An excellent piece of employment law/finance advice from one of my friends to another this week. Friend A finds herself in the midst of a dispute with her employer but has no trade union representation to fight the employment law battle for her. Enter Friend B, who does work for a union, and thus knows all about this stuff. His advice was to check their home and motor insurance policies, as these often have access to legal advice thrown in - it's a little sweetener to encourage people to buy policies, but one which people rarely take advantage of. This, ironically, is how they are able to throw it in for free of course. Friend A is now delighted to find she can afford a lawyer to take on the case.

One of the lazy 'givens' of the post-Crash UK is that the country is sunk, in large part, because we don't make anything anymore. If we were a manufacturing heavyweight a la Germany, China or Japan, we would not have been laid so low by the dissolving of a candyfloss economy. But Margaret Thatcher swept away British industry in the eighties, after decades of post WW2 industrial decline, poor goods and appalling industrial relations. In she ushered the shiny new age of first the services and then the information economy. Our factories and jobs went overseas to countries unencumbered by old equipment and plant, moribund management ideas and, most crucially, redundant notions of decent pay and job protection.

There are a couple of problems with this thesis of course. First, that Britain IS still a manufacturing nation: indeed we are the seventh largest exporter of manufactured goods in the world. To put that in context, the UK is only the world's EIGHTH largest economy by GDP, so we are already punching slightly above our weight; we export more than Euro competitors France, Spain and Italy. And we export in greater quantity than countries much more obviously reliant on an extracting and manufacturing base, and less reliant on services (I'd point you at Russia and Taiwan for two).

So we make stuff and we sell it abroad. And that's the way out of this mess right? Well no. The clever countries, who have industrialised heavily on making stuff (see Germany, Japan and latterly China) are suffering because nobody is buying their clothes and cars. And Germany can complain as much as it likes that it has been hoist by a recession not of its making - much of those countries' booms have been export-led. A lot of those BMWs and Chinese fridges have been bought with money generated by the housing/credit booms in the UK, the US and elsewhere. Demand in their domestic economies has been lagging way behind output, as people have saved rather than spent.

Come to think of it, the US is the world's biggest economy - buyer, seller and exporter, and is based not just on candyfloss credit, financial services and the rest, but on a huge (if eroding industrial base). GM, Ford and Chrysler don't look like digging the US out of the recession anytime soon. So the idea of 'making stuff' to haul us out of the red doesn't look such a sure thing. And that's leaving aside the ecological cost of increasing the broken earth and smokestacks.

So here's a heretical thought. Maybe, with its generation of expertise in banking, financial services, business services and all the other white collar, clean hands industries, Britain could be among the countries BEST placed to profit from the upturn. The world may be going to end during 2009-10, but at some point it will be back ... and at that point its going to be finance and services that will make stuff happen.

It's that time again - the first Thursday of the month is fast approaching, the day when the Bank of England's Monetary Policy Committee decides whether to twist or stick on interest rates. Many are predicting another reduction, though with the rate currently at 1% there is nowhere much to go - zero interest rates could at last be here. Appealing though 'free' money is (though borrowers always pay a premium above base rate, as I am painfully reminded every time I look at my mortgage payments) there is a price - inflation.

But hang on, wasn't inflation last year's thing. A spotcheck of the financial news surely confirms that the only pressures on the economy are deflationary (alongside deflation's baleful cousin, deleveraging or degearing). The Dow sliding below 7000 points for the first time in 12 years; the FTSE 100 plummeting below 3700 to levels last seen five years ago; AIG and HSBC announcing record losses; UK manufacturing output falling for the tenth month in a row. And not least, the continuing stagnation in the housing market, with selling prices dropping like a stone. Many observers worry that the enormous fiscal stimulus (both the UK and US governments pouring money into the economy through quantitative easing (printing banknotes in effect) and using the resultant cash to buy up debt and invest in capital projects), combined with monetary easing (the cut in interest rates) cannot be other than inflationary.

At the moment, the governments are merely trying to halt the decline, but the aim is of course to reflate the economy. The difficulty is, once the medicine starts to work, controlling the beast of inflation. Many countries have a visceral fear of inflation. From the Tory years of Margaret Thatcher it was seen as the great evil, eroding the value of savings. The Germans of course have the horror of 1920s' hyperinflation seared into their psyche. But nobody seems too bothered about the poor old savers at the moment. Despite being the prudent souls who saved their pennies while the rest of us lived on credit, and borrowed to fuel the property bubble, they are now getting punished, by seeing the interest on their savings slashed - to nothing if the Bank's MPC does cut again this week.

