It is clearly essential that effective measures are taken to stimulate economies throughout both the developed and developing world. No effective alternatives have been presented to the broadly Keynesian actions that most governments (with some regrettable exceptions) have taken. Criticism by conservative politicians (many Republicans in the United States and the Conservative Party leadership in England) has smacked, not so much of firm government, but of opportunist political self-interest and has conspicuously lacked anything that resembles even coherence or consistency - let alone rigorous analysis.
But it is also clear that very careful consideration must be given to the form that the policy initiatives take and the effects - by no means all of them positive - that the measures are having on different groups of people. For example, there has in my opinion been far too much reliance on both interest rate reductions and tax cuts. There should be a much greater emphasis on public works such as transport infrastructure, power generation and increasing the nation’s pitiful fuel storage capacity that remains at not much more than a tenth of German and French capacity. This despite the huge and exploitative profits that continue to be made by the privatised gas and electricity companies. The only ‘transparency’ they exhibit is in the inconsistency of their excuses and their disregard of toothless ‘regulation’. Perhaps the example of the incoming Obama administration in the United States will provide an inspiring example.
In the present circumstances further interest rate cuts will have only a limited - if any - positive impact on the economy as we head for the worst recession since the 1930s. Any further reductions in bank rate by the Bank of England will have next to no effect so far as industry and borrowers are concerned. Despite the colossal subsidies that they have received from the taxpayer, banks continue to penalise good businesses while tempting individuals with unsolicited loan offers.
In recent instances of the banks’ destructive and corrupting behaviour, a viable and competitive Midlands metal plating company with fifty employees had a debt of £200,000 called in. A few years ago the company had borrowed and invested £1,000,000 on new capital equipment to compete (very successfully) with firms in Eastern Europe and had already paid back £800,000 of the loan. The crassly irresponsible and unpatriotic bankers called in the remainder and have destroyed this local company and the real and valuable jobs that it provided. At around the same time a close friend of mine was offered, out of the blue, a loan of £20,000 that they neither needed nor wanted. My friend threw this unworthy document straight into the bin where it belonged. But there will undoubtedly be other people who may well be tempted to extravagance. There are times when the commercial banks seem to be acting like a fifth column intent upon undermining the nation.
Furthermore, reductions in interest rates hit savers hard and early, considerably reducing both their standard of living and their security. We need a different financial SOS - Save Our Savers! Bank rate reductions however are only partly passed on by the banks to borrowers - in some cases loan charges have actually been put up along with the imposition of more restrictive conditions. Even some Building Societies, though still as mutuals retaining prudence and much more soundly based than the commercial banks, have not been immune from deceitful practices such as reducing the interest rates to savers by more than the reductions in bank rate.
There are seven times as many savers as borrowers - a fact that both the Government and the Bank of England need to remember. Savings are the bedrock on which long term investment should be built. Not only this, but savers, particularly older people in or near retirement, are having their incomes severely reduced by interest rates already at derisory levels of around one percent on many savings accounts. Ways must be found to moderate this highly adverse impact on people who are trying, responsibly, to live within their means, provide for themselves and indeed set a good example to others.
Furthermore, the economic effect of rate cuts can even be perverse. The income reductions for savers mean that they have less - much less - available to spend. In Japan in the 1990s as interest rates were progressively pared back towards zero people saved even harder to make up for the loss in growth of their wealth and the security that gave them. But then Japanese industry always took a patient approach to money (which accounts for much of their success against our own ‘get rich quick’ brigade). And the Japanese people can be more traditional which is reflected in the fact that the Yen continues rising as the Pound continues falling.
How this country has lost its way over the years! It is certainly no use relying on the banks to be responsible citizens in their approach to businesses or to be reasonable about the interest rates that they offer to individual savers. There needs to be direct action by the Government. The Government should not confine themselves to tax cuts on the income from savings that have been suggested in some quarters. This would be a benefit at the margin but if there is precious little income to tax what impact could this be expected to have? Effective action in my view could take the form of nationalisation of the banks or, should they be too faint-hearted, the Government could achieve a similar end by ramping up the role of National Savings and Investments. A clue here is that NS&I used to be called the National Savings Bank.
