Interest rate cut a disaster
This afternoon, in a quick news check, I was horrified to learn that the Bank of England - under pressure from the Brown government to abandon its long-held commitment to keeping inflation low, in favour of the politically expedient but wholly short-term objective of trying to re-inflate the credit bubble to try to have Britons borrow our way out of debt, and spend our way out of recession - has slashed interest rates by 1.5%.
Let’s be quite clear: I do not support this move, I wish it hadn’t been made, and I think it will backfire terribly on our fragile economy. How do I hate thee? Let me count the ways:
- The profusion of cheap, unsustainable credit got us into this mess in the first place, and the signal that what we need to get ourselves out of it is more of the same, is entirely the wrong one to send.
- Banks aren’t restricting their lending and charging higher rates because of the opinion of the Monetary Policy Committee, or for a laugh: they’re doing it because they simply do not have the money to lend. Unless the government is proposing to have the Royal Mint set the printing presses alight - Zimbabwe, here we come! - this measure quite simply will not work, but either way the capital outflows this is likely to promote mean that we can pretty much kiss the strong pound goodbye.
- What certainly won’t get the banks the liquidity they need if they’re going to start lending again is a frontal assault on the one group that has shown responsibility and restraint in the lead up to this financial crisis, savers and those who lack any interest in debt-fuelled profligacy, who now have even less incentive to re-float the financial institutions voluntarily. But then, this won’t be any skin of Brown’s nose - if there are no savers, all the better justification for his attempts to play the hero, ‘rescuing’ the banks with taxpayers’ involuntarily-contributed money in order to continue ushering in state control by stealth.
- Another motive for the move is a rearguard attempt to buttress the property market, when what it requires is exactly what it’s getting right now: a correction of the absurdly over-valued prices home buyers were deluded into accepting, back to a level that actually makes sense, and will make the property ladder into something it’s realistically possible to get on.
- And lastly, and perhaps most insidiously, the threat of inflation doesn’t go away just because Gordon Brown decides to issue a memo claiming it has. Apart from the upward pressure on import prices the knockdown pound will be costing us any day now, only weeks have passed since tales of rising resource prices and spiralling food inflation dominated the inner pages of the newspapers; a month of downward fluctuations later, and the threat of inflation has suddenly disappeared! Has the cant of 'no return to boom and bust' been so quickly forgotten?
It’s no surprise that the CBI and the TUC, united in selfish desperation, should have lauded the move; the former doesn’t care what happens to people’s personal finances as long as they’re prepared to line their own members’ pockets, and the latter have no interest in personal responsibility while a friendly government is happy to acquiesce to their constant demands for more taxpayer handouts for those who lack any of it. Neither is it any shock that the craven lapdogs at the BBC have praised the move to the skies, permitting no critical words whatsoever to be broadcast on the subject.
This is a 53-year low. This is panic. And the hollow howls of the sycophants should not distract the rest of us from judging this move according to what it is really is: an utter, abject disaster.