But maybe there is a sinister method to the madness. If inflation does kick in, it will not simply be a sign of the economy getting moving again, it will also handily deal with the asset bubble. All those overpriced properties sitting on the market will soon look a whole lot more affordable as a healthy dose of inflation cuts the real cost of a £200,000 apartment. Price falls will do their bit to bring sellers and buyers back to a meeting point - but maybe our governments are relying on inflation to do the rest.

Poor old Gordon Brown, caught in an impossible situation of trying to fix the UK economy without actually admitting it was all his fault in the first place. Gordon of course is not the only culprit, but he is certainly guilty of encouraging the credit bubble, based on residential property, that is now so painfully deflating, with grim consequences for the UK economy. But one thing you can't fault Brown for is his barefaced nerve in attempting to exculpate himself. Clear away much of the wreckage and we have a dual problem, with one root.

Problem 1? Much of the fuel of our banking system over the last decade has been funds generated by securitised loans, the sliced, diced, repackaged and sub-prime mortgages on overpriced properties 'owned' by under-capitalised punters who from 2006 on have increasingly been defaulting on their mortgages. Result? Confidence in the products disappears, swiftly followed by confidence in the banks, meaning a drying up of trading. Result? Liquidity disappears.

Straight on to Problem 2. As liquidity disappears, so Joe Punter can't refund his mortgage as his fixed rate deal comes to an end. Or new buyers find that the super multiples of 5x earnings and 100% loans aren't there to haul them up to the elusive first rung of the ladder. So the market disappears and so prices tumble, exacerbating the problems with negative equity, and making it harder to hit the new, tighter loan-to-value requirements of the banks. You may have bought a flat at £200,000 on a £150,000 mortgage, but as the market price plunges to £175,000 you find you miraculously have an 85% mortgage rather than a 75% one.

And so the market and the wider economy deleverages and thus deflates. Now Brown has to work the impossible balancing act of trying to encourage people to spend their way out of the recession (for we truly have no option, whether it's you and I buying new cars or banks and companies buying financial products from each other, which is what our shift to quantitative easing is all about), while simultaneously urging prudence and frugality. Brown this weekend told banks they shouldn't be offering 100% mortgages anymore. That is, firstly, comical - has he looked in the marketplace for a 100% mortgage recently? If he can find one he's doing well, they've disappeared by default. Secondly, he is instructing the banks to remove the fuel that he needs to get the economy motoring again. And if he can resolve that conundrum, he's a smarter chap than the last 12 years of economic mismanagement would suggest.

But it goes deeper. Brown's lecture is staggeringly hypocritical when you realise that his 'economic miracle', the NICE decade that came in with Labour, was driven by a determined creation of the property credit bubble, masking the fact that apart from financial services and personal debt, Britain was increasingly not generating products, sustainable wealth or anything very much at all. For a superb and readable critique of the Brown timebomb, read Graham Turner's The Credit Crunch.

An interesting piece on the Radio 4 programmed 'Moneybox' yesterday (Saturday 21 February) on the protection (or not) afforded by buying on credit cards. The assumption we all make is that our purchases are insured if you buy on Mastercard or Visa - making the card issuer and retailer equally liable for meeting your loss if goods are faulty or simply don't turn up. A listener who bought on Amazon, but crucially from a Marketplace (ie third party) vendor rather than Amazon itself, made a claim as the goods were faulty, only to be told by his card issuer that the transaction WASN'T covered under the normal card insurance.

I'm loathe to say don't buy from Amazon Marketplace. It's an excellent system which I use myself both to buy and sell, and it accounts for an increasingly large part of Amazon transactions - the bringing of Marketplace vendors into the tent has also allowed Amazon to grow so quickly in turnover but more importantly in the range of stuff it sells. I make all my purchases on Amazon using the Amazon credit card - that's because it earns me bonus points rather than any insurance cover, but it does have the added bonus that Amazon (it's actually an RBS card) is unlikely to refuse to make good losses bought from itself using one of its own products. To anyone who doesn't use this card (which is most of you of course) I'd say caveat emptor and whip out your reading glasses to scan the small print.

