The economy - business and personal

Batchy

The most important factor in Business is Cash Flow, as without cash, you can't pay the rent, the bills and just generally afford to continue.

A lack of profit in a business is not necessarily short term emergency, but over the long term it can eat away at reserves. but while you still have cash flow, you can keep things going.

I think the is the personal effect, for the next 5 years things will be hard, where people have saved they may not be able to save like they did before. They will work hard to keep going, but wont save a lot, they may use savings to fund lifestyles, rather than adjust lifestyles. They might depending on savings, be able to keep this going for a while.

I think if this economic problem continues to persist for much longer things could get very scary.

People are spending a lot servicing debt at the moment and thats taking its toll once this is cleared, then more money can be spent in the world wide economy.

Also if this is a giant ponzi scheme, then where is the one with all the money??? is it Apple and Buffet?

Pennywise

I'd argue the opposite that people weren't spending their earnings nor their savings in the boom years - they were spending money they never had, i.e. re-mortgaging for holidays, maxing out the credit cards for luxuries, etc. The increase in personal debt was quite astounding and was constantly being flagged as a problem.

For the people I know, personally and through work, those who had savings before, still have their savings. Those who managed to live on current cash flow, with neither savings nor borrowings, still manage today. It's those who borrowed to spend/waste that have come a cropper as they can't re-mortgage again and they've already maxed their credit cards. They're only hanging on because of low interest rates.

Thrugelmir

Batchy wrote: »

Also if this is a giant ponzi scheme, then where is the one with all the money??? is it Apple and Buffet?

Fractional reserve banking created the money. Since the early 70's the banks have progressively leveraged their balance sheets. Then the 2008 crash struck. Now the rules of the game have changed. Deleveraging is in play. Hence why QE of various kinds is being pumped into the financial system to cushion the lack of liquidity. As interbank lending falls away.

hallmark

Batchy wrote: »

Also if this is a giant ponzi scheme, then where is the one with all the money??? is it Apple and Buffet?

Propery owners. We have tons of debt on a personal, company (i.e. banks) & national level & as far as I can see most of it went on housing. Since in lots of places, including the UK, house prices have only dropped slightly from their peaks & are still way more expensive than they "should" be, anyone sitting on property is the beneficiary.

Thrugelmir

hallmark wrote: »

anyone sitting on property is the beneficiary.

Banks are far tighter on equity release now. So how are are they going access or realise the equity? Only so many people can downsize, relocate to a cheaper area etc. Before the market will be impacted.

MacMickster

Thrugelmir wrote: »

Fractional reserve banking created the money. Since the early 70's the banks have progressively leveraged their balance sheets. Then the 2008 crash struck. Now the rules of the game have changed. Deleveraging is in play. Hence why QE of various kinds is being pumped into the financial system to cushion the lack of liquidity. As interbank lending falls away.

With FRB, banks effectively create new money when they make a loan. Over the years to 2007, more and more of this new money was being spent by borrowers making it appear that the economy was booming.

Now is the time to pay the piper however, and people are generally repaying more than they are borrowing. In the same way that banks create new money when they lend it, that money is extinguished, and hence disappears from the economy when it is repaid.

hallmark

Thrugelmir wrote: »

Banks are far tighter on equity release now. So how are are they going access or realise the equity? Only so many people can downsize, relocate to a cheaper area etc. Before the market will be impacted.

My guess is it'll take ages to unwind. Gradually people will be downsizing, others will be passing their property onto their kids, house prices will probably fall & inflation will eat away at the real value anyway. But here & now property owners are the "winners". Most especially those who overstretched & bought something bigger than they could really afford - they benefitted firstly from the house price boom & latterly from the fact that savers are effectively subidising borrowers via current monetary policy.

Thrugelmir

MacMickster wrote: »

With FRB, banks effectively create new money when they make a loan. Over the years to 2007, more and more of this new money was being spent by borrowers making it appear that the economy was booming.

Now is the time to pay the piper however, and people are generally repaying more than they are borrowing. In the same way that banks create new money when they lend it, that money is extinguished, and hence disappears from the economy when it is repaid.

The UK banks invented mortgage securitisation to increase their lending powers.