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Global recession and domestic lending

Robert Peston | 10:49 UK time, Wednesday, 10 December 2008

There's shocking evidence this morning of the magnitude of the global economic slowdown from Rio Tinto's swingeing expenditure cuts. But there are also signs of evasive action by the Treasury to prevent the continuing squeeze on bank lending from magnifying what looks like a very sharp recession in the UK.

Remarks yesterday by the Chancellor (see this morning's FT lead) suggest that the Treasury is making progress on initiatives to facilitate increased bank lending to the real economy.

For detail on what the Treasury is considering, see my note of Friday (How much will taxpayers finance the real economy?).

Putting the mechanics to one side, the government is edging towards a scheme that would have the following important characteristics:

  • taxpayers would underwrite bank lending to the real economy, or the provision of loans to business and to the housing market;
  • the cost of that taxpayer support for banks would be cheaper than the main existing scheme, the £250bn credit guarantee scheme, and access to the support would be easier and quicker for banks;
  • the help from taxpayers would be in place for perhaps as long as five years, or longer than the three years of the credit guarantee scheme and of the £200bn special liquidity scheme (which allows banks to swap mortgages for easy-to-sell Treasury bills);
  • the overall design of the new arrangements would mean that the state would in effect be borrowing to provide funds to banks, thus in part filling a massive hole for them caused by the virtual closure of wholesale markets.

To put it another way, taxpayers would become lenders to the real economy to the tune of several hundred billion pounds, on top of the £600bn of support we as taxpayers have already provided to the banking system in the form of loans, guarantees and the injection of capital.

That may sound scary. And it would certainly be foolish to assume that money managers, who are supposed to buy all the debt issued or guaranteed by HMT, won't at some point get a seriously bad case of the heebie-jeebies about the rising burden of our public-sector liabilities.

But even the Tories say that extending and easing taxpayer guarantees for bank lending would be a good thing, presumably because, like many, they view the alternative - bank lending continuing to shrink and thus exacerbating the deep problems already being experienced by businesses and households - as much scarier.

There's no ignoring the powerful recessionary forces that threaten us. For example, the National Institute of Economic and Social Research - which is never knowingly sensationalist - said today that it believes that the economy shrank by a worse-than-expected 1% in the three months to the end of November.

A truck in a mine in Western AustraliaAlso, a shocking announcement of massive redundancies and spending cuts at Rio Tinto is a microcosm (albeit a very big microcosm) of savage recessionary trends highlighted yesterday by the World Bank.

Hailing the end of a "historic commodity price boom", the World Bank forecasts that world trade will shrink by 2.1% in 2009, the first contraction of world trade since 1982.

Part of that is a manifestation of the amazingly shrunken appetite for raw materials of the world's great manufacturer, China. And Rio doesn't expect a recovery in Chinese demand until the second half of next year.

The World Bank says that "the possibility of a serious global recession cannot be ruled out". And you only have to look at what Rio Tinto is doing to see why a cut in the world's economic output is far from impossible.

The giant mining conglomerate is reducing its "controllable operating costs" by a colossal $2.5bn a year. Its capital spending is being reduced by $5bn next year to $4bn - and it gives no guarantees there'll be a revival in 2010.

Those attempts by Rio to generate cash and thus reduce its massive borrowings of $39bn will cause disappointment and indeed hardship in many communities all over the world.

In developing countries, for example, belt-tightening by companies like Rio will have a profound effect. According to the World Bank, net flows of lending and investment to developing countries are projected to shrink from $1000bn in 2007 to $530bn next year - a reduction of almost half.

The official forecasts of the World Bank are that in 2009 the world's "high income" economies will shrink by 0.1% and the global economy will expand by an insipid 0.9%.

To put that into context, in recent years global growth has been nearer 4%. So although the global economic mess was largely generated by the financial excesses of the richest countries, notably the US and (in a supporting role) the UK, no country will be wholly insulated or protected.


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  • Comment number 1.

    Let me repeat what I wrote in yesterday's blog:


    NYMEX Oil Future Contracts:

    1998: 121,497
    2000: 148,123
    2002: 182,718
    2003: 181,748
    2004: 212,382
    2005: 237,651
    2006: 283,080
    2007: 482,246
    first 6 months of 2008: 536,837!!!!!!!!

    They kept buing the same oil over and over again (on paper/screens) before it reached the refinery, hence upping its price every time. The bankers/brokers/speculators!

  • Comment number 2.


    In the model that you are proposing above, it seems to me that banks will be taking NO risk whatsoever, and instead taxpayers will be burdened with it.

    So why are we still keeping these banks alive? What is their purpose/function?

    Should we not just get rid of them as they are no use to anyone? I'm sure we can come up with a new organisation to facilitate this, and it will cost us less.

  • Comment number 3.

    No surprises here.