Carpetbagging isn't nearly such big news as it was a few years back. In the early nineties it became very popular to open accounts with a host of building societies, confident in the knowledge that they would be taken over by bigger societies or demutualise to become banks. There would then be a nice little payout for members as the assets of the society were broken up. Though a lot of us have been looking wistfully at those passbooks, and there hasn't been much demutualisation action of late, there's still money in them there friendly societies. Many of us have dormant building society accounts we haven't touched in years. It's well worth having a dig through your drawers (and the older you are the more likely to have a moribund passbook mouldering away) and seeing if you have forgotten cash or, more interestingly, a demutualisation payment coming your way. Names to look out for include the Newcastle, Portman and Leeds building societies.

Tags: carpetbagging, building societies

I don't actually have a crystal ball and if I did I'd probably be out on the golf course right now, smugly congratulating myself on the success of my investments down the years, rather than tapping away at a computer keyboard. But now we've got that one out of the way, let's consider what the financial world has in store for Joe and Joanna Public in 2009. The old Chinese curse 'May you live in interesting times' has rarely been so apposite. Yet for Gordon Brown, who in his decade as Chancellor of the Exchequer was in large part to blame for making 2008 quite so interesting in Britain, it seems the curse has become a blessing. In a remarkable stroke of luck, Mr Brown now finds himself lauded (if the opionion polls are to be belied) as Britain's financial saviour ... for working at clearing up the mess he helped create. But such luck cannot last, which leads us to our first financial prediction for 2009:

1) Interest rates to hit zero. Bank rate that is. The attempts to unblock the flow of credit, first by pumping billions of pounds into the banks, secondly by lowering the cost of borrowing, have so far stubbornly refused to work. Governments get twitchy as rates approach zero, as they don't have many tools left to work with. But they are MUCH more nervous about deflation which, once entrenched, is hard to shift ... just ask the Japanese. Rates will fall further, and there will be pressure on the banks to pass on those interest rate cuts. A base rate of 0% with mortgage holders paying 6% pa is morally and politically unacceptable. So there will be arm twisting of the banks. Which takes us to point 2.

2) Expect further injections of cash into the banks, which inevitably means further nationalisation, as Government takes shares for its (our) cash. By the end of the year we could have an effectively nationalised banking system in the UK. Yes, the dream of socialism has (irony of ironies) been achieved by the ineptitude of the capitalists themselves. Of course that could just be the dialectic working. The Government comes under increased pressure to show UK taxpayers some bang for their billions of bucks poured into the banks, but how to force them to lend in quantity and at reasonable rates when they find it hard to borrow themselves? Onto point 3, quantitative easing.

3) You'll hear a lot about quantitative easing this year: it's a euphemism for printing money essentially and is shock therapy for getting credit moving. The Bank of England will print more bank notes and use them to buy Government bonds (effectively shares in the future performance of the UK economy) back from the market (the banks in other words). Thus the banks swell their reserves of cash, which they then use to lend in the markets. Voila, out of thin air we have increased the money supply and thus freed up credit. In case you're thinking their must be an eventual price to be paid for making money out of nothing ... you're right. It's a price we'll be paying for years to come. But the UK Government has little choice but to use this tool now. When you're drowning, you clamber in to any lifeboat ... you don't ask what port it's headed for.

4) House prices to stabilise ... eventually. It's a long-time bugbear of mine that people talk about 'the property market' as if it were a homogeneous whole. There are dozens, hundreds of micromarkets in the UK. The crystal ball gazers in the newspapers are almost all saying that the market will lose 35% in total, but a little caution is in order. This is 35% off the notional top of the market in spring/summer 2007, when asking prices for property were laughable and thus not being taken seriously by longtime investors (of whom I am one). When an estate agent told me a one-bedroomed flat I own in East Dulwich was worth £280,000 I shook my head in disbelief, and wrote £230,000 on the spreadsheet. Anyone who has bought in the last year or two has probably lost money, but for most of us, 35% of thin air is not so bad. Which is a long way of getting to saying that the last puff of overinflation could be out of most of the property micromarkets this year. I know a number of people who are cautiously heading back into buying - having done their sums first. This is the year when investors go back to the fundamentals, such as looking for a yield (rent expressed as a proportion of buying price) of 7% or more. Value hunting is back in other words. Which brings us to point 5.

