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IMF's gloomy views

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Stephanie Flanders | 14:05 UK time, Thursday, 16 July 2009

We knew the IMF had a gloomier view of Britain's public finances than the government. Now it turns out that the Fund's directors are gloomier about the state of the financial system as well. If they are right, it could have interesting implications for the Bank's policy of quantitative easing.

Let me handle the budget stuff first. There isn't much new in this report - unsurprisingly, since it is based largely on the staff mission to the UK, whose conclusions have already been published. But it is worth noting that the IMF's executive board has signed up to the staff's earlier, rather stark, assessment of the road ahead for the budget.

The directors agree that there will need to be "a strong commitment to reverse the sharp deterioration of the public finances once the economic recovery has been established".

Their forecasts are not strictly comparable - because they are for calendar, not fiscal, years - but they are a bit more pessimistic than the Treasury on both the size of the deficit next year and the rate at which the stock of public debt is going up.

They point out, helpfully, that "[c]redibility would be enhanced by specifying concrete expenditure and revenue measures to achieve the desired adjustment". I'm sure the government will rush to follow their advice.

But for my money, the most striking thing about the statement was the directors' pessimism about the current state of UK bank balance sheets:

"Directors stressed that the most important policy task remains repairing the financial system. Significant uncertainties remain about the adverse impact of the recession on asset quality. Substantial further write-downs would result in an erosion of capital buffers and might lead to renewed doubts about the capital adequacy of individual financial institutions. These lingering uncertainties are restraining lending growth.
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Directors suggested that the authorities should encourage banks to strengthen their capital base and explore options to improve capital structures. The authorities should also continue their contingency planning, and a number of Directors agreed that they should be prepared to provide further public capital, if needed."

The government's multi-faceted support for the banks - notably the Asset Protection Scheme, which effectively caps the potential losses from so-called "toxic" assets - is supposed to have fixed this problem, or at least much reduced it. Apparently the IMF board thinks it might not be enough.

And they're not the only ones. In its latest financial stability report, the Bank of England made clear that it was still worried that British banks might still be undercapitalised. Despite the taxpayer-funded guarantees for assets within the scheme, the report said that even "relatively modest" losses on other assets would "erode capital buffers significantly".

As Ben Broadbent of Goldman Sachs has pointed out, you can disagree with the Bank (and the IMF board) on this. In fact, Goldman Sachs' own equity analysts think that the APS will cover 75% or more of the gross losses of the two very large banks that have participated, and that the system as a whole has "ample resources" - not just to cover future losses but "fund any genuine opportunities that arise".

In other words, they don't think that a lack of capital is necessarily holding the banking system back from contributing to an economic recovery.

I'm not sure I share the Goldman Sachs analysts' optimism. But, either way, as Broadbent admits, it matters if the Bank is more gloomy about the banks.

Why? Because if you think the banks are not lending because they lack capital rather than liquidity, you might also wonder about the efficacy of providing the banks with lots of liquidity to encourage them to lend. That is a key channel through which quantitative easing might have been thought to work.

As it happens, Mervyn King has always been sceptical about this "bank lending" channel for QE (see my "QED" post). But if you think the banks will just sit on all their "extra" cash (because they don't see it as "extra" at all), then the focus has to shift to the "bond price" channel for QE - the fact that, by buying up assets, you push up the demand, and thus hopefully cut the cost of borrowing for private companies.

If this is the main focus of the Bank's policy, a number of critics have long argued that they should be buying up private assets to achieve it, not government bonds, or gilts - because gilts are too similar to cash. They are both risk-free assets. That means it's not obvious, to the critics, that having the new cash from the Bank (in exchange for the gilts they've just sold) will make them want to go out and buy up more private debt, thereby making things easier for firms. They might simply sit on the cash, just as they were previously sitting on the gilts.

As the Bank's Deputy Governor, Charlie Bean, repeated to Hugh Pym earlier this week on his "QE tour" of the UK, we don't know very much about how the policy is working - we may never know what it really achieved. But for those who have long called for the Bank to spend more of its QE cash on private assets, the IMF board has a line in this new report for them as well:

"Directors noted that diversifying the Bank of England's private asset purchases further could help improve the functioning of capital markets".

