Friday, 23 October 2009

Six quarters of negative growth

Labour's recovery policies are really working, aren't they?

This is the longest and worst recession since records began in the 1950s - and the reasons we aren't coming out of it are quite simple.

1. No business confidence. The growing budget deficit is seen as deferred taxation. They also don't like the look of the 50% rate, or the possible EU hedge funds directive. Therefore, businesses don't want to expand supply again.

2. Banks cannot lend. The interest rates are low yes, and the money supply has been expanded through QE, but that extra money is just being stored up in banks' reserves. The problem here is that the regulator is trying to look like it's doing something, and has implemented a measure that should have come at the top of the boom, not in the recession - higher capital ratios. Banks don't actually have enough money to lend (and no one wants to save because of the ultra-low interest rates), so regulation is one reason that we aren't getting out of the slump. Then we have crazy suggestions like the windfall tax on banks' profits, which would surely stop the financial sector's recovery for a bit longer.

Keynesianism has been tried again. Just like in the 1930s, it's failed again. Regulation has been tried again. Just as its hopelessness helped the crash occur, its hopelessness will prevent recovery.

No comments:

Post a Comment

Comment on posts here, and all posts whether critical or in agreement are fine as long as they are not abusive. Comments are moderated due to Chinese spambots.