The cost of it all

Sam Fleming, in the Daily Mail this morning, includes some estimates of the costs to people in this country of the downturn/recession.

He reports Capital Economics as producing the result that falling equity prices and plunging property values have reduced savings and assets by 18%. This is about £1.5 trillion, which exceeds the total output of the economy in 2008 and amounts to about an average of £60,000 per household.

The figure of £60,000 is an average, and pensioners or others living in small houses and with little savings will have suffered much less, while propertied families will have suffered much more. Virtually no-one has escaped, except possibly those living entirely on benefit and in rented accommodation.

Everyone with insurance backed mortgages, with private or company pensions or non-cash savings will be worse off, as capital values and incomes are reduced.

Fleming's final comment makes baleful reading as well, "Britons have continued to amass larger debts. Household borrowings have increased over the course of 2008 and now stand at more than £1.4 trillion." These debts have probably increased over the past fortnight, as shoppers had a final fling for Christmas, and took advantage of massive price reductions.

At the time when the government wants us to spend more, and borrow more, we have logically less reason to do so. Our assets are diminishing in value, our savings are worth less, we may be made redundant and we may lose our devalued home.

The government berating (probably unfairly) lenders for not increasing indebtedness rings a little hollow. We are the problem, in acting like rational economic man and trying to restore our financial stability, but who already massively in debt and with declining assets and expectations is going to increase their liabilities?