The credit crunch has hit the middle classes. That’s the apocalyptic news Britain woke up to this morning.
"Our services, with the credit crunch, are being overwhelmed by a whole new breed of debtor: middle class people" says Jamie Elliott of Transact, a financial advice charity.
Here’s the story in a nutshell. Lots of people (and not just those on low incomes) ran up lots of debts. Then the credit crunch happened. Now some of those people can’t pay their debts. And the credit crunch is to blame.
This story sort of makes sense... up to a point. But let’s not ignore the bit that happened before the credit crunch. The bit when lots of people signed forms that said ‘Give me a loan’.
The first step towards being unable to pay your debts is taking on those debts in the first place. Struggling debtors are victims of the earlier credit glut, of their own misjudgement, or of simple bad luck. The ‘crunch’ is merely the mechanism by which common sense has returned to the credit market.
It does astound me how quickly the credit crunch bogeyman has become a handy, off-the-peg blame shield. If a business has to issue a profit warning, then it happened "because of the credit crunch".
Never mind that other factors may be at work — bad management... a flawed business model... failure to keep up with a changing market. Or plain bad luck.
But management know that sort of thing doesn’t go down well with shareholders. So, to get themselves out of a jam, they simply invoke The Double C.
Of course, there are genuine victims of the crunch. These include businesses who’ve set up potentially profitable deals, but who can’t get funding because lenders are twitchy.
Ultimately we’ll all be victims of the crunch. Because good deals won’t get done. Because productivity will be lost.
But that doesn’t mean the slowdown in the economy can simply be attributed to one handy scapegoat. It doesn’t work like that. Our troubles go much, much deeper than the credit crunch.
Britain’s economy has real structural problems. The tax burden has grown over the last ten years. Much of that money has been spent on increasing the size of the public sector.
Many new public sector jobs produce very little in the way of actual output — they involve men and women writing reports to ensure this or that public service meet this or that government target.
No doubt someone else is employed at our expense to ensure the people writing these reports hit their required targets.
Public money is being squandered on ornamental jobs. It’s no different from all those middle class debtors who ran up huge credit card bills buying shoes and clothes and plasma screen TVs. And then putting all the blame on American bankers when they can’t pay the bills.
It’s all part of the same cry-baby credit crunch culture.
We need the private sector to create real wealth to pay for the public sector. If the two get out of balance, the sums don’t add up. Not enough tax comes in to fund the public wage bill. This is a precarious way to run an economy.
Now the house of cards is teetering, and our leaders are invoking The Double C as an excuse.
In desperation, the Government is now scrabbling around trying to raise cash wherever it can. It cut the 10p rate, but that backfired. A similar U-turn is on the cards over proposals to tax corporate profits made outside the UK.
Face it, fellas. The game’s up.
But where there’s crisis, there is also opportunity. Below, Garry White and Manraaj Singh take a look at two different ways investors can actually benefit from the havoc wreaked by the crunch...
Say Hello to The Daily Reckoning
From today, Fleet Street Daily will be giving you more!
As well as everything you’ve come to expect from us — the latest UK economy and business news... the best ways to invest in commodities... Manraaj — we’ll now also bring you the daily thoughts of my American colleague Bill Bonner.
Since 1999, Bill has been entertaining readers each day with his Daily Reckoning essays. Taking in ancient history, financial hubris and the follies of money men and policy makers alike, The Daily Reckoning has proved immensely popular.
And now, we have it too!
So, without further ado, here is today’s Daily Reckoning.
Invest with the world’s greatest hedge fund manager
One man who won’t be seeking debt advice any time soon is John Paulson. Because while many investors took a beating last year, hedge-fund boss Paulson made £3.7 billion.
Now Paulson has spied a great opportunity in the Gulf. And watching his every move is our very own Manraaj Singh of Profit Hunter!
"You’ve got a region that’s mega wealthy, and an investor who clearly knows his onions," says Manraaj. "Now these two have come together... there’s only one word to describe the opportunity opening up as we speak: Pow!"
Find out what Manraaj believes is the best way to follow Paulson as he aims to clean up in Arabia.
Coaly Smoke, Batman!
Coal. Isn’t it dirty? Doesn’t it create a lot of nasty, carbony gas?
Perhaps. But those who forecast the demise of coal have been shown to be premature. In fact, as investors, we should take a serious look at the opportunity coal presents us right now. Because here is another great way to turn the credit crunch on its head — and make some money from it!
Right around the world, governments are facing the same problem. They need more electricity. And they need it now — they want to go nuclear, but that takes too long.
"It takes 12-15 years to build a nuclear reactor," says Garry White, our man with the commodities plan. "The world can’t wait that long. Why do you think our government wants to keep Kingsnorth going? Because we still need coal-fired power stations".
Governments the world over are turning to coal to fill the energy gap. As a result, coal prices have soared. But, as Garry explains in today’s Smart Commodities, there’s no reason to expect this bull run is over.
And Garry’s found an interesting way for you to invest in this boom. You see, there are a lot of great coal mining deals kicking around right now. But, unlike those middle class debtors mentioned above, these deals have become genuine victims of the credit crunch.
Miners can’t get funding for exploration, even though they could be sitting on an extremely profitable resource. That’s where the company Garry’s found comes in...
Garry’s investment offers these miners two things. The first is funding. The second is a wealth of mining expertise.
"This is a truly unique investment," says an enthusiastic Garry. "It offers investors a great way to get early-stage mining exposure."
Early-stage exposure is the way to make the biggest returns from mining. But that’s not all this investment offers...
"You also get a dividend stream — something virtually unheard of from explorers," adds Garry.
Take it from me — Garry is very excited by this one. He’s just spent ten minutes telling me (and, it turned out, the entire office) about it. He was on his feet for most of that — a sure sign that our man has the bit between his teeth.
Until tomorrow
Ben Traynor
