Friday, 15 June 2012

Another hundred billion to save the economy (again)

Today, George Osborne announced a £100 billion support package for the UK economy. He used a well-worn military metaphor to describe the initiative - he is going to "deploy new firepower" to confront the rapidly escalating eurozone crisis. The Telegraph talked of an even larger number - £140 billion - that Osborne would use to "kick-start" the "stagnant economy".

The Bank of England is also in on the game. Another round of quantitative easing is on its way. The BoE has also prepared a "funding for lending" scheme that offers lower interest rates to banks that issue more loans. This scheme hopes to generate £80 billion in new loans.

Moreover, the government has offered a guarantee to underpin the scheme. The Banks won't lose a penny. All loses will be sucked up by the taxpayer. Her Majesty's Government can produce £80 billion to subsidize the banks literally out of nowhere. But if something goes wrong; then the taxpayer is on the hook.

These initiatives, along with the numbers, have left me dazzled and confused; £80 billion, £100 billion, £140 billion; lending schemes, subsidized interest rates, quantitative easing, emergency liquidity support. So many new ideas, bizarre acronyms, and upbeat press statements. But what does it all really mean?

We know that these initiatives never work. How do we know that? Recent experience should give us a clue. The BoE and the government have been using these methods to kick-start the economy for five years. Yet during those five dreary and difficult years the UK has failed to growth in real terms. Credit to private sector firms has contracted, investment has fallen, and unemployment has remained high. Living standards have declined, inflation has risen and we are no closer to exiting this crisis than we were the day Northern Rock collapsed.

Printing money only serves to destabilize the economy. It is cheap trick, the last resort of discredited politicians. It never ends well, and we should have learnt this by now.


droog said...

See? This is almost what I was saying on the earlier post. Fire power, lighting money on fire. Potayto, potahto.

It's funny how he calls it fire power to sound assuring. Blogger Atrios over in Philadelphia has been using a similar term with the purpose of disparaging the policies. He's been calling these bailouts the money bazooka for months. They only fire the money bazooka at banks. They have been doing it for four years now and nothing gets solved.

Anonymous said...

By now, buying gold must be a no-brainer. But don't tell anyone you've got some, cos sure as hell they'll find a way of confiscating it for the greater good of the country.

Stevie b. said...

we must - at whatever the cost - maintain the illusion of a lifestyle we no longer earn & can no longer afford in today's global-levelling world economy.

Anonymous said...

All this to keep house prices at a shockingly unrealistic, historical high. They should have let the house prices crash like they would have 5 years ago - if they hadn't 'created' 100's of billions of pounds out of thin air...
So.. now another 140 billion - no wonder the price of food, petrol, rents, bills..literally everything is flying through the roof.
Hyperinflation here we come !
We really are f*cked...its all just a matter of time...oh, and money of course :/

(I know petrol prices have gone down recentyl..but thats only due to the artificial BOOST they were raised by due to the 'petrol strike fiasco'..they are just falling back to what they should have been if the petrol stations wern't profiteering).

Kitz said...

why dont they just pay off all mortgages and credit card debt? Simples !

ernie t said...

Once again they insist that if only more debts were incurred the economy would recover. It's the same mistake of thinking that the problem is a lack of demand. It isn't - it's a surplus of debt! They will fail (again) since the small business sector hasn't the demand to need the loans and the personal sector can't afford more loans to service. They will also fail in propping house prices since incomes (and the inflationary consequences of the policy) are not growing to meet the high prices and the loans will not be affordable. This insistence in putting the cart of demand before the horse of production and savings will never work. But they are all captives of modern economic theory. Unfortunately their utter lack of courage means we all go down with the ship