Personal Finance: Borrowers here could pay a price for the Russian crisis

HOW IRONIC it would be if the collapse of capitalist Russia succeeded where a militant Communist system failed, and brought down the capitalist West. Predictably enough, Russia has had the worst of both worlds since the collapse of Communism, with the old, inefficient industries totally unable to compete with imported goods and almost all the new entrepreneurial spirit channelling itself into speculation and gangsterism rather than constructive activity.

The West, meanwhile, has done relatively little to help Russia achieve a smooth transition to a market economy, and may have secretly welcomed the descent into chaos on the grounds that it will complete the disabling of Russia as a world power.

But now the possibility of contagion to the West cannot be entirely ignored - which explains the mood of near panic which has affected all the main stock and bond markets in the last week.

By itself the Russian crisis should not have a directly damaging effect on the economies of Europe, North America or even Japan. The rouble has been devalued by around 50 per cent but, unlike Japan, Korea and Taiwan, Russia simply does not have the economic resources to capitalise on a devaluation by exporting a tidal wave of cheap goods to the Western world.

From that point of view, the crisis in Russia is very different from the crisis that gripped eastern Asia last year which has both increased the competitiveness of Asian exports and reduced their capacity to import from the West.

The main risk from the Russian crisis is that Russia defaults on all loans, and Western banks, which have lent heavily in Russia, have to write off substantial assets, forcing them to cut back lending in the West.

There is a secondary risk that the contagion will spread to other emerging markets, especially in Latin America and South Africa, which have avoided the worst impact of the Asian crisis. If the whole of the emerging world gets into difficulties, world trade could suffer.

For half a century now the West has been able to grow and prosper independently of the poorer countries, but that is changing as Asia and Latin America have begun to catch up with the West.

The emerging world as a whole is more important economically now than at any time since the Twenties, when a slump in the purchasing power of primary producers spread to the developed economies and led to a worldwide recession. At the same time the international co-operation which grew out of the Second World War has been allowed to atrophy to the point where international summit meetings are now little more than talking shops, and there is no sign that the leading economic powers are in the mood to mount a Marshall Plan for Russia.

Closer to home, the good news is that markets increasingly believe interest rates will be lower in 12 months. Last week, Northern Rock gave notice that they plan to cut the interest rates they are offering on some accounts by up to 0.35 per cent, and other banks and building societies are likely to follow suit. Meanwhile, long-term money market rates for five to 10 years are starting to edge up.

Short-term interest rates have been higher than long-term rates for some time now, and that is not really a healthy state of affairs because it distorts investment decisions.

If the trend starts to right itself, those five-year fixed-rate mortgages will be worth grabbing. One-year fixed savings rates, which currently go up to 8.05 per cent, will also be worth taking up before they disappear.

Isabel Berwick is on holiday.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones