To think it's depressing that everyone seems to think after this recession we should just return to exactly how things were?

[kake]

Does anyone else get this sense? What I mean is that everybody is lamenting this recession, quite rightly as it's awful, and I feel for everyone who has lost their job or is struggling.

But on the other hand there doesn't seem to be an acceptance that in some ways this has been at least a little bit caused by complete over-consumption in the good times and that we need to change our ways a little bit. Or a lot. When people talk about house prices especially, the consensus always seems to be that if there's any talk about a recovery that must be a positive thing, with the implication that we should be getting back to stupidly inflated house prices as soon as possible.

I find it depressing, as someone who didn't buy partly because we couldn't really afford it but also because we were really cautious and didn't want to overstretch ourselves. But now we're seeing a lot of friends who did somehow being rewarded as their mortgages have been slashed.

I'm also someone who wishes that taxes had been much higher for what I consider to be well paid people (and that would include my DH!) during the boom, so that there hadn't been such a disparity in income in this country then. It's a shame that higher tax levels in future will have to pay off debt not contribute to the national benefit! If I mention this to (well paid) friends they look at me as if I'm mad, although they are people who in principle I think sort of do believe in equality, just not if it affects their/our pockets. My view is that as satisfaction with income is largely relative (ie it matters more to people apparently that they get paid more than their neighbour than their absolute wealth), then if everybody is taxed more at higher income levels, then we'd all be in the same boat and it wouldn't make much difference.

But I feel like I'm STILL swimming against the tide, just when I would have thought more people would begin to feel like this. We have lots of friends who work in the banking sector for example who've been through a bit of a rocky time but now seem to be out the other side and better off than ever and sort of with no lessons learned!

It just seems ... so wrong! Or maybe I just got out of bed on the wrong side. And this post isn't as articulate as I would have hoped!

Am agreeing with sorrento here a lot (going to lie down)

Sorrento - re "we are not in deflation now ... just more bloody spin to try and get the savers out there spending"

Sorry but that doesn't even make sense

In deflation, rational behaviour is to postpone spending. Don't buy that TV now, buy it in two months when it will be cheaper. Don't buy that house now, buy it next year when it will be cheaper etc.

Ok fair enough that's my misunderstanding.

My mother in law worked part time as a teacher, was off sick most of her career (bugger all wrong with her), has been divorced twice and now has a pension, state and private, more than DH's salary.
The miserable cow can't cat sit for us even though we asked before she booked, as she's off on two foreign holidays this year whilst DH will stay home whilst I take three kids to a caravan. I mentioned the car was costing us a lot insurance etc, she said get rid of it and hire one when DH has an interview grrrr
Am soooo looking forward to having her move in, am undecided yet as to how long I can leave her stewing in her own juices, literally, before the smell bothers me more than it annoys her.

The point is that it was all built on a house of cards: the reason the banks began to suffer and the whole "credit crunch" began (personally, I hate that term, as to me it somehow allows banks and individauls to abdicate responsibility... "it wasnae me, it was the 'credit crunch'") was the American sub-prime lending. That was the catalyst that began it - but it was all going to collapse at some point. The fact that the banks were selling on the risk and there was basically a whole merry-go-round of debt and paer money between the banks that was just fuelling the grwoth just exacerbated the eventual collapse.

SO I don't accept that individuals don't have responsibility. They were quite happy to take loans at 5 times earning when they though they they could afford them.

I have a lot of sympathy for Iceland:L its bansk collapsed (due to an extent by Darling and Brown's attmepts to divert attention form their own economic mismanagement) - but they are taking their medecine, with ultra high interest rates and strcit currecny controls.

I do understand the difference between investment (adding construcutvely to the economy) and savings (withdrawiung from the economy becasue it is not being spent) and the differntial between the inflation rate and the interst rate. However, those pople who have larger loans than savings are benefitting more than those in the opposite situation.

