Wednesday 29 October 2008

George Osborne - still a twat (6)

Writing in today's Telegraph, The Boy Wonder makes a few good points ...

The message from Messrs Brown and Darling is that they will save us from recession with a spending splurge funded by borrowing. But it is the wrong approach - the policies that got us into this mess cannot be the ones to get us out of it. It just doesn't work.

... and then ruins it with this:

Look at Japan. Between 1992 and 2002, Japanese government net debt grew by 58 per cent of GDP. Over the same decade, the economy grew by only 9 per cent. The result was a crippling debt burden and a landscape littered with the evidence of endless white elephant public works programmes.

There may well have been public works programmes, but the main reason for the massive increase in government debt was because the government bailed out the banks after the Japanese credit bubble burst. Which is a bit awkward for Camerosborne, because they have expressed their support for a taxpayer funded bank bail out in the UK.

Then just in case there was any doubt, he nails down his twat credentials with this:

It must be for the independent MPC to make its judgment, but it is a statement of fact that, with interest rates still at 4.5 per cent, there is plenty of scope to stimulate demand with lower rates.

If he's going to use the real life example of Japan, shouldn't he try and learn some real life lessons from it? Ed Harrison explains here why cutting interest rates in Japan did not work. He uses the expressions 'credit deflation' and 'debt deflation', but I suppose it all boils down to the 'pushing a piece of string' argument.

So despite the odd glimmer of hope, we can only assume that George Osborne is indeed, a complete numpty.

4 comments:

DBC Reed said...

Harrison's heresy.
Harrison ,who seems to be making sense is guilty of what you consider a major heresy: that banks lend money they don't have.
BUT we have an equity stake in the banks now and can take a cut of their malarkey .Naomi Klein explores the changed situation in an interview with Robert Kall of op-ed news.Googling these terms will summon forth the interview which I think was on the 26th October.

Mark Wadsworth said...

DBC, that's a tricky one.

Banks don't create money out of thin air (or else they would have taken over the world by now) but they do simultaneously create assets (mortgage advances to a home buyer, for example) and liabilities (a credit to the account of the chap who sold the house, for example).

But I personally am not keen on buying shares, let alone shares in banks, so I am not happy that the gummint is doing this on my behalf with my money in order to enlarge the power of The State.

The best way to prevent this malarkey is proper supervision, higher minimum capital ratios, debt for equity swaps, and of course ...

DBC Reed said...

I know this is not very rock and roll, but the Encylopaedia Britannica 15th Edition(1981) Vol 12 p 357 establishes who is the real heretic,rather suavely,:"In the course of issuing money the commercial banks actually create it by expanding their deposits,but they are not at liberty to create all they may wish ,whenever they wish ,for the total is limited by the volume of bank deposits and by the prevailing ratio between these reserves and bank deposits-a ratio that is set by law,regulation or custom."

Mark Wadsworth said...

I can live with that definition for now. The key is that 'issuing money' = making loans to people, 'expanding deposits' = borrowing money from people and that the upper limit is set by capital adequacy ratios (which have become woefully low, as of late).