The only category of goods where we are familiar with the effects of deflation are electronic goods and in particular computers so it’s helpful to examine how we treat those. For these there is the expectation that each year will see computers that are a little bit better than their predecessors and additionally they’ll be cheaper. What happens therefore in our buying decision is that we wait until we actually need a new computer before buying one. Now in respect of computers “need to buy” is slightly different from normal products in that there is innovation in the software too which forces us into purchases that would otherwise be un-necessary: that would be unlikely to happen with a normal product.

On the other hand, in an inflationary environment we buy a car now rather than next year because we can be confident that the car will be more expensive and so it is with pretty much everything.

You can even see the effect yourself by considering petrol prices. Until a month or two back I filled the car as often as possible on the basis that the price was rising quite sharply and could be expected to continue doing so. Then things changed as prices started going down very sharply indeed. The approach then was to fill the car only when absolutely necessary as that would be likely to get me the lowest price overall.

In fact, deflation might be a good thing to have but the snag is the period of adjustment that would be required would be extremely painful for everyone. The change from a “buy it now” attitude that’s relevant in an inflationary environment to a “buy it later” attitude appropriate for deflationary times means that factories build up stockpiles and therefore need to cut back on production and the jobs associated with it ie unemployment jumps. At a more personal level, house prices drop dramatically both because of the increased unemployment and because people are moving to a “buy it later” mindset.

One side-effect is that innovation is forced upon many industries which is usually a good thing to happen. However, it’s not an option for a considerable number of products: when was the last time that there was a really innovative potato?

On the whole, it probably is a good thing, it’s just that the transition period would probably be far too painful for governments in general to accept that.

Typically, it’s prudent to build up some reserves in the bank to tide oneself over the hard times. However, if we all do that in the moment then chances are that the downturn will go on for a great deal longer than it needs to. What’s needed is for each of us to act as though the downturn didn’t exist as much as possible.

So, for instance, the banks have basically been told to return to normal lending practices “or else”. In fact, they need to do that for their own sake as tightening up on the lending criteria as many had been doing was simply acting to stagnate the economy which is good for nobody, including the banks.

From the rest of us what’s required is that we don’t simply bank any savings that we’re making but rather that we spend them and thereby do our bit to restart the economy.

Whilst your instinct might be to increase the size of any savings reserve as much as you are able, it’s the worst thing that we could do collectively.

For normal people, borrowing even more to get yourself out of a hole can only be a short term solution and even then it only works if you have something else up your sleeve. Bridging loans are typically successful in this area because you’ve a house for sale on the market and will repay the loan when it’s sold.

It’s also only a short term solution for governments too, albeit the term over which they can get away with it is somewhat longer: typically several years or perhaps a decade. That “something up the sleeve” is mainly tax rises to pay interest on the loans that they’re getting and to start repaying them as well so we can all look forward to significant rises in taxes in the next term of our governments (perhaps even in the current Obama term as he won at a very unfortunate time). Other possibilities are asset sales of course so we can look forward to privatisations on a grand scale in a few years time although the unwinding of the various nationalisations of various banks will also need thought.

The other downer for governments is that borrowing more basically means printing more money which in turn reduces the value of that money which is why exchange rates are all over the place at the moment.

Of course, all this work is dependent on the banks returning to normal loan criteria and everyone spending money to get the economies going again…. not an easy thing to do when things look this bleak.

Typically most people will move their money into cash savings in times like these and put those cash savings in a local savings institution on the basis that they know and trust the people in the branch. However, that’s a fatal error to make. Sure, you can trust the people in your local bank or building society branch with your cash but the problem is that they aren’t the people who’ll be investing that cash.

That’s how come Northern Rock created such a stir last year: it was very much trusted locally and indeed was well thought of generally too for that matter. However, what felled it was the way in which the financial wizards at HQ invested the money and pulled in more money to fund mortgages.

In fact, the safest place at the moment is one that’s commonly overlooked. It’s National Savings in the UK. That’s part of HM Treasury and it’s the one UK financial instution that can’t go bankrupt because they’re the people that create the money in the first place. No, interest rates with them aren’t as high as with other places but then interest rates aren’t that great at the moment anywhere and these days it’s safety that you should be looking towards.

Well, it’s happened to Citibank now and it turns out that the American government figured that if they were allowed to go to the wall it would be just that little bit too spectacular to happen so they’ve bailed them out. One wonders how long it can be before we see if the UK government have a similar view of HSBC although that might be quite a while from now as HSBC management dumped the problem HFC quite some time ago and that’s where a lot of their high risk loans lay.