It's been a dilemma for all the major central banks in this crisis: whether to help private credit markets directly by buying private assets, at the risk of piling up private risk on the Bank's balance sheet, or rather to buy safer, public, debt instead, at the risk of being less effective and, possibly, creating the impression you are paying the government's bills.

By and large, the Federal Reserve has gone the private debt route and the Bank of England has taken the second, government debt route. It will be interesting to see whether the Bank re-thinks.

Comments

  • Comment number 1.

    Where is the demand for the money? There is this assumption that banks don't have the money to lend but we do not hear from the business side saying that they are looking for loans. We have half of the supply and demand equation and bankers seems to feel if they only had more funding (public of course) that suddenly in these uncertain economic times businesses would be just as stupid as bankers were and venture into high risk investments. The bankers want to put public money at risk but not private money at risk. We know that,if given, the banks will not just sit on the money, it will be given in continued and unjustified rewards to board members and CEOs.

  • Comment number 2.

    Stephanie,

    "If they are right, it could have interesting implications for quantitative easing as well"

    QE has as most people now admit stopped in the balance sheets of the big banks. Which in one way is a good thing as it has not yet turned to a huge rise in inflation - but it will and indeed it must!

    The IMF has still not acknowledged to consequences of the huge errors in regulation that have had interest rates set five or six percent too low for the last decade.

    Money must cost a sensible price for capitalism to function in a quasi-stable fashion. We have zero interest rates and hence capitalism is unstable and unless and until interest rates are raise capitalism will continue to fail.

    Mervyn King must spearhead a rapid rise in interest rates for a recovery to happen, he knows he must, but the yellow stripe down his back stops him.

    "Because if you think the banks are not lending because they lack capital rather than liquidity"

    Banks are not lending because their pricing models show them that the security they are being asked to lend upon is overpriced. They are wary as they have just been destroyed by lending to sub-prime and over-priced asset backed securities and they can still remember (just, but see below!)

    (The other thing that I heard today was that rising house prices will bring about a recovery! Sheer insanity. House price rises were a major cause of the credit bubble that burst and that destroyed our financial system anybody he says the house price inflation is a good thing need locking up in the madhouse - along with the professors of the fake erroneous economics that preach this idiocy.)

  • Comment number 3.

    Stephanie,

    "Their forecasts are not strictly comparable - because they are for calendar, not fiscal, years"

    This is a nonsense.

    Our tax year should be a calendar year. Not some quarter day based anachronism (the old new year started on 25 March = 5 April by virtue of the 10 days or so when the calendar was updated (Julian/Gregorian))

    The UK only keeps this date stupidity just to allow for international tax planning fiddles! What a nonsense it is in the 21st century!

  • Comment number 4.

    So dear old GB may have to cough up some more? The poor state of public finances and the continued waffling over future cuts in public spending must start to impact on the £. Perhaps even the pessimists have underestimated the extent to which we have been seduced into living way beyond our means. Cold turkey unto death?

  • Comment number 5.

    Sorting out the banks' balance sheets remains the key problem. Look at the time line on that problem.

    Bank balance sheet weakness was identified as the crux of the matter by all substatial commentators during autumn 2007. When the initial international drive to recapitalise in the markets stalled half-way in spring 2008, the Treasuries of the US and the UK were well aware that recapitalisation needed to be forced. However, they did not overcome the political obstacles. The result was the panic of September 2008; which was not checked until the UK Treasury forced substantial public capital on Lloyds and on HBOS. Thereafter, the US Treasury has also forced a measure of recapitalisation. Both Treasuries have also done moderately well in limiting the damage that toxic assets on the balance sheet can do to banks solvency. A by-product of the two Tresuries' work is that we have a fair idea of the aggregate state of the US an British major banks' balance sheets.

