At least that’s what Mervyn King, governor of the Bank of England, seems to think according to today’s Times. More particularly he’s concerned that the top executives at said banks are using other people’s money to do it. So the bail-out the other week should be seen as an offer of breathing space and time to put financial houses back in order rather than license to continue as before.

In other words there will be no return to the good old days. Anyone thinking the current tightening was going to be short term was kidding themselves.

It might be a surprise to hear that I believe this is a positive move. I’ve said a number of times in this blog that we need to stop living on borrowed money and actually earn and save something. This is going to happen now because people – and by extension the mass of people that is the economy – won’t have the choice.

The problem is going to be that a number of small businesses tend to survive on other people’s credit. Would the likes of Amazon really be as big if it didn’t have the facility to order items on a credit card with one click? Personally I think not. This isn’t to blame online retailers for people losing control of their willpower and buying stuff they can’t afford, that’s down to the individual, but facilities like one-click make it very easy to do.

The challenge is going to be for retail businesses to restructure themselves so that they’re less dependent on people’s plastic. This is going to mean lower turnover, which in turn will need to attract more margin to keep a business running.

There are industries in which this will be possible. People will pay a premium for goods if there is genuine value in the form of services to be had. They don’t mind paying a fair price if they can understand why. Companies like Richer Sounds never compete with Internet companies because they know people will pay the money to keep them in business for next time they need advice from a human.

The difficulty is going to be in the commoditised markets. You can add value to a sound system in a way that can never apply to, say, a book. These are absolute commodities and will sell on price alone. How you keep that sort of product profitable in an environment in which people don’t want to use credit is beyond me.

In recent weeks, given the remit of covering business money, I’ve said quite a lot about the state of the economy. I’m going to give it a break this week; either confidence will return or it won’t (and I still believe a lot of the problem has been about either confidence or more likely overconfidence when it comes to, say, valuing a house and the bank valuing its assets on the value of the mortgage) and that’s pretty much that.

What’s more disturbing is the report today that we’re increasingly victims of Internet Fraud. Granted, this week is the week of the Infosec show in London so there will be a lot of people talking up security stories out there but it remains a concern that official figures are underestimating how many people are losing money by so much.

The usual caveats apply and the calls for a Cybercrime unit make a lot of sense. In the meantime this is going to hit customer confidence very hard indeed – it was getting a lot of coverage on the Today programme, for example. Businesses that have downsized to take account of non-face-to-face trading could be in for an unpleasant reality check (elsewhere the BBC has reported – shock horror – that people are increasingly resorting to cash they actually have to fund their purchases).

It’s just what we didn’t need, and makes it a good time for Internet traders to look at and upgrade their security – this afternoon would be a good time.

…because a lot of this economic forecasting is giving me a headache.

It goes like this. Alistair Darling’s forecast for this year was for 1.7 per cent or so growth in the economy. It seems not everyone agrees with him and the actual figure is likely to be 1.5 per cent.

More seriously for Darling, the figure next year is also likely to be under two per cent when he’s been predicting a figure over it. And this could be an election year.

My question is really quite simple. What do people understand by the word ‘growth’? OK, we’re not growing as quickly as hoped and yes, the American economy is having its effect – as someone whose mortgage is likely to increase twice in one month if reports are to be believed, I’m going to become all too well acquainted with the idea.

But it’s still growth, isn’t it? Nobody – repeat nobody – is saying there’s going to be less money (although less on credit, which is probably no bad thing), more unemployment, more inflation. Check the dictionary. Growth is growth. And yet confidence is suffering, simply because virtually the longest sustained spurt of economic growth in living memory is coming to its natural end.

There needs to be a correction, certainly, and we all need to pay back our borrowings – as a nation and as individuals, to set things straight. I just don’t see us as doomed, that’s all.

I was going to try to be erudite on my own behalf today. To look at the current difficulties in banking, to consider what’s going on under the bonnet of the major lending institutions and to consider what effect this would have on the smaller operators (like SmallBizPod readers) who depend on the institutions for their funding.

I’m not a qualified economist, I grant you, but 20 years spent writing about business issues affecting smaller businesses ought to count for something, I thought. My problem is that other people have got there first, and done it better.

Luckily we’re in the world of blogs, so when I link to the stunningly clear explanation of exactly what’s going wrong by the BBC’s Evan Davis,who writes about the relationship between capital and lending better than anyone I’ve seen. More importantly he addresses the issue of why we should be talking openly about nationalising banks rather than seeing it as some desperate last resort.

