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Why have a crash if we don’t learn the lessons? Part 1 – Muddled messages
What you may be asking can a journalist – someone with all the popularity of an MP but without the expenses to compensate – have to tell savers about the financial crisis?
If we are so clever, you may wonder, why didn’t we predict the crash of 2007?
Well the simple answer is that we did and the crash of 2006, and 2005. The Press is so bearish we have forecast five out of the last three recessions. We had to be right sometime.
Short-selling could have been invented for the media – if only we knew how to do it.
Actually, journalists might be better informed if they were active investors. Relying for advice on wealth from financial writers who have no wealth of their own is like asking people to read a motoring column written by someone who cannot drive or a wine page penned by a teetotaller.
But yes, the press is naturally gloomy. Having witnessed one crash, the lesson we learned was to keep warning our readers to expect another – a double dip, a bear market, a fall in house prices or simply higher borrowings costs. Show us a silver lining, we’ll find a black cloud for it to go round.
However, on the positive side, the press does have an important role in imparting independent information on finance and, if we are doing our job properly, in assessing the public perception of the investment environment.
And how do I see that perception? Confused.
On the one hand, Mr Bean – not Rowan Atkinson’s comic character, or Vince Cable’s caustic description of the last prime minister, but Mr Charles Bean, chief economist at the Bank of England – told us at the end of September that it is our patriotic duty to stop saving and start spending. One reason interest rates are so low, he said, is to encourage us to spend – even if that means eating into our capital.
However his boss, Mervyn King, now says we are in the “Sober” decade where the letter ‘S’ of Sober stands for Savings. “Savings, Orderly Budgets and Equitable Rebalancing”. Which mnemonics committee dreamt up that one? Mr King likes acronyms. The Sober decade follows the Nice decade – Non-Inflationary, Consistently Expansionary. Same committee I think.
You might have thought his Nice decade would be followed by a Nasty decade – “Non-stop Austerity Stretching Two Years”, perhaps – or that the Sober decade should have been preceded by the Drunk years – D for Debt, R for Remortgaging, U for Unsecured-loans, N for Northern Rock and K for …. well you choose: something Icelandic, maybe, like Kaupthing or Krona? But obviously not K for King.
So there are mixed messages on saving from those people who are now referred to grandly as “policymakers” – but who used to be just politicians and bankers. I thus listened to George Osborne’s recent Commons statement on the Comprehensive Spending Review. The good news is the chancellor used the word “saving” 41 times. However Mr Osborne’s definition is not the same as Mr King’s. When the chancellor says “Saving” he means cost cuts, not money put away for a rainy day. He had nothing at all to say about saving in the sense we are here this afternoon – tax-incentivised or otherwise.
Indeed, you might be interested to know the Treasury website has a section called “A to Z of Treasury terms”. Actually there is no Z: maybe that’s another government cut, or simply a civil servant who went home at 5pm. But the word “saving” – never mind a definition or an endorsement of them – never appears.
However, if policymakers are muddled, so too is the press. We still write “Good news, interest rates down”, “Bad news, mortgage rates rise” – even though it traditionally takes seven savers to finance every home loan. That means seven readers who want higher rates for each one wanting a cut.
Yet now, interest rates have been manipulated downward on an international scale to save the global economy. The answer to the Nice decade of cheap borrowing seems, somehow, to be a Sober decade of even cheaper debt. That, surely, makes us even less likely to save.
This series of four articles are extracts from a speech by Richard Northedge at the November conference of the Tax-Incentivised Savings Association