I will admit to always having struggled with the "investment = good, savings = bad" economincs model, as I always got the impression that the banks etc would invest the savings anway - into porperty or other vehicles, so that it was being invested anyway, even if not directly.

LauriefairycakeeatsCupid - agree with you. I call them the selfish generation.

They got lucky in a world where he Iron Curtain cut workers in Eastern Europe off from the global labour market and their mortgage debt was paid off by inflation, their healthcare, dental care, their kids grammar schools, their kids university, their welfare and pension all covered by the taxes on future generations. Now they want us to buy their overpriced houses off them (yet other tax on the young) so they can retire and live on the nest egg they ever earned.

Sorrento - same with my PILs. They even use us as a hotel before they fly off somewhere nice 3 times a year. Never once looked after the kids. They take them to the cinema on sufferance once a year. My parents are no better.

Didn't CPI just print at 2.9%? i know the RPI is down, but aren't we still feeling the effects of inflation against our lower savings rate? (i.e., negative real rates)

The lucky generation are also sitting in the nice housing stock knocking around in houses much bigger than they need meaning the rest of us can't move up the ladder (if we have been lucky enough to buy in the first place)

re "the difference between investment (adding construcutvely to the economy) and savings (withdrawiung from the economy becasue it is not being spent)"

Not really. Savings are not money withdrawn from the economy unless you bury the notes in your garden or some such.

The money you save by sticking it in a deposit account is still being invested - by the bank.

Can I just mention that not all baby boomers had it easy. There was 4 million unemployed in the 1980's and my dad was one of them (he ended up having to work abroad and missed a lot of my childhood). They bought their first house when they were 40 and have just finished paying it off. They also didn't have maternity pay, CTC, sexism in employment was brutal. My mum failed her 11+ although she got the highest in the year only boys were put through . They didn't do gap years, university education was free because most (inc my parents) didn't go, most lived with the parents until they got married, had rationing when they were children, and have lived through multiple recessions. It wasn't all fun.

Our generation has it tough but then so have all generations.

"The money you save by sticking it in a deposit account is still being invested - by the bank. "

but not necessarily in the home country ...

there are lots of Japanese savings that have done nothing for the domestic economy.

goodnightmoon - Inflation calculations look back (past month over the same month of previous year), whereas interest rates look forward (to the next year, for annual rates, for example).

So it is the inflation expectation you should compare interest rates you are offered with.

RPI (Retail Price Index) inflation was negative in February - that is, deflation. It is more indicative of future price trends than CPI (Consumer Price Inflation) inflation because these are producers' costs which then get reflected to product prices with some delay.

Exactly CotdAzure - that's why I always had difficulty with the ISLM model. But it is over 20 years since I did my economics degree (and I had problems with the logic even then).

It was always implied - not stated - that savings were bad and investment was good - but like you say, savings are themselves invested. But maybe that was just my university.

i understand the rationale, but the bulk of my savings are earning less than 1 pct TODAY and the cost of the food in my grocery basket was 3% higher in March than a year ago so that also affected me in the present.

goodnightmoon - What do you mean by "lots of Japanese savings that have done nothing for the domestic economy"? Are you referring to carry trades?

If so, I would very much doubt that they make up majority of Japanese investments.

SOrry - meant say "no, stated", not "not stated": totally changes the meaning!

But why are you keeping your money in an account that earns less than 1% interest - I just don't get it.

Do you not know that there are alternatives to sticking your money into a deposit account?

i have several savings accounts, some with better rates than others. Unfortunately i have a lot of money languishing in an online saver account that has steadily reduced its rate.

Must find a decent bond ...

Coted'azur, the thing is, I know that low interest rates are clearly not personal, because that would mean that I had a terrible victim complex! But the trouble is it feels that way and the effects in some senses are. At the moment it least it feels as though people who stretched themselves on huge mortgages are being 'rewarded' (not personally!) by the situation. Of course, the government has to do what it has to do, but it doesn't HAVE to prop up the property market in an artificial way to save homeowners, when I would argue that more people in the long run would be helped by letting house prices painfully return (not going to use the word fall!) to a more realistic affordability.

