The Goblin King has given us yet more evidence, were it needed, of his complete lack of grasp of economics, history or anything else with this outburst:
"Every recession in the last 60 years in Britain has been caused by inflation, domestically generated, caused by wages getting out of control on some occasions, by interest rates having to rise," Mr Brown told BBC Radio 4's Today programme, "This is a completely different type of event, as everyone recognises. This results from a global banking crisis. So America's already in recession. Germany's been in recession for some time. The euro area is in recession. It's a global financial crisis caused by irresponsible lending practices."
Nope, it's much simpler than that. In the UK we have house price booms (with the corresponding illusion of wealth and economic growth) followed by inevitable house price busts (with the corresponding recession, where we realise it was all built on sand). Where it's different this time is that this was a global credit bubble and a global property price bubble (rather than specific to the UK), er, a bit like 1929...
I've said this before, on ConHome (point 2 here), on this 'blog and to anybody else who cares to listen. Countless others have said it before me, Ricardo, the Austrian School, you name it.
To cap it all, if The Goblin King is correct that inflation causes recessions (rather than being a symptom of something else), why on earth is he now insisting that printing money, aka 'quantitative easing', will fix anything?
Saturday, 24 January 2009
How come he's allowed to say this? (1)
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8 comments:
why on earth is he now insisting that printing money.., will fix anything?
Because he only knows that if something is broke throw money at it until it is better:-[
I loved his response to the question "how long and how deep will it be?" To which he said something to the effect of "that depends on whether everyone else adopts my tactics to cure it".
He's no longer the Clunking Fist - more like the Cunting Fister.
The crunch has been quite exaggerated. Sure, Building Societies and banks have tightened lending, but it's mostly affecting a load of old crap anyway.
If you can't cope with a couple more percent on your business overdraft, you've got a far deeper problem with your business than just the recession.
When I see and hear these sob stories, I want people to post their company and bank accounts along with it. I suspect that behind all of them is a business that's fundamentally unsound that was already barely making a profit or paying the owner a wage.
Look at all the big companies that have got into trouble, and for most of them, the recession is more like the straw that broke the camel's back. Toyota may be about to post a big loss, but it's nothing compared to the troubles at GM. Their loss is around 1/10th of the bailout money that GM has received already.
@Tim
You seriously underestimate the problem.
Yes there are businesses that are only viable because they were able to get cheap, plentiful credit.
Yes there are businesses that are teetering on the edge waiting for a 1 or 2% increase in their overdraft rate to push them over the edge (and when they go they may well drag viable businesses down with them).
But the bigger problem is the banks do not have nearly as much much money to lend overall - even to good, solid, viable businesses.
- wholesale lending (i.e. Chinese & oil rich national banks) has dried up because nobody really knows where the toxic debt really is.
- banks do not really know how much money they have because much of their spare capital was invested in their own "artificial" financial products (designed to keep the money moving end thereby the profits & bonuses coming in)
- liabilities are and almost completely unknown right now
Anon.
Anon, "wholesale lending (i.e. Chinese & oil rich national banks) has dried up because nobody really knows where the toxic debt really is."
Good point, but you in turn seriously underestimate the problem:
1. Now the oil price is down to $40 per barrel-ish, even the petro-states are below their break even point and have spare no money to lend, and their own property price bubble has burst.
2. Chinese (and Japanese) exports are tumbling in the face of falling demand in the west, so they've nothing to lend either. And the Chinese property price bubble is bursting as well (The Japanese are still getting over the 1990 bubble).
What's more banks are making arbitrary decisions on reducing overdrafts for perfectly viable business using spurious reasons, but in truth because the bank has run out of money. It's not the rate of the finance, its whether or not they have any to lend.
"If you can't cope with a couple more percent on your business overdraft, you've got a far deeper problem with your business than just the recession."
Yep, on it's own, but then your customers, fearful for their jobs, shut their wallets. Now your sales are down 15%. And due to heightened competition, gross margins are under pressure. Gross Profit = margin X sales. But then your fixed overheads come into pay...for retailers the biggest is rent. In nnormal times, one low quality retailer can go to the wall, and few care. But when nearly all retailers are feeling the pinch, nearly all manufacturers, nearly all miners...
Then the retailers and manufacturers start shutting down in droves, shedding staff and abandoning leased premises. OD's and loans go unpaid, rent goes unpaid. Very quickly the landlord's default on their loans. The banks foreclose. No one is interested in buying. The loans are written-off. The banks post a loss.
Oh, and to cap it all off, as no one is making a profit or has a job, there's nobody paying any taxes to fund public services.
And that's where Jolly Old Gordon Brown's printing presses come in...
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