Friday, March 6, 2009
Desperate times (History of 2008 part 2)
And so Bank of England interest rates have been reduced yet again, this time to 0.5%. And critics say such a dramatic measure leaves no room for future action. I'm no economics professor but this says to me that the Bank of England thinks we are facing desparate economic times that require desperate measures. To say that this leaves little room for manoevre is like saying that pumping water from the Thames to fight fires during the 1940 London Blitz leaves no more water for future fire-fighting.
And as if that was not enough, it seems that the BOE is now also creating money to the tune of £75 billion (although we are informed, this does not actually mean they will be physically printing the stuff out).
One problem with the cut in interest rates is that it was intended to allow banks to lend more money to the man in the street; so that small businesses can continue to run and keep people employed and first-time buyers can buy houses. However this is not happening because the banks are probably in more trouble than anybody realises.
So let's go back to bare-bone basics: the government needs to get people to spend money and to get people working again. Off the top of my head how about this?
Rather than pumping money into banks, the government spends this cash on employing more people. What could they do? Well, what needs doing? We need to clean up the country, improve policing, improve social care, improve teaching standards. Hey, how about manning the presses and printing out more money?
Also the government could just give money to people, (and I don't mean failed bankers who want to retire at 50). How about vouchers that can only be redeemed by spending it on the high street?
If we truly are in desperate times, as 0.5% interest rates suggest, then maybe we need radical innovative solutions?