5) A bounce in the sales of classic investment tomes by the likes of Benjamin Graham and John Maynard Keynes. Two giants who (unusually) were both top economists AND successful players of the stockmarkets. Players is perhaps the wrong word. Both were long term investors who became superb at sniffing out value in a company. No hunches, no magic, both men's success was based on assiduous reading and analysis of balance sheets. And this will be a perfect year or two for value investors - with the ebb tide of recession lowering all boats, some really solid companies have seen their share prices clobbered with the flight from the market. BG? Barclays Bank? There are a number of companies whose share prices look set for a bounce.

6) An increase in TV programmes, books and magazine articles on living frugally in hard times. Could we even see a return to the ripped jeans of early eighties 'hard times' chic? I hope not, if it means reissues of early Spandau Ballet and Funkapolitan singles, but people will at least be aspiring to more sustainable ways of living. It also chimes neatly with eco concerns about lessening the carbon imprint of our homes and lives. I was bought a machine for Christmas that involves, with some mess, recycling newspaper into briquettes to burn on the fire. Expect a shift away from recycle to reduce and reuse. This could be our greenest recession yet!

Best savings rates UK: Banks are rather adept at sleight of hand when it comes to interest rates. A favourite trick is to offer headline rates to hook new customers and then withdraw them at a later date - they rely on our laziness and inertia to stick with them regardless. We all know about their tardiness in passing on base rate cuts when it comes to mortgages - anyone on a tracker just now is rubbing their hands with glee. While those of us on variable rate mortgages are wondering just how a bank can justify borrowing from the Bank of England at 2% and lending the cash on to us poor punters at 5% or more ... a handy 150% markup looks like VERY good business for the lender. And last week 'Britain's biggest building society' (the Nationwide gets the title by default only because all the bigger building societies became banks and set off in search of riches on the markets) announced that its tracker wouldn't ... wouldn't track that is. Nationwide has said it will not not pass on further cuts in interest rates to tracker mortgage customers. You can kind of see its point, as some of Nationwide's tracker customers are currently paying an interest rate of only 1.24%, as they have deals giving them rates of 0.76% below the Bank of England base rate. Any more cuts and the Nationwide will be paying customers to take the money away, but trackers are meant to be a calculated risk for borrowers - and will Nationwide be refusing to track interest rate rises when they eventually come? I'll leave you to figure out the answer to that one. As ever, it smacks of a bank wanting to have it both ways.

Best savings rates UK: But one of the most painful experiences for the poor bloody customer is the widening differential between borrowing and savings rates. Now there IS a liquidity crisis. Money IS relatively expensive for banks to borrow. But pity the UK consumer trying to operate frugally and sensibly, paying off their mortgage while tucking away money in savings for a rainy day or retirement. Over the Christmas period, while most of us were enjoying an extended break and planning how to cope with the financial exigencies of 2009, the Abbey, Lloyds TSB, Halifax, Barclays, NatWest, Alliance & Leicester, Nationwide and Royal Bank of Scotland donned their pantomime villain costumes and slahed rates on variable savings accounts by 1% or more. Egg, Ipswich Building Society and the Yorkshire Building Society have also withdrawn fixed rate offers during Christmas. The timing is no coincidence - the banks know that fewer of us are reading the papers and gossiping around the water cooler: the Christmas holiday is a great time to bury bad news.

Best savings rates UK: From this week, anyone with less than £500 in the Halifax Extra Income Saver gets 0.1% a year, so do those with less than £50,000 in Abbey’s flexible saver account. It's a remarkable turnaround from early 2008, when the credit crunch saw banks offering eye wateringly high deals in an attempt to entice in depositors and increase their liquid cash. Some of those were not so clever in retrospect - Ice Bank was offering around 10%, and I to my subsequent shame recommended it as a good deal. Since then of course, Iceland and its banks have gone south, and risk taking my football team (West Ham Utd) with them. But even rock-solid UK institutions (for what that's worth these days) such as Barclays, Bank of Scotland and Lloyds TSB were offering rates of 7% or more. It's inevitable with the plummeting base rates that savings rates must fall. But Joe Public, paying 6% on his mortgage while getting 0.1% (or nothing in other words) on his savings, might wonder just what he's getting for the billions the Government have pumped into our bankrupt banks.

