It was reported yesterday that the cost of food has risen more in the last year than it has for many years. Costs of all sorts of raw materials are higher now than they have been in a long while and we all know how expensive fuel has become.

Life is becoming more expensive and this as meant the cost of living and inflation are rising. The response to this from those who see this as an academic exercise is to say that interest rates will have to rise.

Raising interest rates has always been the standard response to rising prices. The idea is that it will slow down consumer spending and reduce wage inflation. That may have been reasonably effective in the past but will it work in the global economy we are now forced to live in and in a country where many people are struggling just to keep food on the table every day?

The UK is not that big a player in the world markets these days. We obviously play a part but the idea that an increase in interest rates in the UK will somehow change the world price of copper, coffee or oil seems unlikely.

Increasing interest rates is more likely to cause more business closures, more redundancies ad a lot more people finding their debt payments are more than they can afford with the result that there will be more bankruptcies and bad debts.

In the good old days, whenever they were, raising local interest rates did have a significant effect on reducing consumption and lowering inflation. It is hard to see how that would either work or be beneficial to the economy right now.

The most efficient economy of the future may be one that has nobody working so there will be nobody spending money to encourage inflation. Great in theory but hardly a practical solution.

When will those in power start worrying about the people and less about the hugely powerful banks and international corporations around the world. The middle East has recently been showing that people can only take so much before they react. Raising interest rates in the current climate could provoke reactions even in a mild mannered country like the UK.

High interest rates benefit the wealthy while causing problems for the less well off. If inflation is caused by excessive spending then we need to reduce the spending power of the wealthy first. They are the ones who are flush with money and able to throw it around without any worries.

In an economic climate where there are major cutbacks in government spending taking place and huge job losses are expected inflation should be one of the the last things we should need to worry about.

Stopping huge bonus payments and introducing higher taxes on people who earn large salaries would do more to reduce than making life tough for people who can barely afford to feed their families.

You have to wonder who the system we have is set up to benefit. The people who cause the problems seem to carry on regardless while the rest of the population suffers as we have clearly seen when it comes to the banking industry. Fundamental changes of approach to how we run our economy seem to be ugently required.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

The price of Brent Crude oil reached over $100 today for the first time since the peak prices reached in the summer of 2008. There are concerns about what is happening in Egypt and the risk that it might affect oil tankers travelling through the Suez Canal.

The likelyhood of problems with the Suez canal seem unlikely but there has been a steady rise in the price of oil over recent months and that is a serious concern. The steady price rise of oil has been blamed on rising demand as economies around the world begin to recover from the economic downturn and that should concern everyone.

If we have these price rises while consumers are subdued and ecomies are stuttering along just imagine what could happen to the price of oil if, and when, world demand starts to seriously pick itself up. The price of oil could double and that would bring problems to everyone as prices and inflation rapidly rise.

There is not much we as individuals can do to avoid these increased costs we may face in the future and the best thing we can do is to reduce our current spending and debts so our financial situation is as strong as we can make it so we can cope with whatever hppens in the world.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)

Figures released today show a significant rise in insolvencies in 2009. The growth was slowing towards the end of the year but there were still 35,574 individual bankruptcies in England & Wales in the final quarter and 134,142 individuals were declared insolvent in 2009. A graph provided by the Insolvency Service shows a remarkable rise in insovencies over the last two decades and I have reproduced it below.

Something clearly needs to be done to reduce the numbers of people having to resort to insolvency. Whether it is careless borrowing,careless lending or simply bad luck and unfortunate changes in circumstances such as illness, death and divorce, for every individual counted in these statistics there will usually be a family attached.

There will be a period of possibly years of stress, financial struggles and health problems brought on by the stressful situation they find themselves in. Marriages will have collapsed, individuals will have turned to drink or drugs to blot out the problems and ultimately public resources will need to be the providers of homes and other support. Everybody loses in this. The creditor , the individual bankrupted and their family. We surely have to be able to provide a better way.

Supporting The Bankers

The government felt obliged to support the Bankers and the cost of this action is something we are only now beginning to see and start to understand. If the government had helped individuals, who are after all their employers, by even a tenth as much, the country would be more active, there would be more jobs and more people would be able to enjoy their lives rather than struggle to feed their children and heat their homes.

Meanwhile, according to the British Bankers Association £63.5 Billion of credit card debt is owed by UK consumers but the total cost of the bank bailouts in the UK has been estimated to be a massive £850 Billion by the National Audit Office.

The Bank of England has manufactured £200 Billion of virtual money by the process known as quantative easing. This would be enough to pay off the credit card debts of the nation three times over, but it has been used in a way that benefits the financial industry and the City of London, enabling bankers to make a lot of money and enjoy their huge bonuses. It remains to be seen what, if any, effect this has had on individual citizens of the country other than the fact we have to pay for it.

If the govenment and/or the Bank Of England had chosen to provide every adult in the country with a voucher that could only be used for the purchase or repayment of financial products, i.e. pensions, mortgage repayment, credit card repayments in a system rather like the child trust fund payments they could have given each and every one of us around £6,000.

All of that money would have gone straight into the financial services industry so they would still have benefitted from all this extra cash. The whole country would be feeling better off with fewer debt problems and boosted pensions helping protect them, their families and the country in the future. Business would be more active with more consumers able to afford to spend in the shops, employment would have been boosted by the additional activity which would boost the tax revenues for the government and the health service would have fewer stress related patients to deal with. Everyone would benefit.

Instead of which we are all poorer thanks to the debt, we face the prospect of a decade of austerity and higher taxes, whichever government is returned to power after the election. Meanwhile the financial industry continues to do well and pay themselves handsomely. It would seem that the only people who have benefitted from the financial crisis are the people who caused it in the first place.

Money Magic: Seven Simple Steps to True Financial Freedom (Quick Reads)