I’ll admit I hadn’t thought much beyond the idea that nationalisation was A Bad Thing in economic terms. This is what being brought up in Thatcher’s Britain has done for me; nationalisation to me carries connotations of an outmoded form of politics and economics, and when someone like Davis analyses it objectively as a means to an end and cites examples in which it has worked, I begin to realise how foolish the dogmatic approach actually was (even more so when you consider I didn’t agree with Thatcher anyway).

We may have to consider the idea (he says as if it were up to us mortals) sooner rather than later. A report in the Guardian confirms shares in HBOS are falling even now amid rumours it’s overextended itself. Meanwhile cracks are appearing in the Bank of England and there are signs of a rate cut ahead.

Let’s hope it’s enough and in time.

OK, it’s got to be faced – there is going to be some sort of slowdown in the UK. The Prime Minister will say it’s largely because of American influence, which will be largely true, but will we care? The fact is that we’re going to be finding things tougher, Northern Rock support or otherwise. Evan Davis has an excellent analysis of what’s gone wrong on his BBC blog.

The question therefore isn’t whether things are going to get tight – it’s how bad it’s going to be and how we can cope. My own answer is to look at this guide from the Times and apply as many of the principles as you can. It’s prudence, Jim, but not as we know it, you might say.

For example, how many business insurances do you have that are actually over the top and unenforceable? If you’re one of the self-employed population like I am then many of the employment interruption style of insurance will almost certainly not be worth having – you’re only unemployed when your employer lets you go, and if you’re self-employed then you can only let that happen deliberately. Likewise the insurances for illness and long-term disability – check your life assurance, you might already be covered.

Check also any purchasing plans you might have in place and how necessary they actually are. Managing debt in business is actually easier than in your personal life as you won’t have the same emotional attachment to your outgoings – it should be simpler to make ruthless decisions to force your business to work.

The most important point, though, is to remember that a slowing of growth isn’t a recession. Forecasts currently suggest that we’re going to grow 0.5 per cent instead of 0.7 per cent. This is not, repeat not, a reason to panic.

We’re short of an announcement. As outlined in the Daily Telegraph’s blog, we were supposed to know by now whether Mervyn King is staying on at the Bank of England before June.

Christopher Hope in the Telegraph clearly thinks Gordon Brown will keep him because there’s so much at stake, for both business and personal money as well as that in the public sector.

It will be no small relief to Mr. Hope that I agree entirely. The real issue, though, isn’t whether King stays on. It’s not even whether King misjudged the Northern Rock affair. It’s that we were supposed to know by now and we don’t.

This is becoming a pattern. Brown vacillates over an election, we gear up for it, he backs off, his personal ratings fall alongside that of his party. Now here we are again – King’s tenure should be confirmed or discontinued and there’s no decision forthcoming.

I don’t think I’m being unduly party political when I say this is going to become a problem over the next couple of years if Gordon Brown keeps it up. If there’s going to be a mini-recession, and let’s hope not, it will need someone decisive to take action to limit the damage. If there isn’t, then anyone seeking to remain in power needs to make it clear that this was their doing rather than a fluke of events.

2008 is going to be decisive for many reasons; the availability of credit, inflation, the consequent movement of interest rates, it will all have a marked effect on every businessperson in the UK. We need reassurance that the guy at the top is able to do more than say ‘oh yeah, I’ll deal with that in a minute…’

This is getting disturbing. I know, I know, I should be spreading Christmas cheer and with a bit of luck and a prevailing wind I’ll do so next week. You’ll be preparing for tonight’s office party (fact: more companies have this Friday as their office party than any other night) and want a bit of light relief.

I’m talking about the development widely reported yesterday in which our Government, as well as several others, has agreed to step in and help banks when they run into trouble. The Times comments on it here, the Telegraph comments here and there are of course others.

So the Prime Minister thinks it’s a great idea, no surprises there. And the Telegraph is critical of the PM’s apparent policy – no surprises there either.

My fear is that things are slightly worse than we thought. There have been recessions before. The Depression in the thirties, now slipping from living memory, was appalling. At no stage, however, did anyone turn around and ask the world banks to pump money in to shore things up. Just how bad does it have to look before the UK and several other countries insist on pumping loads more money in? I have an unpleasant feeling we’re being treated as the patient who hasn’t actually been told the whole truth, but who can see the massive amounts of treatment going on around him. I hope I’m wrong. As Jeff Randall points out in the Telegraph piece, this isn’t a cancellation of a load of debt, it’s a postponement.