But it is also clear that very careful consideration must be given to the form that the policy initiatives take and the effects - by no means all of them positive - that the measures are having on different groups of people. For example, there has in my opinion been far too much reliance on both interest rate reductions and tax cuts. There should be a much greater emphasis on public works such as transport infrastructure, power generation and increasing the nation’s pitiful fuel storage capacity that remains at not much more than a tenth of German and French capacity. This despite the huge and exploitative profits that continue to be made by the privatised gas and electricity companies. The only ‘transparency’ they exhibit is in the inconsistency of their excuses and their disregard of toothless ‘regulation’. Perhaps the example of the incoming Obama administration in the United States will provide an inspiring example.
In the present circumstances further interest rate cuts will have only a limited - if any - positive impact on the economy as we head for the worst recession since the 1930s. Any further reductions in bank rate by the Bank of England will have next to no effect so far as industry and borrowers are concerned. Despite the colossal subsidies that they have received from the taxpayer, banks continue to penalise good businesses while tempting individuals with unsolicited loan offers.
In recent instances of the banks’ destructive and corrupting behaviour, a viable and competitive Midlands metal plating company with fifty employees had a debt of £200,000 called in. A few years ago the company had borrowed and invested £1,000,000 on new capital equipment to compete (very successfully) with firms in Eastern Europe and had already paid back £800,000 of the loan. The crassly irresponsible and unpatriotic bankers called in the remainder and have destroyed this local company and the real and valuable jobs that it provided. At around the same time a close friend of mine was offered, out of the blue, a loan of £20,000 that they neither needed nor wanted. My friend threw this unworthy document straight into the bin where it belonged. But there will undoubtedly be other people who may well be tempted to extravagance. There are times when the commercial banks seem to be acting like a fifth column intent upon undermining the nation.
Furthermore, reductions in interest rates hit savers hard and early, considerably reducing both their standard of living and their security. We need a different financial SOS - Save Our Savers! Bank rate reductions however are only partly passed on by the banks to borrowers - in some cases loan charges have actually been put up along with the imposition of more restrictive conditions. Even some Building Societies, though still as mutuals retaining prudence and much more soundly based than the commercial banks, have not been immune from deceitful practices such as reducing the interest rates to savers by more than the reductions in bank rate.
There are seven times as many savers as borrowers - a fact that both the Government and the Bank of England need to remember. Savings are the bedrock on which long term investment should be built. Not only this, but savers, particularly older people in or near retirement, are having their incomes severely reduced by interest rates already at derisory levels of around one percent on many savings accounts. Ways must be found to moderate this highly adverse impact on people who are trying, responsibly, to live within their means, provide for themselves and indeed set a good example to others.
Furthermore, the economic effect of rate cuts can even be perverse. The income reductions for savers mean that they have less - much less - available to spend. In Japan in the 1990s as interest rates were progressively pared back towards zero people saved even harder to make up for the loss in growth of their wealth and the security that gave them. But then Japanese industry always took a patient approach to money (which accounts for much of their success against our own ‘get rich quick’ brigade). And the Japanese people can be more traditional which is reflected in the fact that the Yen continues rising as the Pound continues falling.
How this country has lost its way over the years! It is certainly no use relying on the banks to be responsible citizens in their approach to businesses or to be reasonable about the interest rates that they offer to individual savers. There needs to be direct action by the Government. The Government should not confine themselves to tax cuts on the income from savings that have been suggested in some quarters. This would be a benefit at the margin but if there is precious little income to tax what impact could this be expected to have? Effective action in my view could take the form of nationalisation of the banks or, should they be too faint-hearted, the Government could achieve a similar end by ramping up the role of National Savings and Investments. A clue here is that NS&I used to be called the National Savings Bank.
The country desperately needs a bank or banks that operate in the public interest either at national level through the Government or at municipal level through Local Authorities. This cannot come soon enough.
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