Is Santa Claus coming this year?

Unless you have been living in the middle of the Amazon jungle these last few months, the words “financial crisis” and “recession” should now be a standard part of your vocabulary. Due to some questionable banking methods, several giant banking corporations – and a few not so giant ones – vanished in a puff of bankruptcy. Apparently they were surprised by the fact that lending to high risk clients was a bad idea. Wow! Who could have predicted that recipe for disaster? Admittedly though, it is far easier to poke fingers with the benefit of hindsight.

The collapse of the banks had a major impact on other financial institutions. Suddenly, everyone wanted cash in a hurry because property – which the banks had in plentiful supply due to numerous repossessions – had dropped in value. They seemed surprised that the massive oversupply of this commodity actually reduced its value. But again, I speak with the value of hindsight.

The surviving banks then started recalling loans and putting pressure on companies to keep their overdrafts down and their cash flows healthy. The big companies passed this along to their clients and they did the same, all the way down the economic food chain.

This means that the little fish in the pond – represented by the small and medium enterprises (SMEs) and micro-companies (tiny little enterprises with just a handful of employees) – which are so common in Malta, need regular cash flows to keep their head above water.

So how does all this affect our Christmas?

Well the people who will be supplying these businesses with much of their cash are actually you and me – or “the consumers” in economic parlance. The more we spend, the better off those companies are, as they then get a nice bundle of liquid cash to help them survive these hard times.

Except that we are not exactly disposed to dipping into our wallets this Christmas, are we?

For a start, the last budget has hardly been conducive to encourage spending. I’m sure we have all read how it has put money in our pockets, but then the increases in fuel – and please note we are still waiting for the price to go down when oil dropped below $85 a barrel as promised – as well as charges for shopping bags, increased vehicle licences and the simple fact that we are all now saving for a new car because a second-hand one isn’t really viable anymore, means that we are holding our purse strings a little tighter this year.

And of course prices will rise. They have to because of the next “incentive” which comes in the form of increased energy costs. Break out the log fires because switching on an electric heater now means selling your kidney on eBay to pay the resulting bill. While it may seem funny now, it is unlikely that you will still be laughing when you get your next bill. But why do prices have to rise?

Well the increased costs of fuel mean that it now costs more for your goods to be transported from the warehouse to your local retailer. So that cost gets passed along to you. And the increased energy bills mean that it costs that retailer more to light his shop, which also gets passed along to you.

Come to think of it, the traditional lighting up of our streets could also suffer under this cost. Christmas just wouldn’t be Christmas without all those bulbs twinkling in Republic Street – although would someone please source a new CD for this year instead of the same old songs being played over the loudspeaker.

Although at a time when money is tight and environmental issues are paramount, lighting up the streets and burning expensive energy is perhaps not the wisest course of action. Maybe we can have the streets lined with energy saving bulbs this year.

It would certainly feel depressing without some form of decoration in our country’s shopping Mecca, and an unlit street does not exactly encourage consumers to head to the capital to make their purchases.

The “cost of living” increase given by the government is always a welcome addition to our pay packet, but it also means that retailers now have higher wage bills. These are also costs that your friendly shopowner has to pass along to… you guessed it… us!

But there is still more. The new vehicle licences scheme also means that the business owner’s old van, that served him well while he did his deliveries, now costs more to keep on the road. Worse still, if it breaks down he can’t go out and buy a cheap Japanese import. Oh no, now he has to go and buy a new one. And who foots the bill… correct again… us.

All of this translates into an increase in our daily living expenses, which leaves less money in our pocket, meaning we have less to spend at Christmas.

There is another Christmas tradition that is going to take a wallop this Christmas and that is that time honoured ritual of going out to dinner.

Food costs have gone up, so raw materials for restaurants are now more expensive. And with their clients having less money in their pocket, many might be choosing to celebrate Christmas at home this year.

The younger generation are likely to still find funds for their favourite party, but “the bank of mum and dad” is likely to be closed for the festive season. Christmas is a peak season for many restaurants and many cannot afford to lose out on those all important bookings. While the local population are definitely seeking out lower prices for their presents, it will be interesting to see if they are willing to sacrifice their yearly festivities as well.

Or will we still see packed eateries and credit crunch be damned?

Now before you throw yourself off a tall building, there is actually a flicker of light in this doom and gloom. The banks have cut their interest rates.

This is good news for the home owner as his mortgage payments just got a bit cheaper, which does actually leave a little bit more money in his pocket. So he might still be able to afford to switch on his Christmas tree lights. But this is less good news for the pensioner who supplements his income with interest from his deposits in the bank.

Understandably, the small business owners – and especially the shopkeepers – are all a little anxious this Christmas.

The cherry on this particular Christmas cake is the fact that the less you spend this Christmas, the longer the financial problems will last. Why? I was hoping you would ask…

Essentially, as we are not giving an economics lecture here after all, if the SMEs can’t keep up with their costs because they don’t have enough cash then they will have to close down. If they close down people will lose their jobs and people who lose their jobs stop spending, which causes more businesses to close down and so on and so forth until the whole system comes crashing down.

Now this is a rather apocalyptic picture but you get the idea.

So the motto of this story is that if you want Santa Claus to come this Christmas you have to dig deep into your heart and deep into your wallet and help out your local businessman. Of course that arrangement should be reciprocal and local businesses should be supporting their customers with some attractive offers. After all, it is better to sell 20 items with a 10 per cent mark-up, than two items with a 50 per cent mark-up.

And Santa, if you happen to be reading this, I’ve changed my mind about the shirt and socks that I usually put on my Christmas wish list. Instead, please bring me a capital protected investment fund and a bundle of shares in Google. Thanks Santa, I owe you one.

Source: Christmas Times magazine