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People read about road accidents all the time but never really pay that much attention. It is only when it is someone you know who is in that head-on crash that it really grabs your attention. It is the same with the economy.
The air has been full of talk for months now about the impact of the credit crunch and the possibility that it could push the UK economy into recession. But outside the financial markets of the City no one paid much attention. People seemed to be spending much as before, booking and taking holidays much as before, filling the bars in the evenings much as before.
Then this week Marks & Spencer unexpectedly announced that its sales and profits had dropped off a cliff in the past three months. All of a sudden its customers have gone elsewhere to save their pennies, or have not gone shopping at all. Suddenly this abstract talk of recession is no longer abstract. If M&S is suffering, the global shortage of cash has all got uncomfortably close to home.
It's been a wake-up call not just for the public. For nigh on 12 months now, one of the great mysteries in the financial markets has been how the banking system could all too spectacularly come apart at the seams but stocks and shares sailed on oblivious to the disaster.
It was as if the stock markets had convinced themselves that they were not all in the same economic boat as the bankers - a boat, moreover, with a gaping hole at one end. Now they have got the point. The bleak message from M&S for the markets is that water is lapping around their ankles, the bilge pumps can't cope and the whole show is sinking fast.
One reason perhaps why those in the stock market thought it could not happen to them is that many of the big companies on the main market index are foreign mining stocks or international oil companies, none of whose fortunes reflect what is happening in the UK economy. The strong performance of those companies on the back of the global commodity boom has long masked the fact that British companies underneath were looking sicker and sicker. It is obvious now. But in all honesty, the real surprise is that it has taken so long for the market to get what should have been apparent to a two-year-old colouring in graphs in an economics text book, let alone a stock market analyst.
Bust banks mean economic slowdown and economic slowdown is bad for everybody. And there is no hiding place.
The Governor of the Bank of England, Mervyn King, understands this. He used a key speech in the City last month to spell out in words almost of one syllable that success in the fight against inflation meant that living standards had to drop.
All the focus is on interest rates but the reality is that the Bank's policy works only if people are too scared of losing their jobs to make pay claims and companies are too worried about losing their customers to pass on price rises. That way, people and businesses spend more on oil, gas, food and electricity but get nothing to ease the pain.
But the front line of the fight against inflation is the squeeze on our wallets and purses. Individuals have less to spend, companies have plunging profits and everywhere people are feeling the pinch. For the first time in a decade, according to Britain's leading baker Associated British Foods, sales of white bread have begun to rise, while cakes and biscuits are left on the shelves.
That signifies a huge shift in spending habits - yet the Chancellor, Alistair Darling, sitting alongside King when he delivered that speech, still refused the next day on the Today programme to admit that living standards would have to fall. On radio he still prefers to pretend the water is not lapping around his ankles.
People feel the discomfort and see the price rises but there is a further sense of despair in that no one in positions of authority seems able or willing to do anything about it. In times of trouble people look to their politicians for leadership, and the reassurance that someone up there knows what needs to be done.
Yet in this crisis everyone blames outside forces and says, by implication, that they are powerless to alter the course of events. If hot air could undermine the oil price or solve the banking crisis then indeed it is true that we would already be well on the way to a cure but sadly hot air does not work. As if to underline the point, just as America's Treasury Secretary met Brown, Darling and a bevy of bankers in Downing Street yesterday morning, oil soared to a new record high of $146 a barrel. Canute would have understood their problem.
The trouble is that it is true that international forces are largely responsible - and the politicians can't do anything about it. Gruesome though it is, the credit crunch is in fact a symptom, not a cause, of a deeper malaise.
What is happening underneath is that the centre of global economic power is shifting. It is moving from the United States to China, and while this may take decades to run its full course, it is nevertheless a tectonic shift which, while it happens, will cause unprecedented upheaval and volatility - of which the credit crunch is just one small part.
It will fundamentally alter the world in which we live and the standards of living which we have so long taken for granted. At the same time the arrival on the scene of the fast-growing Asian and Middle Eastern states with their demands for the raw materials with which to build their economies have reminded us again that the world's resources are finite, and that when supply gets short, the price goes up.
The West, having had things its own way for so long now, is going to have to adjust. The credit crunch is really only a dress rehearsal for learning to live with a new world order, where much of what we took for granted will cost much more, and what was once affordable becomes a luxury.
Tomorrow's world will be a very different place.
Reader views (1)
I believe Marks and Spencers lost customers who see almost all their clothing is now..made in China...but still with made in Britain prices and to my mind poor quality.
Let us hope china with its appalling human rights and animal rights record never does take off or we are all doomed
Nuclear waste dumped in Tibetan rivers,no regard for the environment and no elections...why do respected British companies trade with that communist regime?
- Jean Matthews, London,England, 04/07/2008 16:28
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