I was reading the Telegraph online this morning and had a hallelujah moment. Finally, someone has had the gumption to voice an increasingly worrying issue. The Governor of the Bank of England, Mervyn King, has said what the politicians of this world have so far either been in denial regarding or have been too scared to say … the truth that even with decisive action in the global economy, there may be no way to avoid a second recession.
Now Mervyn is a bit of a hero to me and the decision by the then Chancellor, Gordon Brown (another hero of mine) and the Labour Government to make the Bank of England independent was to my mind inspired. Anything to wind up the Tories is a good thing anyway, but to take that decision making out of the Government’s hands is the only thing, in my opinion, that has so far stopped a double dip recession for the
economy. It certainly has not been the actions of Cameron et al. King has remained calm in the face of mounting descent within the Monetary Policy Committee, insisting that interest rates should remain low and he was right. I strongly suspect that had interest rates remained within the Government’s control – in particular a Tory dominated Government - we would be looking at around 2-3% interest and possibly higher, rather than the record long time low of 0.5% UK
For savers such as my grandparents, this is catastrophic. However as someone with a very large mortgage, of course I would say the rate decisions made are a good thing. When I bought my house I was paying £600 a month in interest alone. Now this is £160 a month and I can’t deny is one reason we have kept our heads afloat in very tough times. How many other people are in the same situation as me and just how many more bankruptcies and repossessions would there have been? It would be interesting to be able to take inspiration from the film “Sliding Doors” and see just how the economy would have compared had interest rates risen in comparison with reality.
Much of the blame for the current global economic crisis MUST fall on both the politicians of this world and the banking sector generally, but we must also shoulder some of the blame. In terms of politicians, these are split into 2 camps – those who have not done enough for whatever reason (Obama, the Governments of Greece, Portugal, Spain and in general the governance of the EU) and those who have just gone too far the other way implementing austerity measures (UK). There is no denying something had to be done regarding the mounting debt crisis. In fact remaining in denial is one of the reasons the global stock markets have done a pretty good imitation of a roller coaster recently, but going too far with cutbacks like the
government has done has done just as much damage. Growth is falling and unemployment rising. Keeping interest rates low was supposed to stimulate new business – allowing the budding entrepreneurs the confidence and ability to get investment for their ventures. Instead it appears the banks have sounded a resounding “no” – is this fear of creating another banking crisis or something more sinister? UK
This brings me on to why we, the general public should shoulder the blame. In my four days at university last week, the banking crisis was one of the subjects we covered. We discussed at length whether the banks really were at fault, or if all they were doing was supplying consumer demand? It was consumers around the world driving the demand for debt – at any point we could have turned round and said no to that $1million dollar house, the new car, the 5th credit card, but our global greed got in the way initially, then our need to maintain that level of spending compounded the issue. Whilst I was one of the first to voice my annoyance at the banks as early as 2006, as time has gone on I have increasingly accepted that maybe they were not wholly to blame. What business in its right mind would have turned round and said “I am sorry I am not accepting your business?” For the banks, it’s the manner in which it was done – the lack of responsibility, but that is true of us, the buying public too.
Only time will tell if our national government as well as global leaders come round to the same way of thinking as King. The longer they take in making that realisation, the harder it will be to come back from the inevitable double dip recession and the greater the risk of a global version of
’s “Lost Decade” happening. Japan