| January 09, 2008 | Wednesday | Zilhaj 29, 1428 |
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Britain wakes up to harsh realities
LONDON: London’s streets were deserted when we drove in from Devizes on the afternoon of New Year’s Day. Many people had left the city for the holidays, leaving normally busy thoroughfares eerily quiet.
But after the New Year celebrations came the hangover: a large number of personal bankruptcies are expected as people struggle to manage their debts. Fuelled by fifteen years of steady growth, the British economy is bracing for the bubble to burst. Millions of house-owners have seen the value of their properties rise steadily in an unprecedented boom. To finance their holidays and a newly acquired glitzy lifestyle, they have mortgaged and re-mortgaged their homes.
In the popular view, property prices would go on rising, thus allowing them to live beyond their means forever. But according to the inexorable law of gravity, what goes up must come down. While experts had been predicting for months that the housing market was overheated and had to slow down, the reality was that the London market, in particular, had seemed impervious to the normal laws of economics as well as gravity.
Welcome to 2008. Now it has been confirmed that for the last three months, growth in housing prices has finally stalled, and many units remain unsold. This has combined with the credit crunch caused by the banking crisis in America to make loans more difficult to obtain. Add oil at $100 a barrel, bad news from high-street retailers and you get many of the ingredients necessary for a sharp economic decline. This perception is making people tighten their belts and defer purchases, thereby causing a slowdown in retailing and manufacturing.
So is this the end of bling? Frankly, this was a word I was unfamiliar with until my stepdaughters explained it to me a couple of years ago: ‘bling’ describes it ms people buy to proclaim their ‘cool’ and their wealth. Mostly, these objects are vulgar and serve little purpose except to announce how cool a dude is. They can range from a bright red Porsche to a large gold ring. And a piece of bling can be enhanced or ‘pimped up’ to be even more vulgar: thus, a car can have its sound system and its interiors made louder at considerable expense. The idea behind this investment in ‘bling’ is to shout: “Look at me! I’m cool, and I can afford to throw my money away!”
Of course this is not to suggest that vulgar expenditure is a Western phenomenon: witness the vast palaces in Pakistan built in the worst possible taste. Acres of marble adorn these villas, and they are decorated in expensive versions of Dubai-baroque, with chandeliers and various imported knick-knacks adding a note of tasteless wealth. But possibly the bling champion of the world is the Indian multi-billionaire who is building a vast, multi-storey complex to house his wife and daughter. This structure will contain several swimming pools, a heli-pad, and will need some 600 servants to maintain it. Arab sheikhs, of course, have long been respected members of the bling fraternity with their solid gold taps and private Jumbo jets.
However, once the preserve of the rich, ostentatious expenditure has now reached the streets where cheap credit and the ever-expanding market for drugs has allowed many more to join the game. But with an economic crunch around the corner, it is possible that the shine on bling may be tarnished.
Even Gordon Brown has warned of a difficult year ahead. In his New Year message to the nation, he has expressed fears of a slow-down. This has been echoed by economists and bankers, although their forecasts did not prevent the latter from collecting their obscene bonuses at the end of the year.
At the other end of the scale, food prices have been rising steadily, with dairy products rising especially sharply. And if we think flour prices in Pakistan have shot up, there’s more bad news on the food front to come. As the developed world switches to bio-fuels to reduce their dependence on oil, farmers are producing less edible grain and more corn to turn into alcohol to run cars. This trend will inevitably push food prices up in the international markets, causing shortages in developing countries.
To a generation in the West that has known little poverty or hardship, a recession will involve a steep learning curve. Young people take trips abroad for granted, and think nothing of flying to distant destinations for a ‘rave’ or concert over the weekend. School-leavers work for a few months to earn enough to finance their ‘gap year’ abroad before they start university. And expensive computer games, plasma TVs and tickets to concerts are on every young person’s ‘must-have’ list.
But with a recession on the horizon, such a lifestyle is not sustainable for the majority. Indeed, the Guardian has just published a list of things to do to survive the downturn. Some of them are plain common sense: “Live within your means. Most people have a good idea of their income, but little idea of their outgoings…”
In this article, the newspaper quotes Martin Lewis, a consumer advocate: “Spend less on what you buy already… the average British family overspends by 5,000 pounds per year, simply by paying too much for things…”
The funny thing is that countries can overspend for years and get loans from all kinds of sources. But if an individual misses a couple of instalments on his bank loan, his property can be repossessed. And of course, convincing a banker that an overdraft is needed for a skiing holiday to Gstadt is not an easy sell. Nevertheless, an entire generation in much of the West has grown up to think they have a God-given right to material comforts. And their elders are now having to get used to a world where their houses will not continue to lay the proverbial golden eggs forever.
As we all know, there is no such thing as a free lunch.
