State of the economy
As I understand the current economic situation, we’re not part of the Euro so we should be able to ride out it’s demise better than others.
But we have to be able to react to the changes. And that’s where the problem is. Everything is being based around planning and forecasting. As was shown by the collapse of the Soviet state, state planning doesn’t work. So the state is not the one to do the reacting to the changes that are coming.
Nor is the state the one to go around trying to get the country out of the mess it put it in. Or rather the state is not the one to get the country out of the mess Gordon Brown and now George Osborne have put it in. If the state thought they were doing the right thing when in actual fact they nearly destroyed the country then it really isn’t the one to fix the problem.
The government got frit with the banking collapse and gave away loads of money to bail out the banks. They should have done the strong thing and let the banks collapse. A bit of short term pain which in the longer term would be seen as the proper thing to do. But even that short term pain wouldn’t have been that painful with the Financial Services Compensation Scheme (FSCS) that meant that 96% of people’s deposits were covered. £35K in a bank account is a huge amount. It is now £85K to cover the last few percent to reach 99% of bank deposits. As UKUncut are so keen on the penalising the top percent for the benefit of the majority, then the 4% who would have lost some money if Northern Rock had gone bust should be the ones to make the sacrifice.
The government still have sorted out the mess either. They have forced the banks to start saving for a rainy day. Unfortunately we’re already in the rainy day. So it means that rather than the banks giving out loans to companies who can react to the changing environment, the banks are keeping a lot of money for their emergency funds (as stipulated by the govt).
What should be happening, in my mind at least, is that the banks shouldn’t be forced to save for the rainy day. They should be doing their best to help the economy flow. It’s not like we can go into another recession whilst already in one. So let’s get ourselves out of this one, THEN start saving and putting in checks and balances to ensure that the banks don’t collapse in the future (and also force the govt NOT to bail out banks).
I’m a oldish lad who is sad that so much of life is making him mad.
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1
June 13, 2012 at 07:29 -
Banking is in a kind of nether world at the moment whereby the principal source of capital is not interbank lending or savings 9the classic deferred consumption freeing resources for investment) but QE.
So we end up where the B of E is major player in the sovereign debt instrument market (government funding itself through printing money with the fig-leaf of cover from B of E bond purchases) as well as hoovering up available credit in the market thus forcing small businesses to go without or pay really high rates.
Solution is therefore obvious. Government stop borrowing (no it won’t shrink the economy it will just divert funds into the wealth producing sector and away from the employment of traffic wardens) and abolish the MPC letting the market determine interest rates which would obviously be inflation plus. Declare no more QE, ever. Declare no more bank bailouts, ever. Thus the reason to save is restored, moral hazard is removed and we are on the road to sound banking again.
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June 13, 2012 at 07:58 -
The problem wasn’t just Northern Rock.
If one major bank goes down, people lose confidence in the other major banks. Loss of confidence leads to withdrawal of deposits. Remember that a bank has lent out several times as much as the deposits it’s taken in. Withdrawal of deposits leads to insolvency, and another bank closes its doors. That leads to more loss of confidence …
And you wind up with the 1930s.
That was why the government panicked and decided that NR was too big to fail.
“Declare no more QE, ever. Declare no more bank bailouts, ever.”
That could only work if it gets believed, and since it would be a statement from politicians, only some of the most gullible would believe it.
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3
June 13, 2012 at 09:18 -
But lack of confidence comes from thinking that depositors would lose all their money, when in fact 96% of people would have been covered by the guarantee scheme. All those people queuing up probably didn’t realise that.
A bank going under should have been a great opportunity for another bank to get more customers, just like when a normal company goes bust.
And something to think about. Would it have been cheaper for the government to give everyone their money upto say the new limit of £88K than to spend the billions on bailing out the banks.
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4
June 13, 2012 at 18:01 -
XX But lack of confidence comes from thinking that depositors would lose all their money, when in fact 96% of people would have been covered by the guarantee scheme. All those people queuing up probably didn’t realise that.XX
But they are also the ones that voted the pratts in in the first place. You can not expect common sense from that sort.
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5
June 13, 2012 at 23:43 -
96% of people will get their money back … eventually. How many months do you think that would take? Several, I’d guess. Compare that, with the “give it to me now please”, where you get it *today*.
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6
June 15, 2012 at 11:39 -
Seem to be always two days behind with my posts but,
96% would get their money back? Who says? Oh, the government. Governments – any government – will renege on anything if they deem it necessary and, if 96% of savers called on them, then I suggest the answer would be something like “oh, sorry, things really are so bad – we’ll let you have 25% and the rest when things get better – promise.”
