Friday, 28 November 2008

Recession: For Beginners

When talk of recession was starting to bubble, I received a phone call from somebody a few years younger than I am (I won't name them), who wanted to know what exactly a recession was. Goodness knows why they think I am the fount of all knowledge! Anyway, it struck me that there is a whole generation of young adults who haven't experienced a recession before, and it's going to hit them hard.

Not a week has gone by recently when I haven't met somebody who has just lost their job, and it is absolutely devastating - especially in the current climate, because they aren't confident about being able to find another one. It's disgraceful that people have been landed in this situation, through no fault of their own. The greed of bankers and the failure of governments to rein them in would be unbelievable if we weren't now living with the consequences.

What particularly worries me about this current financial downturn though, is the added ingredient of record levels of personal debt. Over the last decade or so the UK Government has encouraged people to take on huge (and unsustainable) levels of personal debt. Banks have been allowed to lend people more money than they could afford to pay back - either in the form of mortgages or personal loans. A whole generation of university students have been indoctrinated into the debt lifestyle, because they had no choice if they wanted to get a degree. I remember my first £100 overdraft in my first year at university. I felt sick to my stomach being in debt, but over the years, like most students, I got used to living with debt - it was normal to be in debt!

And then there are credit cards - buy now, pay a LOT MORE later! Yes, we all bear personal responsibility for our spending, but what about the responsibility of government? Why have they let this culture of debt flourish? Well, because it was in their interest to do so. If people have access to credit, then they feel more affluent and they can buy things that they want. The more affluent and satisfied they feel, the more inclined they are to support the party in government. Little wonder either that Gordon Brown was very happy to preside over unsustainable house price rises over the last decade... It made people feel better off.

While we (in general) have been getting into debt, Gordon Brown has also been getting the UK taxpayer further into debt. A double whammy. Now, we have really been landed in it with this latest round of borrowing. The full extent of the financial shambles Brown and co. have landed us all in will not be clear for a few years yet, but one thing is for sure - we will all pay later.