Well, it would be churlish to deny the iPhone seems to have been the product of the year, although the Nintendo Wii has enjoyed something of a stunner too. Nintendo is now suffering from not being able to meet demand.
As for central bankers, where do we begin? Is it the letter sent by Mervyn King to Gordon Brown? The bold step taken by the world’s top central banks to work in unison to pump money into the system earlier this month, or the even bolder step by the European Central bank, to carpet-bomb the Eurozone with credit? No, we would like to award the prize of most extraordinary statement from a central banker to a man who retired earlier this decade.
Earlier this year, the former governor of the Bank of England, Lord Eddie George told the Treasury Select Committee “My legacy to the MPC, if you like, has been ’sort that out’.”
This is how this extraordinary admission went, in more detail: “In the environment of global economic weakness at the beginning of this decade… external demand was declining and, related to that, business investment was declining… We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.
“We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn’t possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did.”
But then, of course, 2007 was the year when the UK’s economic boom just went on. Sixty-one quarters of uninterrupted growth, we have never had it so good. Well maybe we have, according to Ernst and Young: our discretionary income is at its lowest level in five years. Back in June, Ernst and Young said that after tax contributions, mortgage payments and monthly household bills, the average family now has just over 22 per cent of its gross income left over, as opposed to over 28 per cent in 2003.
The typical household now faces monthly mortgage payments of £698.85, that’s 65 per cent higher than in 2003. The same household now spends £156.23 per month on petrol, that’s 11.7 per cent upon 2005/06. Other debt repayments (loans, credit cards, overdrafts) are up more than 30 per cent since 2003/04 to £103.83 per month, and Ernst and Young says average household unsecured debt now stands at £8,028.43, compared with £6,568.32 in 2003/04.
Furthermore, council tax is up 20 per cent since 2003/04 to £110.10 per month for a band D property, and monthly pension contributions to defined benefit schemes are typically some 65 per cent higher than in 2003/04, up from £144.26 to £238.78.
Ernst and Young says the average household now has £837.53 to spend each month after total fixed monthly outgoings, compared with £898.54 in 2003/04.
But, it seems that the truly major economic development of the year has not really had the publicity it deserves.
Earlier in the year, China said it was to invest less money into bonds and more into equities. Meanwhile, other sovereign funds, especially from Qatar, Dubai and Singapore, have been moving-in on US and European assets.
It seems that while the beginning of the year saw private equity muscle-in using borrowed money to buy-up companies, in this post-credit crunch era, it’s overseas money, money that is invested, rather than lent, that is pumping up the system.
This morning, the FT revealed that a Saudi fund is preparing to invest $1.73 billion into UBS, this on top of the $9.7 billion we already know about from Singapore. Yesterday, Morgan Stanley was seeing $5 billion from China. Barclays had found itself with some extra cash provided from China, as has private equity giant Blackstone. A Qatar fund has invested into the London Stock Exchange. We could go on.
Last month, Merrill Lynch estimated that the total assets managed by sovereign funds may exceed $2 trillion. That’s more than all the world’s hedge funds combined. More to the point, it estimates that this figure could grow to $7.9 trillion by 2011. Incidentally, it also believes that, right now, assets of the Abu Dhabi Investment Authority alone are worth $875 billion.
The point about these sovereign funds is this. Right now, the borrowing craze has led to crisis, and crisis has left us needing cash and led to selling assets on the cheap. Much of the money that funded the debt build-up came from abroad, and it was all rather good. Not only were we using some of this money to spend, we were also reinvesting some if it, and getting good returns on our investments too.
Foreigners were providing us with cheap credit, we were reinvesting some of it, and getting much better returns: this in turn made it seem as if our debt was affordable.
But, moving forward, it won’t be like that. Expect the flow of dividends leaving this country to rise dramatically in a few years’ time. Right now, we should be investing to provide an income for the baby boomers when they retire. Instead, the opposite is occurring.
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