I am deeply dubious that the answer to our economic problems lies in encouraging banks to lend. Rather, since the reason they won't lend is that households are overburdened with debt, to such an extent that a large proportion of existing loans may never be paid back, the answer to me seems to be to play things quietly: to let people reduce their debts — over years if necessary — until financial health is restored. Only then can growth resume.
To put it in more familiar terms: if you've binged so much that you're lying puking in the gutter, with a cirrhotic liver and clogged kidneys, then a hair of the dog is probably not the right answer.
I also doubt recent claims in the media that the government will stand ready to claw back any excess liquidity should inflation reassert itself. I think they've calculated that a decade of inflation at 10% or so will nicely reduce all those personal loans to manageable proportions, and at far less political cost than a decade of real financial prudence.
That's not a popular analysis. Indeed I expect most commentators would scoff at its naivety. Certainly, insofar as the original personal debt problem has led to other problems such as a dearth of commercial lending, I suppose it may be reasonable to try to resolve those separately. But I don't think that trying to give the old wheel one more turn is going to get us anywhere, other than the poor house.
So it's nice to see that at least some financial professionals agree with me: house prices 'could fall by further 55 per cent' say Numis Securities, a leading City investment bank whom I've regrettably never heard of till now. They put it rather better than I've been able to:
"The Prime Minister and Chancellor have publicly stated that they want banks this year to lend at 2007 levels... We think this is a crazy policy, given that too much debt was one of the prime reasons why the economy has its current problems."
"The bankruptcy of the UK is a very real probability as the UK Government is trying to stimulate a greater debt burden in a grossly indebted economy."
I share your fear about inflation; I think the government wants to steal the savings of savers and give it to those in debt, who, having spent all their own money will thus be enables to spend someone else's too.
ReplyDeleteI think TPTB want us all to be as heavily dependent on the state as possible, so they regard personal savings as a threat.
The very first Brown budget attacked private pensions, and present measures could cause the failure of many pensions schemes.