    US and UK bank balance sheets are now probably strong enough for the banks to rebuild solvency over time, from profits; assuming that there are no further major financial shocks. So if all goes well we can look forward to a very slow recovery as the banks gradually de-zombify themselves.

    What may go very badly is that we are still very unsure about the real state of the balance sheets of a number of major eurozone and Japanese financial institutions. These could provide a shock to the US and UK banks; and the season for financial hurricanes starts about 1 September.

    This looks like the reason why the IMF and the other international institutions are now pressing - uncharacteristically - for strong action to recapitalise banks.

  • Comment number 6.

    "Directors stressed that the most important policy task remains repairing the financial system."

    You can say that again! They haven't even started on that one yet.

  • Comment number 7.

    If it goes on like this we will end up underwriting all bank lending forever!
    Most people I talk to are just not in the mood to borrow anything at the moment. The banks will keep on asking for more and more taxpayers cash until someone says enough is enough, just how much risk can the taxpayer be forced to take on, in what is after all a risky business? If it wasn't risky there would be no profit in it for the banks in the first place! I think the recovery will be a long time coming for other reasons more to do with the fact that most of us are up to our necks in debt already and know full well that sooner or later interest rates will be going up again. The banks and the government want to have their cake and eat it, they think that just by pumping the system with cheap credit that we will all rush like lemmings to borrow ourselves into the poorhouse but in the meantime, on paper, that borrowed money will be spent on things and look like economic growth again. They seem to want to base our recovery on ever increasing house prices in a way thats been proven to be unsustainable, but how else can you explain the recent jump in house prices fueled by the meagerest rise in house sales? Its as if the financial sector wants to pump up markets that are still dead in order to get the bonuses flowing once again. As I said most people are snowed under with a combination of existing debt plus much higher food and energy costs that may have dropped off the inflation calculator but are still hitting peoples pockets every month, and until consumers want to start consuming again don't expect anything to have that much effect.
    Are we in the end going to creep back to where we were before ie cheap unrestricted credit available to all, or is it true that those days are gone forever? If you listen to the likes of Robert Peston and Paul Mason ten none of us are going to be able to live like that again, but it seems like we lived like that for so long that the only way our economy can survive is if we go back to that type of thing again and thats what the banks are trying to edge us towards with the differance that this time its all underwritten bu us!!

  • Comment number 8.

    Where the hell is JJ when you need him/her? Hurry up! Bring your big Eugemics needle with you. But don't point it at the poor masses direct the thing at the "brightst and best" of the international finanial industry. They got us into this mess and they are trying to lead us back there again. But to what purpose? Just so they can parade their expertise at creating ficticious wealth.

    On the back of GS we now have Morgan Chase parading massive profits. We have statements like this reprted by the ´óÏó´«Ã½:

    "It was a truly positive surprise which does away with the question whether we actually have reached the end of the crisis," said Joerg Rahn, chief investment officer, Marcard, Stein & Co, a wealth management firm.

    REALLY. I don't see the US economy as anywhere but still in the toilet. The UK economy mired in unimaginable levels of debt. The Euro economies bracing themselves for the firestorm that will hit in a couple of months. China sitting on $2trillion of scrap paper and finding that its internal developmnt has only resulted in creating its own particular bubble. Food prices doubling in Argentina and so on and so on ad nausium.....

    Now the directors of the IMF are pontificating that we, the beleagured taxpayer must be repaired to pump even more money into a system that is purely based upon self interest!

    I'm sick of saying that money has to be caged back into its box. It's not even REAL money, it's paper and figures that are not supported by anything tangible. When oh when are the people of the world going to wake up and see that it's all a falsehood? I used to think that going back to the Gold Standard was a silly idea - I'm not so sure now!

  • Comment number 9.

    #8 foredeckdave - Best not to pay too much attention to pump and dump merchants.

    The blue blood of Wall St. are bound to be making a fortune because of the amount of money donated by Main St. and because of the changes to accounting rules allowing them to dress up their financial sewage as caviar.

