Saving the Economy – and Savers

As the economy continues to bump along the bottom it is clear that by any criterion the policy of austerity is not working. And it will never do so especially if the reaction of the government to each failure is to apply even more austerity – usually to less well off people.
So it is abundantly clear that effective measures need to be taken to stimulate the economy. In doing this, careful consideration must be given to the form that the stimuli should take and the effects that the measures have on different groups of people. In this regard my opinion is that we need to assist the long-suffering saving community.
There has been far too much reliance on keeping official interest rates pegged down. The consequences feed directly through to savers although some personal borrowers, especially the less well off, are nonetheless charged horrendous, usurious rates quite legally.
Instead, there should be a much greater emphasis on public works such as useful aspects of transport infrastructure, particularly rail (and I do not refer to HS2 here), power generation and increasing the nation’s pitiful fuel and water storage capacities.
In the present circumstances the historic low and sustained bank rate and massive ‘quantitative easing’ have had only limited positive impacts on the real economy as we continue to endure the worst recession since the 1930s. Furthermore, rock bottom interest rates hit savers immediately and have only been partly passed on (in some cases loan charges have even been put up by banks) to those borrowers that can secure loans.
Savings are the bedrock on which long term investment should be built. Not only this, but savers, particularly older people in or near retirement, have had their incomes severely reduced by interest rates that continue to be at derisory levels on savings accounts - even at banks such as the Co-op that it might be thought had retained some shred of respectability.
Ways must be found to moderate this highly adverse impact on responsible people who are trying to live within their means, provide for themselves and indeed set a good example to others.
Furthermore, the economic effect of interest rate cuts can, under some conditions, be the opposite of that intended. The substantial income reductions for savers mean that they have less money available to spend and so stimulate the economy. For example, in Japan in the 1990s the experience was that as interest rates were pared back people saved even harder to make up for the lost income and succeeded in further deflating the economy.
As we have seen, it is certainly no use relying on the commercial banks to support small businesses or to be reasonable about the interest rates as applied to savers. Therefore action needs to be taken by the Government.
We certainly need banks that are operated in the interest of the economy and society as a whole and which provide secure and reasonable returns to savers. If central government won’t provide such a bank then local authorities should be encouraged and enabled to step in to act in the public interest.
Here in Birmingham this would mean re-instating the late lamented Municipal Bank. Why do I keep on putting this idea forward? Because hopefully it will become clear in the fullness of time and the depths of austerity that the commercial banks are useless.
So far as ordinary people and small firms are concerned, politicians must stop deceiving themselves that their friends and bankrollers in high finance will ever consider the people, the economy, the nation and the common good as much as their ever-beloved bonuses.