This has really cheered me up (3)

Some of my UKIP chums tipped me off to this this evening.

As ever, it was somebody else's idea - in this case Prof Willem Buiter's - I just do the numbers.

I have also, not on my own 'blog but in the comments somewhere else, explained that the Bank of England is making a handsome profit (hopefully on behalf of the taxpayer) out of the lack of trust between banks.

Alice Cook explained the issues here; briefly, market-based solutions are usually the best solutions. UK banks have so little faith in each other that they are depositing £49 billion of spare cash with the Bank of England*. The BoE in turn lends that back to other banks, it is in effect guaranteeing inter-bank lending by acting as a middleman. Provided the BoE pays as little interest as it can get away with and charges as much as it can get away with, this is not really a problem. This is how it can make a profit on behalf of taxpayers.

If, however, the BoE starts lending to banks at below market rates, or guaranteeing inter-bank loans for free, banks will become hooked on this source of easy credit and inter-bank lending/borrowing will just not happen, this is a dead end.

* The chart at UK House Bubble shows such deposits increasing from an average of £20 billion in 2007 to £37 billion by July 2008. The figure of £49 billion is from the Bank of England's latest weekly return. The technical name for this is 'reserve balances'.