Monday 27 October 2008

By any means necessary

"It is not simply liquidity and the restructuring of the banks. It is to enable banks to start lending again by whatever means necessary."

Gordon Brown, October 2007

Such desperation.

The UK economy has become so dependent on credit growth that it literally can not survive without it. That dependency is so great that the Prime Minister announces that he will do literally anything to get banks to borrow. "By whatever means necessary" - that is Brown's promise.

This means he wants to bury UK households deeper into debt. Borrow for Britain, keep the economy growing by promising to buy today and pay later.

This is Brown's economic strategy. He means to turn us into debt slaves, bonded to the banks, with everyone worrying about how we will make those monthly payments.

UK households owe financial institutions around 170 percent of disposable income. We don't need more debt, we need to start paying it off. We need to return to some basic principles of sound financial management. We must start to live within our means.

This means no more debt.

9 comments:

Anonymous said...

Alice,

He means to turn us into debt slaves, bonded to the banks, with everyone worrying about how we will make those monthly payments

Follow the money and the true recipients of the bailout will be revealed - the wealthy. The majority's debts are the minority's assets. Serfdom disguised as freedom.

There is a choice. Stop taking on debts. The majority did just that in Japan. And no amount of government spending or rate cuts changed their behavior.

Keep up the good work. You are a beacon of hope amidst this foolishness.

Anonymous said...

Devaluation as a strategy absolutely stinks. Basically instead of exporting one ton of cheddar for 100 video recorders, we export exactly the same ton of cheese but only get 50 video recorders back. How this represents any kind of advance beggars belief.
The deliberate devaluation we see in the UK takes the real value of savings and uses them as a subsidy towards export prices. Bit of a scam for the savers and doesn't address the fundamental uncompetitiveness that makes it necessary in the first place.
We will not necessarily export more overall anyway, just because a supermarket has a price war over a month I won't necessarily eat more. This is some loony economic gospel that certainly demand increases if prices go down, that is however entirely dependant on the type of product.
The whole point is trading. When we reduce the number of video recorders we get for our cheese we also induce lower foreign demand by making video recorder builders redundant.
This is a pathetic beggar thy neighbour approach.
I certainly agree with the other comment, keep going Alice. Invaluable.

Anonymous said...

Can't stop. One more point. If this is a good strategy then import tariffs would also be a good strategy, and by implication free trade a bad idea.

Anonymous said...

Debt, debt, debt, pile it on, hit me one more time.

Anonymous said...

We did this to ourselves and we deserve everything we get.

Anonymous said...

We did this to ourselves and we deserve everything we get.

Anonymous said...

I'm sure my take here won't be popular - I don't believe that everything is as it seems.

The phrase "to enable banks to start lending again by whatever means necessary" is exactly what I want (and we all need) the government to do. The thing is this: it is not that banks don't want to lend - it is that they can't... because assets are no longer credible collateral.

Sure, one strategy to enable banks to lend again is extraordinarily inflationary - essentially resigning almost everyone to lifetimes of debt... but, I hope it is obvious, this is silly. It can only, at best, delay slightly an even larger crash. The cat is out of the bag... asset prices aren't always "right" and there will not always be wild asset price inflation.

Here's what I think. I think the only means viable to enable banks to start lending again is to precipitate a massive crash in asset prices. When houses are valued at, say, £20K - and renting one costs £10K, with a typical LTV ratio of 50%, then banks can safely lend against real estate again.

It is important to note that:

* The value of assets is not being dictated.
* The size of loans is not being dictated.
* The level of leverage of financial institutions is not being dictated.

While I accept that there are risks that interventionists might attempt to manipulate the situation to the advantage of certain vested interests - there is nothing inherently wrong with wanting to "get the housing market moving again" or "enabling banks to start lending again." We need to recognise that these are only the observable consequences of a more fundamental economic change that must come first. The most obvious economic change is an asset price crash... for this to happen on a large scale, we need "liquidity" and new finance. Even at a derisory fraction of previous values, there isn't currently enough credit for the transfers of ownership that are necessary in the next few years.

Electro-Kevin said...

Spot on, Alice.

Jason Bell said...

We must start to live within our means.

Nice to know it's not just me thinking this. No mortgage, no credit cards, no overdraft and no major worry. Only can we pay the bills for the next week.

Five years ago and people thought I was barmy not buying a house on the premise that "I would never lose on property", I kept renting stating the risk was far too high and the pricing was over inflated. Basic greed, I'll stick to renting.