Interest rates haven’t caused the recession.  The nearer to 0% the greater the danger! We need to be clear about cause and effect, before suggesting solutions.  We have disorder in the economy. Why??  Not because interest rates were too high, but because the availability of spare money (capital) has dried up.  Normally, when capital is in short supply, interest rates have rise in order to attract new saving and investment, but the reverse is actually happening.  The authorities are trying to influence demand by lowering interest rates, which are (in effect) only an indicator of the level of demand – but not the engine itself. 

The hottest temperature ever recorded in a friend’s conservatory was 126 degrees Fahrenheit. [ 52 C.] The way to reduce the temperature inside was to open the door and windows to let some heat out, not to drill a hole in the bottom of the glass tube to allow the mercury out! The reading might have fallen, but it wouldn’t have fooled anyone. They would still have said "It’s hot in here, isn’t it!"

At the moment, we have tens of thousands of people losing their jobs every week.  Those people haven’t suddenly lost their skills, or their need to earn a living.  Had bankers run the financial system in a sensible way, firms would still be producing goods and services, and people would still be purchasing them.  Interest rates would fluctuate from time to time to reflect the general level of demand for spare money, and attract new savings.  Normally, when there is ‘too much’ spare capital available to lend, interest rates fall, and when there is ‘not enough’, interest rates rise. It could be said, and has been by more intelligent folk than me, that boom and bust is a natural economic cycle. At the moment there is ‘not enough’ spare capital to lend to prospective home-buyers and businesses, and insufficient money and the willingness for Banks to lend to each other – yet interest rates are being artificially lowered!  Something has to ‘give’.  Without a safety valve, pressure builds up until the economic/financial’boiler’ and finally it bursts!  We are already seeing signs of this.  The balance of payments is getting progressively worse; the exchange rate will continue to fall; and the Government will cause massive inflation by pretending that the Exchequer has unlimited resources to bail out every failing bank, when it knows full well that it doesn’t, except by printing more and more money. The £ in you pocket is buying less day by day! We all need to stop pretending, and face the fact that capitalism (and our ability to control it) has failed. Until this happens, the same mistakes will be repeated again and again until everything fails.  Money and profit alone must not be allowed to shape our society.


2 thoughts on “SMOKE AND MIRRORS

  1. and now the government has underwritten loans made by the lenders to house holders who cant pay their mortgage. We all know what that means.

  2. Everyone has lived on credit for to long now and are in the red because of it. The banks and credit cards are lowering their rate in hopes of keeping people spending with credit. But people need to take a pause so they can go from red to black in what they owe. If loss of jobs keep people from spending what they don\’t have in cash, then let it happen. Its time balance is brought back to the budgets of everyone..

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