Credit Crunch Busters

The country has been in recession for a matter of days and already the question on peoples’ lips is ‘when will it end?’ Top financial expert, Jane Fuller, believes that it will continue beyond 2009 and into the new century, as she explained to Credit Crunch Busters just how the recession came about.

With 18 years of experience working for the Financial Times behind her, Jane spent much of her time analysing hundreds of companies and their production methods, so who better to give us a reflective overview of the country’s mismanagement of finance which has heavily contributed to this recession.

“I would be one of those who think the whole of 2009 is going to be pretty awful.”

However, Jane does believe that for those who are able to stay in work will benefit from the drop in inflation rates in 2010, “the fact is most people will keep their jobs and those that stay in work will be better off.

“Their mortgages are going to be cheaper, fuel prices will be cheaper and a number of other things are cheaper because of the raw material costs falling.”

However, as raw material prices drop, so does the rate of inflation and that can potentially lead to deflation. So what does this mean for retailers who depend so heavily on maintaining a healthy profit?

“If prices fall and the retailers are still paying out the same, or more, for staff and stuff that they’re buying in, then their profits disappear and potentially they go bust.

“The pound is [currently] very weak and so, in pound terms, anything that [the retailer] is buying in from abroad will be more expensive.”

Jane pinpointed the banks “being afraid to lend to one another” due to a fear of insolvency as one of the main contributors to the recession and believes that the taxpayer could ultimately suffer if the government continues to bail them out.

“There’s a danger of what’s called moral hazard – that the banks won’t be punished for all of the bad lending that they made and the government just bails them out.”

With a lack of funds available to the banks, many people have questioned why the government don’t simply print more money. However, she believes that the banks would become a bottomless pit if money were up for grabs.

“It’s not clear how much the banks need and they’re getting mixed messages. So far the government have recapitalised them

“The trouble is, everybody thinks there’s a lot more losses to come.

“If the banks don’t know how much capital they’re going to need to absorb unquantified losses, then they will hoard capital whatever happens.”

But on a more positive note, Jane is confident that foreign trade will once again thrive, due to the strength of other currencies over UK sterling, “A weak pound is good for exporters, although this takes a while to take affect.

“Countries that [retailers] are trying to export to at the moment are also in recession, or its economics are slowing down so quickly that their not the ideal customer.

“But potentially it does mean that exports should pick up.”

By Jamie Bradley

Tags: bank, credit crunch, debt, government, inflation, interest rates, recession