Carpetbagging, anyone?

Glen_Clark

I understand the 'Funding for Lending' scheme is giving the banks public money at 0.25% - well below the rate of inflation. Is that not a subsidy?

Hominu

Glen_Clark wrote: »

I understand the 'Funding for Lending' scheme is giving the banks public money at 0.25% - well below the rate of inflation. Is that not a subsidy?

and the banks are still taking the pee.

The government lend the banks money @ 0.25%
The banks then lend people money @ 5% and lots of people can't afford to borrow.

Now if people could lend money @ 1%, I bet more people would spend money, which is exactly what the government wants, right?

grey_gym_sock

the banks will take the pee for as long as they can.

the question should perhaps be: why doesn't the government set up a "national investment bank" to lend this money, bypassing the old banks?

opinions4u

grey_gym_sock wrote: »

the banks will take the pee for as long as they can.

the question should perhaps be: why doesn't the government set up a "national investment bank" to lend this money, bypassing the old banks?

Because whenever the state does stuff it manages to do it badly.

Although I suppose they are competing against a bunch of idiot banks if this one happens!

gadgetmind

Hominu wrote: »

Now if people could lend money @ 1%, I bet more people would spend money, which is exactly what the government wants, right?

Another unsustainable debt-funded pseudo-boom? No, not really.

Glen_Clark

gadgetmind wrote: »

Another unsustainable debt-funded pseudo-boom? No, not really.

Isn't that what printing £375bn and throwing money at the banks for 0.25% interest is designed to do?
You have to go by what they do, not what they say. For instance, they feign concern about inflation, but everything they do increases it.
Politicians first concern is to get themselves re elected. Stave off the worst of the crisis until after the next election.

gadgetmind

Glen_Clark wrote: »

You have to go by what they do, not what they say. For instance, they feign concern about inflation, but everything they do increases it.

There are three things you can do with debt, 1) service it, 2) default on it, 3) either monetise it or inflate it away. The last is a kind of soft form of (2) and is the route that HMG are taking.

At the same time, bond holders are being lied to about cutbacks. No meaningful spending cuts are being made, just a lot of noise to stir up the socialist hornets, and as a result of this we're clinging onto our AAA rating.

Politicians first concern is to get themselves re elected. Stave off the worst of the crisis until after the next election.

Of course, but that's no reason why we need to join in and fail to call them on it.

Sorry, but I don't want growth that's only possible because of excessive spending by either governments or households as this is the kind of ersatz growth that fires destructive cycles of boom and bust.

grey_gym_sock

since the banks are not lending any more with the money that continues to be pumped into them, the state would not find very it hard to do a better job of lending it. if they could just actually lend it, that would be a better job.

i don't care whether we have economic growth. (in fact, growth will have to end eventually, but that's another story.) what i don't like are high unemployment and a growing gap between rich and poor. that's the real failure of current government policy (or perhaps it's deliberate - it really doesn't matter which).

they should be directing the QE money, not at the banks, but at infrastructure investment, education and training.

mainly because that would reduce unemployment and inequality.

also because that kind of investment benefits public sector finances both directly (as return on investment) and indirectly, by stimulating further economic activity, which raises tax revenues.

it remains very uncertain whether QE will cause high inflation. perhaps not, because it's taking place during a depression. but it could if it goes on for too long.

i'd rather not have high inflation, but (under current circumstances) that's not my top priority.

gadgetmind

grey_gym_sock wrote: »

since the banks are not lending any more with the money that continues to be pumped into them

My experience is that they are very happy to lend if you go to them with a sound proposition. They ask the right questions, and if you have a solid business plan, then they give the right answer.

it remains very uncertain whether QE will cause high inflation. perhaps not, because it's taking place during a depression. but it could if it goes on for too long.

It's very easy for them to slowly unwind QE if the need arises, and I expect them to do this before raising interest rates.

Glen_Clark

grey_gym_sock wrote: »

since the banks are not lending any more with the money that continues to be pumped into them, the state would not find very it hard to do a better job of lending it. if they could just actually lend it, that would be a better job.

i don't care whether we have economic growth. (in fact, growth will have to end eventually, but that's another story.) what i don't like are high unemployment and a growing gap between rich and poor. that's the real failure of current government policy (or perhaps it's deliberate - it really doesn't matter which).

they should be directing the QE money, not at the banks, but at infrastructure investment, education and training.

mainly because that would reduce unemployment and inequality.

also because that kind of investment benefits public sector finances both directly (as return on investment) and indirectly, by stimulating further economic activity, which raises tax revenues.

it remains very uncertain whether QE will cause high inflation. perhaps not, because it's taking place during a depression. but it could if it goes on for too long.

i'd rather not have high inflation, but (under current circumstances) that's not my top priority.

You make some very good points. But once inflation takes off its Unstoppable. Then its game over for the economy.
The most pressing problem is that the power struggle between Blair and Brown led to both of them throwing public money around to buy support. So the unproductive part of the public sector has been allowed to grow to the point where its unaffordable.