Oh, and I take it everybody noticed this? Good. ‘Tis the season to be cautious…

‘Tis the season to be jolly, well almost, and to get the season off to a flying start I’m a day late with the blog entry. I won’t bore you with excuses, I just won’t draw attention to it and with a bit of luck no-one will notice.

Joking aside, they probably won’t because there’s enough in the economy to take someone’s mind off more or less anything as trivial as a small business blog. The economy is suddenly rocky now that Dear Prudence has taken over as PM and few people seem to understand why.Yes, there’s been sub-prime borrowing but there always has been. So what’s changed?
To me there are two means by which the economy has always been measured and which contradict each other dramatically. You’ll have heard, no doubt, that we’re all borrowing too much money? Of course you have. You’ve probably accepted this as a fact, principally because it is one.

On the other hand when the economy shrinks we’re told this is bad news. This is an odd one because a shrinking economy means people are buying less. In other words they are spending their money on paying back their plastic friends, not stretching them even further.

This is why, to me, the renewed rigour with which loans and credit cards are being scrutinised is excellent news even if it does work against a jobbing freelance like your correspondent. There will be a slightly rough time in which the economy will ‘shrink’ while we all get our houses back in order. One side effect may be that interest rates will fall, which is good news as long as the benefits are passed on (which looks unlikely according to yesterday’s papers). Then eventually, with any luck at all, we’ll emerge with an economy based on what we’ve produced and earned rather than what we can persuade people they should lend us.

And that will be a lot less vulnerable to the American sub-prime market than our existing model.

For the first time in 12 years as a freelance operator it’s happening – I’m taking someone to court over non-payment of an invoice. They insist there’s a misunderstanding of the original commission, I insist there isn’t – we’ll let due process take place and see who comes out on top. I’ll blog the process if it’s interesting (and yes, I do mean if I lose as well). More detail would be redundant at this stage – the thing’s going to court.

It did lead me to reflect, though, on the different methods people adopt to obtain money they are owed. ‘I happen to be passing your office, can I pick up the cheque’ was a favourite of a colleague of mine; his face fell a bit when it was pointed out that if they were amenable to his dropping by to get a payment, they were probably going to cough up anyway. Actually as a means of keeping contact going with a client it was probably not a bad idea, even if they did end up with the impression he was flat broke all the time. (As a freelance this was almost certainly the case).

My own favourite was Mr. Smelly a few years ago. You might have heard of him and I hope you never met him. The idea was that if you had a late payer you’d hire him, he’d roll around in something appalling and go and sit in reception until the client gave him a cheque to include his expenses. I suspect that’s not entirely legal.

The small claims court – as it’s colloquially known – is a rather drier alternative. The claim has been issued, they’ll receive it probably tomorrow and make their case and we’ll thrash out what’s actually gone wrong. One of us will walk away either relieved at not having to pay or richer, if I win.

Interesting thing, taking people to court – at least for the first time. I’m genuinely convinced I have right on my side; on the other hand I suddenly feel like the bad guy. Odd, that.

OK, I have to admit this entry is less about pure business finance and more about a subject that affects us all – taxation. Specifically that sort of taxation that’s going to make us all go terribly green, if that nice Mr. Cameron and his friend Mr. Goldsmith have their way.

I’ve just paid one, in fact – the congestion charge in London – and you can probably see from the time of this entry that if it’s preventing congestion then I’m a monkey’s whatsit. Never mind, this isn’t about my frustrations.

Except it sort of is. The congestion charge works as a revenue raiser purely because it isn’t working. Confused? Then let me explain. If the C-charge really, really did something about congestion then people wouldn’t come in to London. It had that effect at first but it no longer does. People come in and pay, and if TfL is really, really lucky they forget to pay their charge and have to cough up even more.

If they stopped coming in to London, of course, the whole system would collapse because of an absence of money.

It’s the same with these green taxes with which we’re all being threatened (I assume there’ll be a business levy as well as one on consumers). Use up more consumables and you’ll pay more tax. In theory this should encourage businesses and individuals to consume less.

Except if they actually do so, the money coming in will shoot down. Quickly. Offer tax breaks for positive moves towards greening the planet and the problem multiplies when people really start to get things right. People become green, money goes down.

So we end up, under these proposals, working under a system whose financing depends on our causing damage to the environment. To me, it doesn’t make sense – but hey, they’re coining it with the congestion charge.