On a different point, I bumped into a headhunter friend of mine today. He was all chipper as he'd just signed a huge deal, placing one of his investment bankers in a big job and has now made enough money to safeguard his job for the rest of the year. I am delighted for him, truly. But I'm also really really really pissed off that bankers are still being paid such enormous sums of money that this is possible.

I don't know how many people in this country get paid over, say, £250k, or even £150k but I'd guess a tiny percentage. Why then, is it so difficult to argue that any salary or bonus over this threshold should be taxed at 75%? It would affect so few people, so why would you vote against it? But it would mean that the stupid disparities in income might be ironed out a bit. Would it? As I've said before I'm not an expert on economics. It makes me absolutely FURIOUS that nurses just as one example get paid bugger all and this is happening. I know this is a cliche but still ....

kake - re "any salary or bonus over this threshold should be taxed at 75%?"

That is crazy talk If that were the case, bonuses would disappear overnight and be replaced by, say, "profit sharing". Or they would be paid offshore. Nobody will stand their earnings being taxed at 75%.

"really really really pissed off that bankers are still being paid such enormous sums of money"

A good investment banker will always make a lot of money, because he generates enormous amounts of money for the bank. A nurse doesn't. It is that simple.

A lot of them are out of a job though, if that makes you feel better.

If people were taxed at that level then they'd just make sure they were paid under it and were paid the balance in shares instead or they'd base themselves in countries with lower tax rates like Bulgaria, Monaco etc. In the 1977 budget summary I found when going through my late father's papers there were upper tax rates in excess of 75%. At those levels people started leaving the country and it became pointless to increase your work rate because it would virtually all go to the state.

If you're worth a lot you earn a lot. It is ever thus. Very few people get to be David Beckham because most people can't kick a ball that well and it's the same with the best bankers, lawyers, accountants. Most people can' even get on the starting run in those careers whereas most of us could get a cleaning job. Most in those jobs don't earn a fortune. It's on a very few who do.

Obviously I'd rather have no mortgage and some savings. I do feel lucky to be paying 2% on the mortgage but I don't feel very lucky to have it (and that's due to our unfair divorce laws).

I don't remember a golden age however. I read a book about 1950s England for example very very very hard, people buing tea only as coffee was a massive and very expensive luxury etc. People lived very frugally. I remember appyling for 150 jobs in the early 80s when times were hard. I remember in 84 buying a house and paying 12% interest on the mortgage.

perhaps if we made public sector workers have the same holidays and no sick pay and pensions that weren't linked to salary then we could start to afford things better.

cotedazur, just saw your reply to me on Japan. something like half the country's personal savings were invested overseas, at the peak. definitely would affect consumption.

Ok, Ok, perhaps crazy talk. But do people really leave at that level? Aren't there enough pull factors keeping them in the UK? People aren't as footloose as all that are they, they have families and lives and other stuff. If they did go, would there be other people to fill the jobs because surely quite a lot of people would like to be paid £250k? Or would all those people be too rubbish to do those jobs? Could people come from other countries to do them instead? And are there enough places for them to go? If bankers bonuses were fuelling the London house price boom, as so many people seemed to say, wouldn't a reduction in these bonuses keep things on a more even keel? And what would be the problem with people reducing their work rate? It seems to me that bankers for example increasing their work rate to match their inflated salaries hasn't done us that much good so far! Isn't there a law of diminishing returns with regard to workrates? I've met plenty of bankers who personally tell me it's not just about the money. Seems like a load of rubbish to me, but if that was true, what would be wrong with taxing in such a way that salaries are not quite so massively inflated compared to the 'norm', so that you get talented and fortunate people choosing their profession on the basis of what they are interested in, really truly not JUST about the money?

Or am I just really really thick or totally idealistic? Or both.

kake - The answer to many of your questions is "Because this is not a communist system but a capitalist one"

And people don't have to physically move to be paid from an offshore subsidiary, for example.