Viz War Bonds: Promised repayment, immediately post war. Actual repayment, what, 1976 (?), when many of the holders were dead.
What should we savers do? No idea.
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7
June 13, 2012 at 09:20 -
I agree that banks should be allowed to fail but don’t forget most small businesses have money in the bank and a lot will have over £85k.
Imagine the problem. Widget Co has £250k in the bank and loses it when the bank folds. the following week it has to pay suppliers and the work force £200k. How many small businesses would survive a shock like that?
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8
June 13, 2012 at 15:30 -
From my experience of working in small businesses, many of them run a continual overdraft, or close to it. Very few have much in the bank account because it’s all down to turnover. Any profit on the books does not mean actual cash in the bank. Some might have been saving up for some investment purposes, but most just get a loan to expand.
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10
June 13, 2012 at 09:36 -
The fact that 96% of depositors would have lost nothing does not make it any easier for the other 4% – like the larger set, they are also entirely innocent bystanders in the process. That 4% may seem like comparatively rich folk, but maybe they earned it from a lifetime’s sweat and sacrifice – it’s unfair to exclude them.
Any losses from a bank failure should always be borne by the shareholders and bondholders, i.e. the owners of the business, no-one else.
There should be a guarantee system which covers 100% of all deposit value, because that would be fair to all ‘customers’. But it should be funded by a bank-levy to create a rescue pot, rather than by the government – just like travel companies have been forced to do for decades through ABTA, ATOL etc. Why not an ‘ABCD’ – Assured Bank Customer Deposits ?
Somehow can’t see our bank-loving governments (of any party) making that happen.
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11
June 13, 2012 at 12:32 -
Sad – have you considered where the funds come from that guarantee the deposits in banks that fail?
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12
June 13, 2012 at 15:27 -
The same place from where the money to bail out the banks came from. Us. And in the future, from the banks themselves I think. They are currently paying into the fund rather than give out loans etc. However, I stand to be corrected.
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13
June 13, 2012 at 17:51 -
So either way, a private sector problem morphs into a public obligation. The difference is that you no longer have the failed bank which has closed its doors.
And the depositors take the money they have recovered from the rest of us, stick it into another bank and when that fails, we get to stump up again?
I’m not liking your model much.
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14
June 13, 2012 at 13:19 -
Northern Rock shouldn’t have gone bust – it had a good quality loan book that was covered by short-term borrowing from the money markets on a rolling programme.
The short-term market dried up and that idiot Vince Cable started shouting “FIRE! FIRE FIRE!” to show how clever he was.
Then the frightened depositors started pulling out their money ‘to play safe’ and the bank found itself refunding programmed short-term loans and paying off depositors with no market source of new funding.
All that was needed was for St. Vince to keep quiet, or at least direct his ‘wisdom’ to the right ears, and for the Bank of England to cover Northern Rock’s short-term borrowing, the depositors money remaining on deposit. No crisis.
But that would have been the action of a statesman, not a ‘”look how clever I am, I predicted a crash and a crash we have” idiot politician.
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16
June 13, 2012 at 18:54 -
False money. Fiat money printed out of thin air.
Artificially low interest so fiat money is even cheaper.
Cheap money allows people to make bad, unreal, investments.
Money only represents wealth and the real wealth is being squandered.
Remove the problems and perhaps things would tend towards sorting themselves out. -
17
June 14, 2012 at 00:08 -
Ah but you all have the rich diversity to comfort you. That will save you.
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18
June 14, 2012 at 10:08 -
I’ll risk saying it once more. Apologies to those who’ve read this comment before…
We should have no limited liability in the Finance business. If the fat cats know that they themselves will lose everything in the event of a failure – the Porsche will go back to the dealer, the villa in Tuscany will be repossessed, the kids will end up at the local comp, and they’ll have nothing to look forward to except the State old age pension – then there would be no more bank failures.
This is my modest suggestion.
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20
June 14, 2012 at 13:04 -
Provided safeguards are met and no artificial inflation is introduced, I’m looking forward to electronic money / P2P lending. I dislike usury on so many levels it may as well be gambling.
If you remove the cost of printing money, the cost of bank machines and stores, staff and taxes, you could virtually kill off all fractional reserve (ok the JP Morgans of the world would never allow it). If I could earn money in virtual P2P coins and spend it as P2P coins I so would…….
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June 14, 2012 at 14:37 -
If you are interested in an alternative to cuts and austerity then try the http://www.taxresearch.org.uk/Blog/ although some of the ideas might be a bit left wing for you!
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June 14, 2012 at 22:15
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