Saving The Economy

While it is essential that effective measures need to be taken to stimulate the economy, careful consideration must be given to the form that the measures take and the effects – by no means all of them good – that the measures have on different groups of people. In my opinion we need to assist the long-suffering saving community.

There has in my opinion been far too much reliance on keeping official interest rates low. This feeds directly through to savers though some borrowers, especially the less well off, are charged horrendous, usurious rates quite legally. There should be a much greater emphasis on public works such as useful aspects of transport infrastructure, particularly rail (and I do not mean HS2 here), power generation and increasing the nation’s pitiful fuel storage capacity.

In the present circumstances low bank rate and quantitative easing have only limited positive impacts on the real economy as we endure the worst recession (quibble about definitions if you must) since the 1930s. Furthermore, rock bottom interest rates hit savers immediately and have only been partly passed on (in some cases loan charges have been put up by banks) to borrowers.

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 which 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 rate cuts can even be the opposite of that intended. The substantial income reductions for savers mean that they have less money available to spend. Indeed in Japan in the 1990s the experience was that as interest rates were progressively pared back people saved even harder to make up the lost income and so deflating the economy. But then the Japanese can be more traditional, a quality that is reflected in the fact that the Yen has risen and the Pound has fallen. How we have lost our way!

As we have seen, it is certainly no use relying on the commercial banks to be reasonable about interest rates to savers. There needs to be action by the Government. We certainly need banks that are operated in the people’s interest and which provide secure and reasonable returns to savers. If the Government won’t provide such a bank then local authorities should be encouraged to step in to act in the public interest.

You guessed it - re-instate the Birmingham Municipal Bank. Why do I keep on plugging this? Because hopefully it will become clear in the fullness of time that the commercial banks are useless so far as ordinary people and small firms are concerned and that politicians will stop deceiving themselves that their friends and bankrollers in high finance will ever consider the people, the economy and the nation as much as their ever-beloved bonuses.