Tuesday, 24 February 2009

The credit crunch as an electricity outage

The government has put together a website called "real help now". Despite the soothing web title, the site has a strong propaganda element. Here is an extract of the official explanation of how we got into this mess....

It seems it is all rather like electricity generation. However, I haven't seen any local substations taking out any unmerited bonuses.

There are lots of complicated terms flying about - quantitative easing and fiscal stimulus and deleveraging - there are plenty of words people are getting used to hearing on the TV, but which don't actually illuminate what's happened at all.

Perhaps the simplest way to explain it is by talking about electricity. Just like everything gets difficult for you in your house when the electricity stops flowing, everything gets difficult in the economy when the banking system stops working.
So it was really important to save banks, because that underpins everything, just like electricity does in your house. But once the credit crunch and the banking collapse had done such damage to the system, it wasn't enough for us to flip the trip switch and hope the electricity would start flowing again.

That's why we've brought forward our plans to inject more money into the economy through cutting taxes and increasing public expenditure - we're sending more voltage around the electricity supply to keep the house in good order.


Mark Wadsworth said...

That puts my mind at rest. So what they are saying is, now that they've blow all the fuses, they are just going to send more power into the system anyway. Until everything catches fire, presumably.


And there was me thinking it had to do with the credit and house price bubbles bursting, and that we could fix this best with debt-for-equity swaps and/or opening up some new good banks, leaving the crap behind (not dissimilar to the Northern Rock policy until today).

Silly, silly me.

Anonymous said...

Bizarro, what are they on about.

Man in a Shed said...

They should have brought in David Miliband to do the analogy - he got a C in 'A' Level Physics you know.

If your going to patronise people, at least get the physics right.


Anonymous said...

"Just like everything gets difficult for you.....": why have they written it in American English?

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