26th January 2012
First, I would like to discuss credit easing, which I do not think will work. To start with it is too small an amount. Twenty billion in loan guarantees will not provide the security needed to put confidence back in a market of an economy worth £1.4 trillion a year. It will not have a multiplier effect, because the guarantee is only for the first twenty billion. After that the risk of the market returns again on any further trades, even if the trade was initiated from the original twenty billion credit easing programme, which most will not be. It will also only affect unique risk, not systematic risk, which is the real problem the market faces. On top of that it only reduces the risk for the supply side of debt. The demand to buy goods through consumer credit has not been increased through reducing risk. This is also needed to enable growth.
I also think that the Chancellor is looking at the problem in the wrong way. He has stated he intends to increase capital investment by £30 billion, however the way he has gone about it makes me wonder how he expects to achieve that. Yes capital investment is a good idea, it restructures the economy and provides the means to produce more goods, or make manufacturing and trade more efficient. The problem is the execution of the plan. The method of funding is flawed and the incentive to provide the said funds is unlikely to work.
Since the Thatcher government the conservative party have become obsessed with debt as a method of providing investment and returns. I do not know why? And it perplexes me to this very day (perhaps Monetarism?). It is an obsession, to the point that they do not even understand any other way of doing it. They have become stuck in one way of thinking, which has impaired their judgement to a dangerous level. But it is not just them. I watched an interview with Will Hutton, in which he publicly exclaimed the difficulty of the current economic situation and how few options there are. I disagree with him.
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