Saturday 29th November 2008 is buy nothing day, an annual event with enhanced poignancy in these straitened times. An excuse to save your hard earned lucre rather than blow it on stuff you don't need at a price you can't afford?
As Mr Micawber said, 'Annual income twenty pounds, annual expenditure nineteen pounds, nineteen and sixpence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds and sixpence, result misery.' The currency may have changed but the principle hasn't.
Just as some individuals are better at saving, so too are entire countries. The OECD Trade Balance chart records how much wealth countries have saved in relation to each other. The Trade Balance is the difference in value between what a country exports and what it imports - what it sells and what it buys. If you export more than you import then you accumulate savings and that makes it a lot easier to get through when times get hard. The converse is also true.
It's a chart that you really don't want to be bottom of.
Bottom of the pops is the good old US of A with an eye-watering $882bn deficit in 2006 ($3K per citizen) - followed by the United Kingdom with $162bn ($2.7K per citizen). These are just the deficits with other OECD countries - that is, not including China and much of the far east or the Gulf States.
Countries in the best positions include Germany, at #1 with a surplus of $206bn, and mighty Norway (pop. 4.6 million) at #3 with $58bn. Each Norwegian man, woman and child has a safety net of $12600 to help them through this recession. Perhaps it's having to face a long winter every year that has made them so frugal.
The relegation contenders in this particular league have borrowed money from abroad over the past decade to fund an orgy of consumer spending and fooled themselves into thinking that this was the same thing as a strong economy. In Britain the banks have borrowed £700bn more than the Brits have in savings. This extra money has been borrowed from overseas investors and has been spent on imported cars, gadgets, clothes and trinkets. In fact, all the things that are worth a lot less as soon as you get them home. No factories, then ...
And the UK (and US) governments still want to encourage this lunacy - a process euphemistically known as kickstarting the economy.
The idea that thrift is a bad thing can be traced back to John Maynard Keynes in the 1930s who suggested that if money was saved rather than spent, then demand was reduced slowing the economy and making a recession worse. He called this the Paradox of Thrift - a recession is made worse by savers who don't create demand by buying stuff.
In fact, the argument is a little more subtle: Keynes had it that saving is actually a good thing as long as borrowers in the economy want to borrow. So it's OK if the banks have £100bn in deposits as long as businesses, homebuyers and investors want to borrow at least £100bn. Clearly this is the case in the UK as the banks have lent £700bn more than UK depositors have given them. And so the Paradox of Thrift does not apply: the right thing to do is to save money.
Unfortunately, the US and UK governments have lunged at the simplistic version of the Paradox of Thrift and claim that demand needs a quick boost even though we are grossly overindebted already. Having realised that the US and UK can really pay back only a fraction of their current debt, their governments are cynically trying to resurrect the borrow and spend ethic to create the illusion of recovery.
Even if they manage to hoodwink the public and browbeat the banks into this, the evil moment when investors demand repayment will merely be postponed. If your supertanker is heading towards the rocks, the worst thing you can do is call for full speed ahead.
What happens when depositors and investors demand their money back? Banks (and countries) go bust.
It's already happened to Northern Rock, Lehman Brothers, Iceland and loads more. The UK may be on the menu for 2010.
So even if you do buy something in the shops this Saturday, make sure you don't buy 'no more boom and bust' Brown's spin on borrowing more.
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