    The real disgrace is how the media has completely sold out to these guys and no longer even attempt to discover and report the reasons underlying reporteed numbers. How, for example, can Goldman get away with telling a court of law that its (allegedly) stolen source code can be used to MANIPULATE MARKETS, and yet attract substantially no media interest.

    You may as well take investment advice from Al-Queda as from corporate media talking heads.

    Meanwhile something called CIT is on the edge of bankruptcy, notwithstanding the fact that it received $2.3 billion of TARP funding in December last. Even in the face of actual collpase the Federal Reserve Board continued to claimn that CIT was well capitalised. Some other analyst estimates that a further 500 US banks are likely to collapse. Strangely this doesn´t seem to get reported.

    No wonder I read that some old guy in England was refusing to pay for his TV licence because the ´óÏó´«Ã½ has unilaterally abandoned its charter obligations to report on an unbiased basis.

  • Comment number 10.

    " These lingering uncertainties are restraining lending growth."

    They just don't get it at all do they?

    This is what is happening:
    a) We have a debt-deflation, we are deleveraging, private debt levels are dropping, public debt levels rising, real costs are increasing, unemployment increasing
    b) Banks temporarily stabilised
    c) No demand for money, means banks will just slowly weaken
    d) Consumer credit shocks, microloan businesses, securities based on consumer credit, these will slowly pop like landmines as the tank of deflation continues, causing further deflation
    e) There will be mirages of market recoveries, only to be followed by continuing collapse later on, much as during the Depression

    They don't get it. There is no demand for a recovery, no demand for money, and people don't want to return to inflation and paying for another's produce with money that came from someone else's loan to make it. People don't want a return to increasing money supplies that weaken to the point that only Chinese products can be consumed.

    It is downhill all the way. There will not be any recovery, not to "lending growth".




  • Comment number 11.

    watch the update of this series it explains it all quite clearly, we are knackered

  • Comment number 12.

    #10. FrankSz presented: A reasonable if pessimistic outlook.

    It is interesting that you believe that there is no demand for money when we are being told that the Banks must lend more. I do tend to agree with you.

    I would follow on with the argument that this situation is the result of money being worthless (i.e of Zero interest rates.) And I would thus logically argue that the only way out of the slump is to put up interest rates to lead us out of the slump towards sustainable levels of economic activity, if not growth as we have known it.

    When your debts cost nothing to finance there is no incentive to make good economically sensible use of capital and thus no incentive to invest.

    In the state to which the economy has collapsed to there is essentially nothing that can be done except to take the actions that can be taken. This action should be to put up interest rates and to do so now and up to the 4 to 6 percent range. Free money is a disaster for any economy and is destroying what remains of ours. But Mervyn King lacks the bottle!

  • Comment number 13.

    #8 Foredeckdave.
    Nothing stupid about the gold standard. There is a problem with valuing assets at the moment. There are firms and individuals out there with massively over optimistic views of what their assets are worth.

    I was approached by an industrial surveyor today asking me if I wanted to invest in some factory space with a "very attractive" 6% yield....He must be joking...go back a few years and property investors would have said NO to anything yielding less than 12.5%. There are loads of would be investors out there who are keeping their powder dry until Returns on Capital Employed go back to where they should be in uncertain times.

    What's stopping a recovery is the Zombie firms and households who (in league with their lenders) are propping up insolvent balance sheets.

    Until the busted balance sheets are brought into the open there will be ongoing slump.

  • Comment number 14.

    #12

    Perhaps by rasising interest rates it would send a signal that the UK expects deflation to cease. If it is accompanied by the appropriate media campaigning then enough of the populace may be swayed to actually start investing in something else other than paying off debt. However, it could also send the opposite signal that the establishment has gone insane. With confidence in King at a low and the political system a 4-year cycle democracy, preserving credibility is a challenge.

    In any case, should a monetarist recovery be fulfilled, to what would the recovery be? It is now well established, and even accepted by world leaders, that the existing financial systems have expired and need to be replaced. If they were not so busy firefighting (eg: riots in China) then they would be making more progress on this. It is just a matter of time before the USD is replaced as international reserve currency, and therefore just a matter of time before organisations like the IMF and the World Bank are fundamentally transformed. These organisations are the dying legacy of the US-centric Bretton Woods establishment founded after WWII, and we are now moving towards a new more multi-polar world order.

