Friday, 26 June 2009

Its all going wrong

If credit is the lifeblood of the economy, then it has been sucked out, vampire-like, from the corporate sector. Banks just aren't lending.

Zero rates didn't work; government guarantees didn't help and printing cash has failed. Perhaps it is time to try something really radical. Perhaps, running the economy prudently by cutting the fiscal deficit and restoring monetary stability might encourage banks to lend.

So how would this radical departure from New Labour orthodoxy work? Firms need to have stability in order to invest. Banks need to know that firms will continue to be profitable over the long run to ensure that loans are repaid.

Big deficits and easy money only serve to create instability and destroy confidence. Hence, the collapse in corporate lending.


Mitch said...

But it made stupid people feel wealthy and got blair re-elected so for nulab it was good,The bankrupting and humiliation of the country never crossed their tiny minds.

Vodka drinker said...

That chart speaks volumes about the current failure of UK policy.

Failure, failure failure.

Karswell said...

I dunno. The graph is actually showing annual growth in lending. To me the surprising aspect is that it hasn't gone negative.

APL said...

"If credit is the lifeblood of the economy, "

It's not. It's more like adrenalin.

I hope we are moving from an economy based on easy credit, liar loans and 0% incentives. To something a little more sensible.

Credit has a part to play in an economy. It just shouldn't play the dominant part.