In a shaky economy…

‘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 …

29th November 2007 at 12:45 pm

‘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.

Guy Clapperton

Guy Clapperton is a freelance journalist who specialises in small business issues and has written for the likes of The Guardian, the FT and the Daily Mirror. Guy has written about finance and franchising for SmallBizPod.

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  1. Finnsense says:

    Well yes, recessions do perform a necessary clearing out function. However, they are also very painful for a lot of people as anyone who remembers the UK recession at the start of the 90s will recall. Neither are they obviously necessary. Thatcher caused/worsened the recession at the end of the 90s and this one will be result of poorly regulated credit as you point out. I hope it’s just a couple of years but then I thought the last one would be too.

  2. Guy Clapperton Guy Clapperton says:

    I agree entirely – I’m from that generation that got caught in negative equity traps when trying to buy a place to live and lost tens of thousands when I moved. Even before then in the eighties I remember being advised to go to college after school not because it was a good idea but because there were so few prospects of getting a job.
    The blog entry doesn’t say how I *want* things to turn out, it’s just how I think they *will* turn out. I have to admit, longer term if it gets us out of the habit of spending money before we’ve earned it then there may be some small benefit.

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