Let's get fiscal
Forgive me if I'm sounding confused, but the more I struggle to get my head around the measures being proposed to handle recession, it's hard not to feel that way.
Unless I'm mistaken, the UK Government is proposing that:
- Because we have been spending beyond our means - and some - the solution is to do everything to ensure we spend lots more, and quickly. It's our patriotic duty.
- Having got into trouble by maxing out our credit cards, this is the time to get tough with credit card companies, telling them they should make it cheaper for us to keep spending.
- One of the key weaknesses in the British economy is the low level of saving, so this week's tax cuts are devised to minimise the amount that goes into saving.
- The banks have over-extended themselves massively, much of this with over-risky lending, so the solution to the crisis they brought about is to exhort or force them to keep lending at last year's levels.
- While banks are told by one arm of government to get lending, another arm of government is requiring higher capital requirements, meaning they have to be more conservative in their gearing of loans.
- Part of the problem has been over-priced property, with people struggling to get on the bottom of the buying ladder, so the answer is to prop up that market.
- If these current plans don't do the trick, the likely next stage will be something called quantitative easing. The idea is that central banks wade into the markets once more to buy up all the debt they have just put out there, and lots more besides.
That should increase reserves to boost liquidity and ought to increase confidence in banks' ability to lend.
It also happens to have an effect very similar to printing money. And that leads to inflation, though the preferred outcome would be an absence of deflation.
Extraordinary times call for extraordinary measures, we're being told by the Government. They're not kidding.
And, of course, a sign of these measures' success will be when all of the above gets thrown into reverse.
Confusing? I've got a hunch that we ain't seen nothing yet.
Hullo, I'm Douglas Fraser, and I'm business and economy editor at ´óÏó´«Ã½ Scotland. Welcome to my blog, where you can read my take on money matters, viewed from a Scottish perspective.
Comment number 1.
At 30th Nov 2008, kaybraes wrote:What we have is a government completely out of it's depth, trying to appear competent and providing ill thought out solutions which so far , have not, and are unlikely to have any effect on the current crisis. Thinking that the people of this country are stupid enough to go rushing out to buy commodities in a falling market is naive in the extreme. The other point that people are noticing , is that if shops and car dealerships can knock enormous amounts off their prices , then they must have been making obscene amounts of profit prior to the crisis. What we need urgently is a huge cut in government spending to foot the bill for the last ten years of incompetence, a gross reduction in the size of the civil service army, a reduction in the benefits army of labour voters, and a general election which if nothing else will rid the country of nu labour for the next 30 years.
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Comment number 2.
At 30th Nov 2008, oldnat wrote:Douglas
Congratulations, you've got the hang of being an independent journalist.
This is a truly independent analysis of UK policy.
I had my doubts before. but your description of "quantitative easing" is seriously scary!
I had wondered why Darling's PBR had targeted the working population through NIC, as opposed to us retirees.
Clearly the answer is that he intends to destroy our savings.
I'm very thankful that we gave some of our inheritance to our kids to help them buy houses in Scotland and the USA. Otherwise what we inherited would have bought them a pizza!
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Comment number 3.
At 1st Dec 2008, corporationtax wrote:Spot on Douglas. Just one flaw however, "If these current plans don't do the trick, the likely next stage will be something called quantitative easing" - wrong I'm afraid, it's simply called a depression.
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Comment number 4.
At 1st Dec 2008, sir_mord wrote:Well done!
Given the policies and statements you'd almost think the last 12 months had never happened.
Not one word or even a hint that we should start saving. Those folk that have not maxed out their credit cards and mortgages and instead have saved will be the ones that are hit.
And government bonds will keep getting issued and so the pound will keep going down.
And still the spin goes on about how Mr Broon was such a responsible chancellor.
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Comment number 5.
At 1st Dec 2008, Jmccann666 wrote:The real problem is that house prices are way too high, so the real problem is not quantitative easing but one of qualitative reality.
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Comment number 6.
At 28th Dec 2008, dennisjunior1 wrote:Douglas....
It is always a good thing to be financially
fiscal....
~Dennis Junior~
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