The Spectre of Deflation

I had a rare lay in today. While I had half a mind to get out early and down to one of the nature reserves that are dotted around the area, I was just to comfortable and warm. Also I needed to catch up on my sleep. Therefore I was rather surprised to see that a light dusting of snow had settled. Now normally at this time of the year, early winter, when we have snow it goes as soon as it comes. In the past it was different and that is the effect of a changing climate over the last fifty years, thus settled snow in early winter is now rare.

Yesterday I had got some more seeds for the bird feeders, and I had topped them up. But even I was surprised to see that they were empty again. Because of the cold the birds are relying on this source of food. As well as the seed feeders I have a peanut feeder and half a dozen fat balls (no sniggering at the back) and my yard must have been fall of birds all morning. Even now I can see a steady flow of birds dropping into my café for lunch.

Talking to my supplier of bird seed, she told me that she has seen far less people buying bird seed in the last few months. So I presume that the reason why so many birds are visiting my feeders is that other people are not feeding the birds or feeding them as much. Now while I can understand that people are feeling the pinch, personally I will always put something out for the birds as seeing them gives me so much joy.

On the subject of the credit crunch and rising costs, the other day I got an Electricity bill. Now I am paying by direct debit, a monthly payment that should even out the cost through the year. But this bill said that from my last meter reading I had used more power than would be covered by my payments. I was going to just pay this but today on the news I hear that one MP (Member of Parliament) is saying that the energy companies are increasing peoples Direct Debits and over billing to increase their cash flow. So I checked the meter and I discovered that my bill was showing that I had used a thousand units more than I actually had. My current reading today is much lower than the billed amount. Had I not heard the news that the MP was questioning the actions of the energy companies I would have just paid it. Knowing that it would get ironed out latter. But now I am feeling a little aggrieved by this.

At the moment there appears to be a lot of actions by business that is being blamed on the Credit Crunch. While the effect is real in some areas of commerce, the reality is that most businesses are not suffering as badly as the media would have us believe. For the last eight years in the run up to Christmas the media has been saying that its going to be the worst Christmas on record. Yet each year the retail spend has broken records once the figures are released. This year there will be an effect as in the past few years much of retail spending has been funded by credit. With the banks being more careful about who can afford that credit there will be an effect on spending. But I don't see locally the effect of lower spending. In fact by the way that some people are buying toys for the children you would think that Christmas was next week and not next month.

Now I am not saying that everything is fine or much better than is being reported, but I am saying that the problems we are seeing have been there for a long time. The problems in the retail sector are almost all based on the over inflated property market. Firstly retail rents have been ballooning. That has meant that only businesses that can make vast profits have been able to survive. Often this has been only by cheap imports from places like China. All this obviously has an environmental impact as it increased the carbon footprint of the good we bought.

There is also the problem that these retail rents, and we are talking about rents of one hundred thousand per year for city centre shops, have forced socially important businesses to stop trading. This is one of the reasons why most town and city centres are full of the same homogeneous shops and why the traditional food shops have disappeared from our high streets.

The other aspect of the impact of the property market on retailing is that when a business did own their building(s), many used a method where they sold the building to an estate company then leased them back. That boosted the profits for the year the deal goes through. Great for the shareholders that year, but seriously damaging for latter years. Like Now!

The other aspect of the credit crunch and the recession that has been casting doom over the media is the sector of deflation. It has been reported as though it is a fate worse than death. But hang on, in Japan they had a banking crisis more than ten years ago and Japan has suffered “Deflation” since. Now no one seems to be suggesting that the Japanese economy is a disaster, and one of the effects of more than ten years of falling prices in Japan is that they have two trillion dollars of savings. It is these savings that the US and the UK are relying on to fund our banking bailout. I had wondered if Gordon Brown was going to those well know lenders of Mako, Hammer Head And Great White for these loans.

But being serious though, as the major component of the global economic collapse has been borrowing rather than saving, if the effect of deflation is that people save then that will strengthen the economies around the world rather than be the disaster that conventional economists believe.

To go off on a relevant tangent, one of the problems with most pension pots (the pool of money that pays peoples pensions) is that conventional economics don't like to see cash sitting around. They prefer to see that money working in some way. Thus the money from these pension funds have been invested into all sorts of higher risk investments. Had they stayed in cash they would have been much safer and the values of these funds would not have fallen leading to the short fall that many funds now have.

Therefore, deflation is not the bad economic state that many are trying to paint it as. Saving for the goods we buy is not only cheaper than buying on credit but we also are more likely to buy wisely. One of the problems that the western economies have in their structure is that we rely far to much on businesses that require us to keep on spending. The moment we stop there is panic.

In America the car manufacturers are going to the government with their begging bowls for loans to keep the industry going. As the auto industry is important to the US economy I can understand the temptation to do this. However, the major problem with the US automotive industry is that it has not been innovating, all of the models are variations on a theme. Moreover they rely on oil. While in Japan Toyota has a two year waiting list for its hybrid cars. Remember Japan is the economy that is supposed to be in such a disastrous state after over ten years of deflation.

Yes the American car industry needs help, but they need to start making cars that are less dependent upon oil. The technology exists to do that today. For two hundred dollars each every car in in the US can have a device fitted that means it can run on a hydrogen petrol mix. Effectively the cars are partly running on water. The cars own battery electrolysis the water to create oxygenated hydrogen, also known as Browns Gas, and this supplements the petrol. That will also reduce the US imported Oil bill by forty to fifty percent. It could cut in half the CO2 emissions from transport in less than a year too.

But equally, the same technology can be used to make cars that run on oxygenated hydrogen completely. There would be a cost in performance as the fuel tank would need to be very robust so that it would survive a crash, hence thick and heavy, but that dream of a car that runs on water is possible today. Therefore, I think the American government should only provide the loans if they stop enslaving Americans and the rest of the world, to oil.

Equally here in Britain we really do have a great opportunity to resolve many of the problems we have. If Britain and or America were to go down this route, we could create so many manufacturing jobs and generate the income both our countries need.

There is another problem that we in Britain can use the present economic difficulties to resolve. In Britain we have a problem of a shortage of affordable housing. As Gordon Brown has said that he is willing to borrow to provide a fiscal stimulus (I still think that sounds like a band), then by building sustainable social housing it will prevent the building sector from collapsing. Further, properties that are repossessed from the Buy to Let defaulting mortgages need to be bought by the government and placed in the hands of local authorities for social housing.

The economy is important not just for financial reasons, but for social and environment ones too. The economy has to change so that it helps people and the environment. There will be people that will not accept this change easily. Even though we have seen the current system doesn't work there are many that think we just need more of the same but better. This economic shock is only the first of a series of world shattering events that we will see. In the next five to ten years we will see the total collapse of fish stocks and the end of the fishing industry. Also we will see, and I do mean see, the levels of the sea rising.

Just as we have had a financial binge and are feeling the effect of that, we will see the cumulative effects of the destructive binge we have had at the cost of the environment. The challenge is and will be the society we create latter.

It is the ordinary person that suffers from the excesses of businesses and governments, but it will be us, the ordinary majority that will shape the future.