Saturday, January 10, 2009

"Nothing to Fear But Fear Itself"

Such were the words of the former US President Franklin D Roosevelt as he was inagurated during the 1930s.
The BBC recalled the words as it announced Obama talking of his own $800 million US New Deal to help stave off depression in America.
The move came as the Bank of England reduced interest by another 0.5% to just 1.5% - the lowest in the bank's 300 year history.
Such low rates are leading to some bizarre situations.
It not just that savers are losing out and savers are said to outnumber borrowers by seven to one.
Because of how some mortgages are structured, if interest rates fall further, and there is talk they will, that the wording of such mortgages may mean banks actually paying interest to the mortgage-holders!
The Daily Telegraph also warns savers may even end up paying a fee to the banks for them looking after their money. Well it might be safer than stuffing it under a mattress!
This comes amid a relentless roll-call of company failures on the nightly news, suggesting earlier banking bail-outs and interest rates cuts are not working.
Indeed, the Independent notes banks are not able to find the credit they need, leading to calls for further recapitalisations and nationalisations of the finance sector.
There is also the option of printing money, like what Robert Mugabe does.
Now, Gordon Brown has attacked the opposition Tories for 'do nothing' politics, while he sets about to 'save the world' as he once claimed.
But are such policies working? Do the powers that be have the right policies in what seems to be a tax and spend consensus to cure a problem caused by too much borrowing in the first place?
Indeed, as I noted before, isn't the problem of a lack of confidence being what is behind the banking troubles. They are also unable to get the credit they need as savers will become increasingly less to borrow for so little return while there is so much risk.
And by its radical slashing of UK interest rates, hasn't the Brown government hammered confidence, creating fear rather than reassurance by the severity of its cuts?
And perhaps doing less might be the best way for us all to muddle through?
I remain unsure, but as I see yet more store closures and empty stores in York today, one thing does seem certain. The consensus policies being imposed so far do not seem to be working.


Lee C said...

I've posted about this issue too on MWT - Are we being 'had'?

Mark said...

The UK government is creating instability through the cuts in interest rates and is not helping the situation.

Bad businesses should be allowed to fail rather than being bailed out tby the taxpayer and continued to be run badly.

Loss monetary policy got the UK and other countries into this problem, loss monetary policy will not get it out.

Anonymous said...

Come on FFM. You're supposed to be some sort of pundit. Why don't you tell us what you think should happen and why? Simply asking a bunch of questions is lazy. I'm sure we would all benefit from your insightful analyis.