New Year's Resolutions have long fallen into disrepute. Indeed somebody said to me on New year's day 'Resolutions ... aren't they made to be broken?' Which kind of sums it up. But even if you have dumped the diet by the middle of the month and are back on the booze by the first weekend in January, there is one resolution you should keep - to take responsibility for your finances and to live within your means. Going into 2009 it's never been so important, because if you thought 2008 was a financially challenging year you've seen nothing yet.

The phrase we're hearing a lot at the moment to describe the economic situation is 'perfect storm' ... essentially that means everything goes wrong at once. So we have plunging property prices and a collapse in stock markets. We also have falling interest rates hitting our savings. We have inflation as the preoccupation (some would say obsession) of the European Central Bank, while the rest of us are worrying about deflation. We have sterling in collapse. Which should help exports ... except nobody's buying anything very much, and in any case Britain doesn't make anything very much anymore. Above all, we have confusion, uncertainty and a chronic lack of confidence.

In short, we have a financial mess the roots of which nobody has quite figured out just yet. I even heard the mighty Warren Buffett this week stating that even he wasn't sure why everything had gone so wrong, so quickly. Sure we know that property has been overinflated for some time, and we know that the sudden failure of confidence in the ability of suprime borrowers to repay their mortgage loans was a catalyst for the collapse, but the size of the failure has been stunning.

And if we don't know quite how it happened, we have less idea how it's going to shake itself out. We have the UK Government encouraging us to spend to help the economy get moving again ... yet simultaneously they are accepting that the roots of the credit crisis lay in our borrowing beyond our means. Think of the logic of this ... we got in a mess because we borrowed in order to spend. We can't afford to repay our credit card debts. What should we do? Spend more!

A couple of things here. It's not your responsiblity to spend Britain out of the recession. It IS your responsibility to get your own finances in order.

Over the next year around 1 in 10 of us could lose our jobs, and over the next few months a lot of major high street shops could disappear. Things in Britain are set to get very tight indeed. Now I'd have to have swallowed the entire works of Norman Vincent Peale to snatch a silver lining from this, but ... it is an opportunity for Britain to return to sanity. A first move would be for Government to force banks to tighten the lending criteria for individual borrowers. The lack of available credit is currently causing this to happen by default. As banks and building societies have very little money to lend, they're not in any position to dole out 100% mortgages at 5 times income anymore.

But don't take that as a sign of prudence or a lesson learned. It's the job of the banks to push as hard against the rules as they can in the pursuit of profit - so as soon as credit frees up they will be pushing to rebuild cashflow and profits. The last decade has proved that self regulation doesn't work: e need a return to some form of credit control on private borrowers.

We could also do with tighter rules on the leveraging madness indulged in by the banks. It's an old saw that all banks are technically bankrupt as the amount of money they have out on loan in the form of personal loans, mortgages and the rest, far outweighs what they have out back in the safe. But then it's their job to lend out the money they take on deposit - this is the oil that keeps the capitalist machinery humming. By necessity, very little of that cash actually sits in the vault at any one time. That's why runs on banks are such terrifying things - the whole system of banking is a rather marvellous, though delicate confidence trick. It works beautifully ... until your remove that magic ingredient of confidence.

Similarly, most of us need to borrow from time to time. Sometimes it's a necessary evil: we need a new car now, as the old one just gave up the ghost, so we pay for it over five years. Sometimes it's a positive virtue, if it allows us to buy an appreciating asset (as property normally is) which we certainly couldn't buy for cash. And sometimes it's plain stupid, as when we borrow against the value of our home to buy a 40in plasma telly. Sucking capital from our main asset to purchase an immediately depreciating geegaw we may want ... but don't really need.

Which is a very long winded way of getting back to my initial point. It's time all of us, individuals and banks alike, learned to live within our means. Which certainly doesn't mean no investing and no speculation ... because you want to get richer don't you? Not simply rub along Mr Micawber style, avoiding misery but never quite reaching happiness. And in that spirit, being a sceptic who doesn't believe that "something will turn up", I'm going to assert that you'd better make it turn up. Do it yourself finance starts here, and in our next podcast I'll be looking at the recipe for financial happiness ... balancing the books.