But when you’ve the situation of the largest banks in the world at risk like this it sounds to me that it’ll be quite some time before we get ourselves out of this particular financial mess.

In principle they’re fairly simple in that they are:

1. intended to be repaid from your next paycheck (although you can usually roll them over to the one after that);
2. don’t require a credit check;
3. are from around $100 to $1500
4. require you to be in regular employment of at least $1000 (usually for at least the previous three months);
5. require you to have a normal checking or savings account (usually for at least the previous three months); and
6. be over 18

Approval is very fast and even quicker now that online checks can be carried out by the credit company ie no more faxing of documents.

Although payday loan advances are fairly simple, the sheer number of them that are around means that a little guidance is handy and don’t forget that the rules change from time to time too.

Whilst you might think that all interest rates are going down at the moment, don’t just assume that your bank/credit company will be dropping their rates by the headline amount or even at all.

In fact, although the various governments would like the banks to drop rates across the board to get us out of the current mess, many quite simply can’t. Why? Well, regardless of the headline rate, they still need to get money in the door before they can lend it. In some cases, that means offering quite high rates to depositors and therefore those banking organisations dependant on retail deposits (ie the building societies) may find that they can’t drop their lending rates by as much as they might like to.

As always, don’t assume anything and in particular if you’re one of the many people who have both savings and borrowings, check out the best rates for both as it’s very rare to find that the same organisation is offering both the lowest lending rates and the highest deposit rates.

So, with the Christmas holiday season coming up, how were you planning on financing the holiday? Christmas is perhaps the worst holiday to finance as you can have a “worst-case” scenario in terms of finance with the potential for both Christmas presents and a foreign holiday which makes for quite a big bill for some people.

In an ideal world, you’d have saved up for it all months in advance, but then this isn’t an ideal world, is it? Therefore many people are looking to borrow money to finance it all.

Fortunately, many people are in the same boat and therefore there are lots of offers of credit around at this time of year. As a rule, avoid store credit for the presents as this is often the most expensive form of credit and instead look towards the banks. If you’ve not used up all the 0% card offers, this is the time to get filling in the appropriate application forms which can get you up to 9 months interest free credit on purchases and, if you’re lucky enough, you might be able to finance both the Christmas presents and the holiday with one of these cards.

One thing to avoid though is the head in the sand approach that many people take. That attitude will almost certainly cost you dear and you’ll end up paying way over the odds for your borrowing. Even if you can’t get 0%, at least check what interest you’re paying on your credit cards and use the one with the lowest rate to buy whatever needs bought.

That usually works fine if property sales in the foreign country move at a fairly brisk pace but often they move at a much more sedate pace than you are accustomed to. Whilst exchange rates between the major currencies rarely move quickly they do move and over a period of many months the price translated back into your home currency can change quite substantially.

For example, take a property that you wanted to sell for £60,000 at the start of 2007 and you therefore priced it at EUR 90,000 (£60,641). By the start of 2008 you could sell that property for EUR 85,000 and pick up £62,553. You might think that a year is a long time to have a property on sale but in many European markets property sales proceed at a very sedate pace and it’s not unusual to have a house for sale for quite an extended period before you find a buyer.

If you are counting in your home currency it can often pay to check whether or not you can lower the local price but still collect the same amount of money as obviously it can speed up the sale of the property.

Add that all up and many people are finding that they’re short of money at the moment and looking around for a quick and easy way to raise some additional cash to tide them over until they get paid at the end of the month.

Therefore payday loans seem a very attractive option. They’re one of the easiest and quickest loans that you can get with the money deposited in your account within a few hours. Not only that but the lack of a credit check means that any credit problems that you may have aren’t an issue.

The requirements are really very basic:

1. You need income of at least $1000 per month.
2. You have been employed at your current job for at least 3 months.
3. You have had an active checking account for at least 3 months.
4. Your paycheck must be direct deposited into your checking account.
5. You are at least 18 years old.
6. You�aren’t delinquent on a previous payday loan.

Beyond that the only limitation is that the loan is intended to be repaid with your next paycheck (though it can be rolled over) and that the amounts are from $100 to $1500.

So that’s how they work, but is it worth getting one? If you can get the money somewhere else then no, they aren’t, because the costs are astronomical since all the administrative costs are being carried by what is a small short-term lone (hence the APRs of 300% and more). However, if you have no other option you need to weigh the cost of getting hit by late penalties on other finance that you have against what the payday loan will cost you and in such circumstances it may well be your cheapest option.