    This is just printing money in reverse.

    You give the loan guarantee first under favourable terms making it appear attractive. The loans get made - many of which are simply to those who should not be borrowing or lent because they are not going to be able to repay the loan later. It is also an attempt at price fixing.

    Later the government will print the money via bonds to cover the bad loans and extend the mess still further. The advantage this way is that nothing actually enters the books now and is therefore unpriced and costed.

    Either way our currency will fall still further and all imports - which is most of what we need gets more expensive.

    When will we learn:

    It appears we are going all the way into depression in the UK with the associated risks of civil unrest and race riots etc.

    All this to avoid making realistic tough decisions.

  • Comment number 4.

    I honestly believe that most authorities and commentators have no idea what they want the economy to recover into. They just want/hope/pray that it gets better.

    It would be insanity to return to status quo ante but that appears to be the aim. To get people lending and borrowing again as if what has happened was a minor realignment. If they are wrong and it is a systemic collapse of Bretton Woods/Bretton Woods II then the situation looks grim.

    A friend of mine who was travelling in Phoenix reported that shops were offering 70% discounts the day after thanksgiving - unbelievable really.

    The Baltic Dry is through the floor. UK PSBR (inc PFI, pensions, bailouts and the RBS debts et al) is now c.400% (yup... four hundred) of UK GDP. Stock markets are rising giddily on the slightest lack of bad news - this has all the makings of an economic crash and subsequent re-boot on a par with - if not bigger than- 1929-1932 and, bearing in mind we are only 3 months into it forecasts of a sunny disposition look exceedingly misplaced.

  • Comment number 5.

    Capitalism seems to have this suicidal tendency to hit the self-destruct button. Perhaps it's Capitalism inherent contradiction - it's great strength is it's dynamism is also it's downfall. Time to blow the dust off those Marx books me thinks and hope Capitalism doesn't end in violence.

  • Comment number 6.

    At last! A chance to post in the top 100! It's a sign of how important this blog has become.

    I have a couple of points that relate to the new scheme;

    - we're in a credit crunch because the debt is too big, that's why lending's dried-up. Why is more lending going to solve that problem?

    - the government are prepared to underwrite loans. This can either work, or it is mad. I think the latter. Why? International investors, who are keeping is going at the moment, will put two and two together: we're not a good risk anymore. This will lead to, neither's the UK economy. Lending will be withdrawn (plus with the US following the same strategy my bet is they'll suck up the cash as being the surer bet).

    - if international investors and foreign governments are propping-up the UK economy, not only do we lose any chance of what little national economic policy we can have, but we have no guard from economic storms such as this. The plug can be pulled and we face an economic shock far worse than this.

    - this is a long-term problem In five years, we'll still be dealing with this so delaying it means we'll probably be in an even worse condition. (Didn't people blame the skipped recession of 2001 for storing-up problems?)

    Final point: it's not fair. I'm aware of the arguments, but, and I say this as a non-saver, the people who borrow are bailed out and the savers have to pay. No, we have to grind this one out. Unpretty as it is.

  • Comment number 7.

    Banks do not represent real people. Investment Banks only have a few hundred portfolio's for individuals like sainsbury's and the rest is institutional. It seems HMT is barking up the wrong tree for money.

  • Comment number 8.

    If you have a good credit rating and assets and/or a deposit depending on what the loan is for you have no problem obtaining credit now.

    The deposits requested are high because that is the anticipated further reduction in property values

    The collateral needed to secure business overdrafts into next year have changed because every companies forecasts have changed. The risk is higher. They pay more, but if the company is sound the credit line still exists.

    So WHY is this government intent on bankrolling the funding to (potentially) bad loans?

    Are the banks going to seriously reduce the amount of deposit needed to secure a mortgage? Are they seriously going to return to lending in mutiples far in excess of what is prudent with falling salaries and massive redundancies?

    It will protect jobs that should have been lost and keep people in houses that should have been repossesed and therefore, will enable an Election to be fought that will give Labour a chance to stay in power.

    It will almost certainly put this country in severe distress for many, many years.

  • Comment number 9.

    Hailing the end of a "historic commodity price boom",
    I am sure prices have been inflated artificially through speculatuion by banks, as stated by #1 but to assume with an ever rising world population that prices will not increase rapidly again flies in the face of reason.
    It is almost certain that the world will consume more grain than production in 2009 therefore prices of grain could again reach their 2007/8 highs for instance.
    The same will be true for all the commodities we as a species consume at an ever increasing rate.
    Commodity prices are bound to increase again.
    Most economist assume stability, this is not possible with finite resources and an ever growing number of consumers.

  • Comment number 10.

    Let me get this right.

    The banks are now being encouraged to lend money to anyone and don't have to worry about whether the borrower can pay it back or not because the tax-payer (you and me) will underwrite the lending and pay the debt off.

