For every credit there must be a debit

I have always believed that matters financial and economic can only be understood if they can be explained in terms of basic double-entry bookkeeping. In a world of fiat money this is becoming increasingly difficult, and the consequences can be seen from Enron and WorldCom to the State of California.

Here in Scotland, as elsewhere, personal bankruptcies are rising:

It now estimates that more than 3300 people will have gone bankrupt (in Scotland) by the end of this year, a rise of 3.1% on last year, and the number of personal bankruptcies is at its highest since the company started collating statistics nine years ago.

"The current generation of people do not think as much about what they are spending," he said. "In the past Scots had a reputation for living within their means."

Grant Thornton also warned that as the Bank of England reported record levels of personal lending, there was a real danger that people may be getting themselves into more debt than they could afford.

The amount of credit card lending for June 2002 was £676m, which rose to £861m by June 2003, a rise of 27.4% in one year. The amount secured on dwellings rose from £17.5bn in June 2002 to £24.6bn in June 2003, a leap of 28.9%.

"The danger is that people are becoming more indebted because they believe that house prices will continue to rise and interest rates remain at their current historically low level," added Mr Henderson.

As sure as A is A, there will be a day of reckoning:

According to a survey by Reed Accountancy more than three quarters of UK finance directors believe the general public cannot cope with the complexity of modern personal finances and could be unable to repay debts.

As a former finance director myself, I concur. I urge readers to be financially cautious and perhaps start listening to the Saturday broadcasts on this site.

I have a nasty feeling that the world is passing through the financial equivalent of the summer of 1914.