Interest free loans !

It is a sure sign of just how low business confidence has plunged when interest free loans are being offered to move stock.   It started with new cars being offered at a reduced interest rate and this quickly dropped to the double whammy of - no deposit and up to five years interest free.    One Australian made car is offering buyers the same discount it extends to it's own employees.   The only conclusion is that this industry is desperate to move stock and keep the assembly lines moving.

Now we are seeing this tactic reappearing to move " big ticket " items such as mattresses and furniture.  A canny customer can make a big saving if they negotiate a deal to buy interest free - as opposed to making the purchase on a credit card and getting whacked with an interest rate of twenty percent by the big banks.  The problem for the retail industry is that customers are avoiding making a commitment to buy until the financial cloud hanging over Europe and the United States is finally resolved.

It doesn't help when both the Federal and state governments are implementing savage spending cuts to what we term " essential " services such as hospitals and education to try and bring expenditure into line with income.    Australia is luckier than many other countries because of the mining boom, but demand is slipping and we can expect further price cuts to commodities in the months ahead.

It looks like we are entering a new era of fiscal austerity.  For past decades, an income shortfall over expenditure was solved by borrowing, with the result that many countries became hopelessly entangled in debt.   The chickens are coming home to roost - and now interest rates on borrowings are either more difficult to obtain - or only available at an increased rate of interest.     The countries with the worst credit ratings are having to dance to the fiddler's tune to survive.

The problem is we can not be sure if world finances are going to achieve a soft landing, or if the present difficulties are just the prelude to a massive train wreck.    If the Euro countries can hold their nerve and survive as a cohesive unit they will need to take some unpleasant medicine and reform their ways.   If the United States is to ever solve it's massive deficit, both sides of politics will need to compromise and adopt a mix of tax increases and spending cuts.

With a bit of luck, the side effects of balancing the budget will be moderate for the average person.   We will certainly have to pay a little more for services and taxes, and our expectations of what government's provide will see a shortfall.    Our ever expanding way of life will be trimmed to a slower pace - and there will be casualties that affect jobs in many industries.

The world economy is finely balanced between the chance of recovery - and the first step downward on a very slippery slope.   Let us hope that wise heads prevail.   The outcome of wrong decisions are just too awful to contemplate !