    What could possibly go wrong?

  • Comment number 11.

    Robert your weeks behind,

    I told you a couple of months ago that things are bad.

    77% of the wealth in the western world will soon be 33%.

    23% of the wealth in the rest of the world is soon to become 13%

    some 40 million jobless in usa and 12 million in the uk.

    in the rest of the world some 2 billion to starve to death in the coming years. the rest of the world are strugleing to live on 23% of the wealth, they certainly cant manage on 13%

  • Comment number 12.

    I agree pretty much 100% with GrouchoMarxist1 in post 6.

    It was too much lending that got us into this mess. The economy is now like the average household after Christmas.

    We have consumed too much and have spent too much money that we don't have. To be honest the UK economy needs a decent detox. Let us just accept the fact that we need to tighten our belts and bring a bit of sense to the whole economy.

    Yes it is going to be tough but getting yourself out of debt when you have over indulged always is. Just this time it is on a massive scale.

    Sorry to say but the UK economy is like the alcoholic drunk you see in the High Street asking for money. This scheme is the equivalent of just give him some money and he will hopefully go away.

    The suggestion put forward is another flawed attempt to try to keep GB and ZanuLabour in power. The first problem an alcoholic needs to accept is that he is an alcoholic and saying I will just have a couple of drinks isn't a solution.

  • Comment number 13.

    "The official forecasts of the World Bank are that in 2009 the world's "high income" economies will shrink by 0.1% and the global economy will expand by an insipid 0.9%.

    To put that into context - in recent years, global growth has been nearer 4%. So although the global economic mess was largely generated by the financial excesses of the richest countries, notably the US and (in a supporting role) the UK, no country will be wholly insulated or protected."

    Robert, all this shows is that all the global institutions are taking the Bush approach to economic commentry - "Don't use the R word and it will go away!" When this crisis bites really hard, both in the US and Europe, at the start of 2009 the truth about the World economy will finally become clear.

    The bubble of economic growth in China and India will burst dramatically. Without the ability to export and invest overseas both of these countries will contract rapidly. This will have a dramatic effect on all of the other countries in the region.

    In the Middle East oil prices will be slashed dramatically. The soverign growth funds will contract at an equally rapid rate as they will have no safe home in which to invest.

    Until the Western economies recover the ability of developing economies to sustain themselves will be severly limited and they will be in recession for longer than we will.

    So the World Bank and the IMF can continue making esoteric announcements that the rest of us just know are ludicrous.

    As for loan guarantees I think that I am in accord with JackTraven :2

  • Comment number 14.

    RP may be correct to note the possibility of investors, at some point, becoming unwilling to finance the government's growing debt. However, two points on this. The first one is that the money managers he refers to are actually investing many peoples' savings, primarily their pension savings invested in defined benefit schemes. Despite their closure to new entrants etc, these still contribute the biggest pool of capital in markets such as US and UK.

    Over recent years, there has been a move towards de-risking these schemes, better matching the maturity profile of assets and liabilities. In plain English this means selling equities and buying bonds. Except there aren't enough bonds to go round, so much of the bond exposure is actually in the form of swaps, with investment banks as counterparties. I suspect many pension schemes would love to offload this counterparty risk and take real government bonds instead. So, in the short term (ie while nobody has any confidence in banks), governments like US and UK ought to be able to sell lots of new bonds.

    There is one thing to consider here, though, and that is how pension schemes will react to the losses they've suffered on their other investments this year (equities, property). They may stick with their long-term asset allocation strategy which, as the name suggests, is meant to be long-term and ignore short term market noise. The noise has been deafening this year, though. Note if they do this, they'll actually be reducing bond holdings now, as market falls will have left them underweight equities as they have fallen and bonds haven't (government bonds haven't: they are actually up, corporates are a different story). Against this, though, companies may well have to make additional contributions to their schemes to at least reduce the additional scheme shortfalls reported in the FT yesterday (GBP 155 billion apparently). A portion equal to the bond allocation will be invested in bonds obviously. Overall, therefore, probably not bad news for funding the deficit.

    Alternatively, schemes may well decide to increase their "risk budget", ie take more risk with a view to earning higher returns as the way of covering part of the deficit. Schemes may well take the higher risk associated with equities in order to boost returns and limit additional contributions required to cover scheme deficits. I think this makes sense: equities are at historical lows, with limited (lower) downside risk. Any asset allocation won't happen short term. Schemes will have to undertake strategic asset allocation reviews first. But if these conclude a higher weighting to equities is justified, then schemes will sell bonds to finance the switch, resulting in a more difficult environment for the government to fund its deficit. Incidentally, this is actually a further benefit to pension schemes. Difficulty funding the deficit means higher long term interest rates. Higher rates mean lower present values of scheme liabilities, meaning lower scheme deficits.