    In this light I hardly see domestic monetarist policy as being of much significance. I think Brown was right when he started to embark on an international economics statesman role during the last year, as that is where the important decisions will be made regarding the future of the UK. Short time-frame macroeconomic adjustments are largely irrelevant in my humble opinion at the moment.

  • Comment number 15.

    A point that has to be also considered regarding the IMF and its reports, is that they produce figures according to a specific philosophy. Their models are based on certain assumptions, such as that markets tend to equilibrium, prices have certain relationships with supply and demand, and so on. These models failed to predict any kind of crisis, but if you look at the history of recessions and banking crises since WWII, it is the developing nations who have suffered and the US who has benefited.

    While the IMF and the remainder of the Bretton Woods establishment may not necessarily be intentionally plundering the planet, in effect, through a philosophy that favours the USD, they are.

  • Comment number 16.

    #2 "(The other thing that I heard today was that rising house prices will bring about a recovery! Sheer insanity. House price rises were a major cause of the credit bubble that burst and that destroyed our financial system anybody he says the house price inflation is a good thing need locking up in the madhouse - along with the professors of the fake erroneous economics that preach this idiocy.)"

    The Chinese, being far more pragmatic chaps, will use a far more economical solution and simply shoot them !! :-)

  • Comment number 17.

    #5 "Sorting out the banks' balance sheets remains the key problem. Look at the time line on that problem. "

    Again, the treating of the symptoms, not the disease !! As several other posters have commented, WHY KEEP THESE BANKS ALIVE ?? They will prove to be black holes that endlessly swallow ever more public funding until the country itself is bankrupt !!

    Let them die and we'll have none of these problems. There are many more "good" banks still around !! They will grow to fill the market !!

  • Comment number 18.

    Here's a good one:


  • Comment number 19.

    ....and to quote "The component left out of the above flowchartbut incorporated in all the models praised by Bezemer for seeing the crisis comingis that the finance system can fund not merely good real economy action but 'bad' speculation on financial assets and real estate as well. This also leads to debt, but unlike the lending to finance production, it doesnt add to the economys capacity to service that debt."

  • Comment number 20.



    While everyone is banging on about building up reserves, the Chinese are asking, nay begging, their citizens to "please save a little less and spend a little more" !! The Chinese reserves are massive, especially in the private sector.

    PS. #14 "If they were not so busy firefighting (eg: riots in China)"

    The riots in China (Xinjiang) are *race* riots and not anything to do with the economy. Meanwhile, the Chinese economy is still growing at 7-8% while the Western economies continue to shrink !! This growth has to come from somewhere and I seriously doubt it has anything to do with bubbles anywhere since the Chinese government is inherently allergic to bubbles of any sort !! Bubbles are what will give rise to *REAL* riots that can destabilise the government and may lead to its overthrow !!

  • Comment number 21.

    #14. FrankSz wrote:

    "Short time-frame macroeconomic adjustments are largely irrelevant in my humble opinion at the moment."

    But does that not also logically imply that the macroeconomic adjustments of pursuing a zero interest rate policy is largely irrelevant?

    And if that is the case why continue doing so when it is inviting the re-inflation of the bubble economy that caused the collapse in the first case?

    Thus I do not find the logic of your position very compelling. In logic it seems to many that the risk of re-inflating a busted balloon are extremely high and that is exactly what the Bank of England is doing! But you assert that their policies are irrelevant!

    I don't think that you can have things both ways. Either the present policy is irrelevant and so is any change to the policy or both matter. You cannot assert that changing a policy that you believe by induction is irrelevant matters when you assert in supporting that position that it is irrelevant.

    So I maintain that we should return to rational interest rates asap.

  • Comment number 22.

    "But does that not also logically imply that the macroeconomic adjustments of pursuing a zero interest rate policy is largely irrelevant?"

