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THE economy has prospered these past five years because Britons have spent more then they earned, so everybody has had more money to play with than they should have.
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They achieved this by building up a mountain of debt that is now so large it threatens to destabilise the economy. Personal debt is more than £900bn, one-and-a-half times the annual net income of the whole country.
We have had five fat years and, without getting too Biblical about it, we will need five lean years to get back into balance.
Figures on Friday showed personal bankruptcies are running at a rate of 36,000 a year, almost as many as the 40,000 seen in the worst depths of the recession 10 years ago.
According to accountants Grant Thornton, those who are sinking typically have a mortgage of £50,000 to £100,000 and £50,000 of credit card, store-card and similar high-cost borrowing.
The bankruptcy figures will get worse in the next few months, given that they are near the all-time high despite the most benign economic conditions imaginable. Many more will fail as those conditions get tougher.
So who will suffer from this, apart from the unfortunate individuals and their families? The banks, building societies and store-card suppliers must get caught by some of the bad debt, even if they have laid off a lot of it through securitisation to insurance companies and other investors.
These bankruptcies must also lead to many more building society foreclosures and repossessed houses being dumped on the market. That took the gloss off prices last time, and may well do so again.
The shopping boom must soon come to a halt. It has worked for five years because we have been spending 110% of what we earn. If we start to spend just 90%, the shops will be empty. It is bad news for everyone from Marks & Spencer to Debenhams, Dixons to B&Q. We are overshopped in this country and it cannot last.
The crash won't happen this week, or next. Indeed, the remarkable thing about the debt crisis is no one, apart from the authorities, is paying it any attention - not the stock market, not the private equity houses, not those people furiously lending money on every TV advertisement.
It is increasingly hard to believe we are in for anything other than a very rude awakening.
Pensions hope
ONE public company said last year that it thought keeping its final-salary pension scheme open to new entrants would give it a definite edge when it came to attracting scarce talent.
As employees became more aware of the cost of saving for their own pension, they would be more inclined to join and stay with a company that took much of the burden off them.
Given that the difference between successful and unsuccessful companies is very much dependent on their ability to attract, retain and motivate exceptional people, having an open final-salary scheme could become a major factor in a company's success.
An Institute of Directors study picks up on the same point. It notes the large number of funds that have been closed to new entrants and sees this as having an adverse effect on labour mobility.
It predicts that executives who are in final-salary schemes are going to become increasingly reluctant to move to companies where they will not enjoy a similar benefit, because it will simply not make economic sense for them.
Unfortunately, from the perspective of the whole country, a loss of labour mobility could quickly become a serious bar to competitiveness - and in an ideal world it would prompt an alert government to make life easier for pension funds and companies which try to keep them open by, for example, restoring the tax breaks.
But if governments have not properly picked up on the implications of what is going on, neither have many boards, probably because the accountants are still in the driving seat. They, of course, see only the costs and risks of final salary schemes, and rarely understand the benefits from the recruitment and retention of staff, which are much harder concepts to measure.
There is a further irony here because interest rates are rising again and that greatly improves the position of most pension funds. If rates rise as dramatically as many City economists predict, it will affect the discount rate used by actuaries in the calculation of pension fund liabilities in a way that could bring about a significant improvement in the solvency of most schemes.
With equity markets improving and interest rates rising, the crisis in pension funds should recede. So if schemes have not already been closed, now is not the time for doing so. But now is clearly the time for shouting loudly about those schemes that have been kept open.
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