Avoid lines, avoid the hassle.
Central banks are in a position to collect detailed data on loan defaults. Many central banks only make the system level of NPLs publicly available and if they report a breakdown it is usually restricted to the industrial classification of the borrowers. If the data is credible (and as banking crises develop this becomes increasingly open to doubt) it can be useful for identifying the rate of increase of NPLs at a particular time and confirmation of any turning points.
Doing direct comparisons of price levels in any country is really an exercise of little value. Consumer goods in Cuba are expensive to Cubans, but the same items in Japan (at a higher price in any currency) are cheap to the Japanese. How can this be? What we can afford to pay for goods is a function of what we earn. What we can spend is after tax has been deducted and other essential needs have been paid for. In a country like the UK you don’t spend as much money on healthcare and safety as in other countries. Those items are already included in the taxes paid. Taxes are surprisingly low in the UK, but that is slowly changing.
So how do we make a meaningful comparison? The only item everyone worldwide has the same amount of, is time. Consider “time” to be a universal currency. Thus a good measure of affordability is how long it will take you to earn the same item. (The fact that items vary in quality and need replacing more often in some countries will be ignored for now). Calculations for your doing the same job in the UK is obviously necessary to conduct a meaningful review, so see the chapter on employment.
In the meantime we will use average earnings to explain affordability further. The UK has amongst the world’s most even distribution of wealth. The “average” person exists in tens of millions in the UK. The average working person in the UK earns £23,000 a year. The tax take on this is about 25%. Worked out on an hourly basis (52 weeks and 35 hours a week) this equates to netting just over £9 an hour.
Going down to your local hamburger outlet in London and having a meal comes to, for simplicity sake, £4. That is less than half an hour’s net income. For someone from Madagascar, that meal is almost the equivalent of a week of working. The Briton will tell you the meal is affordable (or even cheap) whilst the person from Madagascar couldn’t disagree more. The same meal in Madagascar costs the equivalent of £1, but the Madagascan person never buys it because…it’s unaffordable. Get it? Affordability is about how long it takes you to earn after tax what you want (or need) in the area that you spend it.
It is why tourists from around the world find Western Europe an expensive place to visit, because they don’t earn their income there. As an outsider looking in, another economy’s price levels will always look disjointed. It is only when you’re earning your keep in that economy that it will make more sense to you. Keep this measure of affordability in mind when evaluating prices. If you’re able to calculate your own earning power doing a comparable job in the UK, then great. Words of warning though, just don’t count on earning that kind of money from day one in the UK.
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