts; grow your own food and start to see life in a simpler way. Take more exercise, read more books (well, let's be honest - TV is crap isn’t it) and keep calm. We are living through a ‘re-ordering’ of economic life that is going to see most of us out. Hopefully we will come out of all this a better society, less greedy and materialistic and more compassionate. We  can but live in hope.

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