Christian financial advisors urge government spending to get young people into work

Aidan Vaughan

The government must spend to get young people back to work, says the Association of Christian Financial Advisers. The Euro-zone must settle on the bail-out or see Europe implode, and banks must shift from building up capital to lending it - to prevent the economic crisis lasting for years. In the midst of economic crisis, ACFA sees an opportunity for Christians to develop community-mindedness and to express thanksgiving and generosity by helping those hit by the downturn.

Commenting on the worsening unemployment figures ACFA Chairman, Aidan Vaughan, said: "Things economically continue to be on a downward slope, as unemployment has increased from 7.9% to 8.1% (now 2.57m) – the highest since 1994. Among 16-24 year olds the rate is a heart-breaking 21.3%. There can never be a halt on all spending. It is the task of government to spend taxpayers’ money
where it is needed – and spending is needed now to help young people get into work.

"Then in Europe there have been recent downgrades in the financial standings of banks, with Italy and Spain following downgrades in France and the UK.

"The European bailout to Greece continues despite an initial 'no' from one of Europe's smaller nations, Slovakia. Unless the Euro-zone shows decisive leadership to sort out the bail-out Europe could implode. It's small wonder that departing European Bank supremo, Jean Claude Trichet, said the 'crises had become systemic'.

"Although there are still world-class companies, with strong balance sheets and profits, we have been in an on-going recession (or stagnation at best) for the past four years.

"Most people’s living standards are being gradually eroded by static incomes, plus some nasty, corrosive inflation. For nearly all of us these recessionary days are difficult, but they are especially perplexing to those under 40 who have probably never experienced a full-blown ‘down-turn’. Consumerist lifestyles are under pressure as families struggle to provide the basics.

"So what makes this recession different from previous ones?

"On one hand, it is a worldwide slowdown, but it is also a combination of other powerful factors.

"Western governments and consumers have piled on debts for more than 60 years and ‘the markets’ have said ‘enough is enough’- sort your finances out! The credit and property booms in the USA, peripheral Europe and of course here, have caused the biggest banking bust in history.

"The primary weapon used to fight this crisis – lowering interest rates – has run its course as you can’t get much lower than 0.5%! The other weapon is electronic ‘Money Printing’, technically known as ‘quantitative easing’ (QE), probably to confuse ordinary folk, and when this doesn’t work then it’s even more money printing - hence another £75 billion announced by the Bank of England last week. If we then add this to the original and massive £200 billion this then equals approximately 18% of our economic output (GDP). Considered monetary stimulus – and this may not be the last – is probably a better course of action than inertia, but generations to come may not thank us!

"The saddest part of the current downturn has been an astonishing lack of political leadership across the western world. Earlier this year politicians in the USA ‘went to the wire’ before agreeing a budget. In the ‘Eurozone’, 17 countries cannot agree on how to deal with Greek, Spanish, Italian and other debt piles. More fundamentally, can different sized economies have the same ‘euro’ currency - without either political integration or permanent transfers of money from rich Germany to ‘Club-Med’ nations on the edge of Europe? So, the perceived villains of the peace (free markets, ratings agencies, hedge funds etc), punish us all until these problems are resolved. A ‘lost decade’ in investment markets, and perhaps your savings, is a symptom of a wider political malaise.

"Is this worse than other recessions? We can apply a method of measuring this, by using ‘The Misery Index’. This is the Inflation Rate (RPI 5.2%) plus the Unemployment Rate (7.9%). By this method we have a current rate of 13.1, very high by the standards of this century. The Misery Index is the highest since early 1994. This is despite the Welfare State providing a far better safety net than in, say, the 1930s.

"There are always losers in recessions, and currently the biggest losers are the young/inexperienced/unskilled/unemployed, those pensioners on fixed incomes, prudent savers with miserable rates of interest and those who are being ‘shown the door’.

"Currently, the economy is being rebalanced away from a ‘too expensive for these troubled times’ public sector, but as yet the private sector is not taking up the surplus. The few winners are borrowers with large mortgages on low interest rates, the highly-paid in secure jobs or those blessed with large indexed-linked pensions.

"My concern is that this is a very painful restructuring of our economy which may take years to sort itself out.

"The debate is really between two camps: ‘debt reducers’ and the ‘borrow-yet-more-to-invest-our-way-out’ group.

"All of us would like higher capital expenditure and investment in improving training and skills, but who pays? The medicine is causing all sorts of unintended consequences – examples are that banks are re-capitalising themselves rather than lending, pension deficits are rising, individuals are in a quandary about miserable annuity rates and are pushed by low interest rates to take more risk with their savings.

"Then the outcomes of ‘QE’ are unpredictable; these range from concerns about rampant inflation to ‘Japanese style’ deflation, currency wars, further banking rescues and general instability which tends to reduce trade and long term investment. Please do not expect emerging China to ride to the rescue as they have their own problems. The world’s confidence in the financial system is easy to track - just follow the price of gold! The economic jury is out – and may be out for a long time to come! It looks like a bumpy ride for the next two, maybe even three years.

"How should Christians respond?

"As Christians, our response should be to maintain our eternal confidence in God to provide for our needs even in troubled times. One practical expression of that confidence - and an expression of our thanks for His provision - may be generosity.

"There are practical steps we can take. For example, if we are blessed with ‘provision’, consider releasing some resources. Your investment in people, a charity or a capital item (eg. a longed-for conservatory!) at a fair price can have an important ‘multiplier’ effect by helping those in the supply chain. We need to be wise and prayerful in our giving – but as Christians who trust in God to meet our needs and are thankful to Him we should still be seeking to give.

"Careful longer term saving helps the economy too. We also need to encourage the government to spend their money wisely and make the long-term investment decisions for the good of all. And while we are waiting for the big picture to sort itself out, there needs to be a shift towards becoming more community-minded, helping in a practical way in our locality, which may be hit by spending or staffing cuts."

‘Seeing that we are receiving a kingdom that cannot be shaken, let us be thankful and worship God acceptably with reverence and awe.’ – Heb 12:28

Aidan Vaughan is Chairman of the Association of Christian Financial Advisers and joint Managing Director of MPL Wealth Management, Doughty St London.