    Basically yes. All they are doing is applying a short term band-aid to the banking sector. The man on the street certainly doesn't experience 0% interest rate, while the banks are racking up rates to recapitalise. It's arguable if the banks should have been left to fail or not.

    "..the risk of re-inflating a busted balloon are extremely high "

    In order to stave off private debt driven debt-deflation, as far as I understand it, two things would need to be true:
    a) The money would need to be getting into circulation. Instead it is just parked as bank reserves.
    b) The amount of money, even if it was in circulation and multipled via fractional reserve banking, would need to be an order of magnitude higher to dent the deflation.

    Finally, if there was a re-inflation and return to 'growth', all that would happen is that moral hazard would lead to a much more serious crisis further down the road. Fundamental reform is needed.

  • Comment number 23.

    "The riots in China (Xinjiang) are *race* riots and not anything to do with the economy. "

    Riots are the result of social inequality - something that a more Western lifestyle in China, along with rising Chinese unemployment and poverty (yes), is likely to cause.

  • Comment number 24.

    So the IMF think things are worst than HMG, theres a surprise. HMG are hardly an uninterested party are they. If you had to lose a body part dependent on which forecast was likely to be nearest to reality would you chose the HMG one. Not unless you were barking IMHO. So everything is going to be worse than HMG would like to propose IMO. The latest idea from HMG is that it will take a decade to repair public finances. How can this be given any credence. It is just a guess. As every guess so far has been out why should that one be any better. This is just one gigantic experiment run by people wearing blindfolds. Every time there is a suggestion something is cut the rubber knife being used just bends. Something has to give and it is not going to be pleasant. The defence budget is not going to be cut. The NHS cannot be cut much without public protest, education is difficult to cut, welfare is statute driven. taxation has been running at 46pence in the pound direct and indirect total for decades. That says it is difficult to exceed 46 pence in the pound. That figure is common across the developed countries in the EU. One can only conclude exceeding that ceiling has detrimental effects on any economy and almost certainly on the competiveness of the UK internationally if other countries are in moderately better shape. So just where are these public budget and therefore public service cuts coming from. The economy has shrunk giving a smaller revenue whatever. It really is about time the media stopped just accepting and repeating bland assurances that cuts will take place. A meltdown in public services on par with the financial mess is coming. Just where and what is going to be cut. If HMG consistently underdeclare the problem the cuts can only be worse, much worse than vaguely referred to. Its not rocket science its just arthimetic counting beans, and they are not magic beans.

  • Comment number 25.

    #21 "And if that is the case why continue doing so when it is inviting the re-inflation of the bubble economy that caused the collapse in the first case?"

    You just said it !! They are trying their very best to re-inflate the bubble !! It makes them look good at the next election and leave the dire consequences to the next two generations !! Britain is in for the most horrific and long lasting depression yet !! All government policies and spendings have been directed at re-inflating the bubble and *NO* thought has been directed at actual sustainable means of getting out of this recession/depression !!

  • Comment number 26.

    #23 "Riots are the result of social inequality"

    It is "social" only in the sense that the Han Chinese are getting the better jobs. It is also unfortunate that trouble-makers in Southern China spread false rumours of Uighur men raping a Han girl !! That sparked a riot in Southern China which, in turn, led to the riots in the North !!

    The reason for the Southern China incidences is put down to jealousy amongst the Han there of the jobs given to the Uighurs in the South through local government initiatives to reduce the unemployment among the Uighurs.

    Not that much different from a bunch of Irish beating the crap out of some Romanians in Ireland recently !! Considering that Chinese unemployment is still way below British unemployment in percentage terns, this should not have happened. However, no one race has a monopoly on angels or devils !!

  • Comment number 27.

    #24 "Not unless you were barking IMHO."

    Sorry, I prefer Barnet to the People's Republic of Barking and Dagenham !! :-)

    "That says it is difficult to exceed 46 pence in the pound."

    Don't hold your breath but rumours say that there's going to be another 10p tax on top soon !!

    "welfare is statute driven."

    And then, they'll beggar you in your old age !! 20,000 quid per person just for starters !!

