It appears that we now have government mandated credit growth targets. According to today's statement from the Treasury, which launched the government's capital injection scheme, participating banks must keep the credit tap running.
"As part of its investment, the Government has agreed with the banks supported by the recapitalisation scheme a range of commitments (including) maintaining, over the next three years, the availability and active marketing of competitively-priced lending to homeowners and to small businesses at 2007 levels."
Obviously, the Treasury do not understand the true nature of the economic crisis. The problem is, in a word, debt. There is far too much of it. Households have borrowed more than they should have, and unsurprisingly, many debtors are finding it impossible to service their existing commitments.
It should not need saying, but offering more credit to already debt crushed borrowers, will only make the repayments problem worse. That can hardly be helpful to banks, who have become insolvent due to existing repayments difficulties.
Even the notorious Council of Mortgage Lenders can see the problem. Today, they released a surprisingly sensible statement:
"The CML doubts whether, in the current market where house prices have been falling and demand has reduced, it would be either prudent or desirable for the volume of lending to home-owners to equate to 2007 levels. "
Exactly. It would be neither "prudent or desirable" for households to pile on more debt. However, the Treasury is a recidivistic and irresponsible borrower. Therefore, it is not surprising to see the Treasury trying to push its newly acquired banks into funnelling more credit into the creaking UK economy.