    "A meltdown in public services on par with the financial mess is coming. Just where and what is going to be cut."

    And then there are those who still think (un)Civil Servants have to have a pay rise on top of their armour-plated pensions !!

  • Comment number 28.

    #26

    As the crisis continues, problems will flare up in greater frequency

  • Comment number 29.

    #22. FrankSz wrote:

    "Fundamental reform is needed."

    Yes, it may be needed, by it is unlikely! (in the short/medium term) The proximity to a General Election prevents any meaningful change either before or shortly afterwards. We are thus stuck in limbo till this time next year at the earliest! A year is a very long time with insanely priced money available in bucket loads!

    However this does not and indeed should not prevent campaigning for policy change (such as putting interest rates up!) I am most concerned to ensure that the QE money and zero interest rates money does not get into the economy but stays in the banks. If much of this money creeps out into the economy all it can do is generate a large upswing in inflation (of asset prices) which is hugely undesirable.

  • Comment number 30.

    27 ishkandar

    Takes all sorts. Note - East Ham is one stop from Barking. : )

    Re 20K oldies lucky grab. That is an option to selling your house. Still does answer the problem. Most JSA, Incapacity benefit, Housing etc is statute driven etc etc, immovable and growing due to recession. 10p tax in the GDP extra - Doubt it on base rate. So where is this public sector diet going to be. The figures do not work and get worse all the time. Every time anything is due to be cut some pop up lobby group starts shouting and media manipulating. Politicans bend with the wind it would seem so lets get plenty of wind up.

    Give the civil servents a pay rise by all means, the bigger the rise the fewer can be employed.

    This isnt the end of the beginning, it isnt even the beginning of the beginning. Its just staring at the ceiling and think of a soundbite time, no idea time. It would be irresponsible of us to suggest how to deal with the problem when we don't know what the problem is, lets have a committee to look at it time - And circulate a report for consideration and recommendation, just wait to hear it.

    Leadership, accountability, responsibility, words that have disappeared. We even have had a minister say he was accountable but not responsible, he didnt even seem to understand that the two are related in anyway. And spinmeisters that cannot spin anymore. Have you noticed how little action has been coming from them, in other words they cannot spin unless it is trivial.

    Nope you aint seen nuthin yet.

  • Comment number 31.

    #29

    One thing I'd vote for is a ten year election cycle.

    I will repeat this quote

    "The component left out of the above flowchart but incorporated in all the models praised by Bezemer for seeing the crisis coming is that the finance system can fund not merely good real economy action but 'bad' speculation on financial assets and real estate as well. This also leads to debt, but unlike the lending to finance production, it doesnt add to the economy's capacity to service that debt."

    The problem you describe happens because debt-funded speculation happens. All that happens is that debt increases, and the GDP of the nation does not rise to service it.

    It would be wonderful to have a great wash of QE money start flooding our lives, but only if it was accompanied by a rise in real economic activity. In order for this to happen there has to be a solid regulatory lid put down on debt funded speculation.

    It requires tight regulation. The banks should not and will not be permitted to lend to speculate on homes. There should be disincentives to ride the property ladder. Borrowing to invest in shares etc., should be outright prohibited. Borrowing to start a business to produce goods and services, etc., should be encouraged.

  • Comment number 32.

    John_From_Hendon (#21) "I do not find the logic of your position very compelling"

    Logic is neither compelling nor non-compelling, it is either valid or invalid. Your posts (#21; #29 etc) appear to be littered with rhetorical devices, including dramatic, perjorative adjectives which serve only to preempt rational analysis through describing outcomes in highly emotive terms, indicating what you personally prefer, or are 'compelled' to accept.

    This is not the way rational people behave, it's the way politicians nd their spin-doctors behave.

    I thought you might like to know this. ;-)

  • Comment number 33.

    Addendum (#32) as to where you're going wrong.

  • Comment number 34.

    #30 "Takes all sorts. Note - East Ham is one stop from Barking. : )"

    There are all sorts "just short" of Barking !! :-)

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