    Where are we right now? Well the US Treasury auctioned off some 90 day bills yesterday, and these traded at negative rates for a short while, ie people paid prices that will result in them paying the US government for the privilege of lending money to it. More importantly, auctions of 2, 10, and 30 year bonds all went at low rates for the year last week, suggesting the US is having no problem funding its deficit right now (and suggesting UK will be the same). The only reason for this is investors' continuing risk aversion. Holding US government debt is the least bad asset class in a climate of uncertainty.

    Will it last? I doubt it. There are too many structural imbalances in US/UK: low savings ratio, implicit use of principal property value as a key component of pensions saving, inefficient public sector (not that US/UK are the exception on this one), significant reduction of tax revenue in UK from financial sector (corporation, income, CGT, stamp, VAT on employees' excessive lifestyles). That suggests longer term problems funding the deficit.

    So, the UK government ought to borrow everything it can now, while it can, at low cost.

  • Comment number 15.

    I note from the FT article that the government is being advised by Sir James Crosby, current head of the FSA and, until July 2006, CEO of HBOS.

    Yet another architect of the present mess being rewarded for failure, and trusted to get us out of it.

    Why are MPs of all parties not objecting to this?

    Surreal or what?

  • Comment number 16.

    Robert Id like to hear your views on how these changes will affect metals producers etc., such as Corus. Any thoughts?

  • Comment number 17.

    #10 hits the nail on the head, the lesson here is to borrow up to the hilt and bugger it, its everyone’s problem! Mind you, I’ll have a great time and when it comes to pay back, adios amigo’s!

  • Comment number 18.

    this should do a lot to address unnecessary brain damage to the economy - i.e small to medium sized companies going bust because of cashflow problems (not because they are insolvent / obsolete).

    however, i have a horrible feeling that by the time this policy initiative is implemented, the ultimate private sector borrowers will have become as risk averse as the banks, and (beyond meeting necessary day-to-day expenses) they will just hoard the cash that they borrow in the same way that the banks are doing.

  • Comment number 19.

    So the economy will shrink by 1% after having grown by 2 or 3 for year after year...hmmm. So back to where we were a year ago? And yet companies are shedding staff at extraordinary rates. Hang on let me re-state that. Companies are shedding lower paid staff ("shop floor") workers and yet the upper echelons remain. This ensures those with more money than they need to survive a downturn will continue to get their fat salaries and bonuses.

    The economy ticks over because more money is generated by 1000 people buying a £200 fridge than 1 buying a luxury £1000 fridge!

    In order to solve this conundrum governments would have to link tax, penalties, subsidies etc to the behaviour of companies, ratio of salaries, spread of redundancy etc. Of course this would provoke howls of protest from....yes you guessed it those with more money than they know what to do with it.

  • Comment number 20.

    I think you should say savers will be propping up the economy Robert, not taxpayers. Borrowers will be rewarded for borrowing. Credit is necessary to oil the wheels of capitalism, but let's not fool oursleves what behaviours it stimulates.

  • Comment number 21.

    "A friend of mine who was travelling in Phoenix reported that shops were offering 70% discounts the day after thanksgiving - unbelievable really. "

    Have you ever been to the US? It is quite normal for the Friday after thanksgiving for this level of discounting to go on. Its like our January sales but they do it before Christmas. IT is always the biggest shopping day of the year in the US

  • Comment number 22.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 23.

    Bloomberg is today reporting that buying UK government bonds is being priced on the open-market as much, much riskier than buying McDonald's bonds (ie the restaurant of the red nosed clown) !!!!!!

  • Comment number 24.


    You just can't leave it alone can you? Here we go again - "swingeing cuts", "shocking evidence", and all at Rio Tinto.
    In fact, Rio Tinto is facing problems of debt that go back some way before the summer and, while it is true that minerals and metals demand is falling, that isn't the only problem the company faces. Job cuts will include 8,500 contractors - many non-UK- and the company has itself said that the closure of one of twio Lonodn offices is unlikely to lead to job losses.

    Now I don't doubt that if you are one of the people affected by Rio's problems this is serious news, but if this is "shocking evidence of the magnitude of the global slowdown" your world is very different to mine.

    My advice, Robert, would be to save the hyperbole for a time when it is relevant and stop seeking to exacerbate the situation. Your efforts to turn a recession into a full scale depression are increasingly ridiculous.

  • Comment number 25.

    The NEISR numbers out today are a nail in the coffin for the treasury. Next year will be a fiscal disaster unknown even in the 1970's.

  • Comment number 26.

    This Christmas is the first year my teenage children have no desire for new phone, digital camera etc. Hurray!

    Now when I think of all the stuff in each room of our house, and compare it with what was in our house when I grew up as a child 30 years ago, its no wonder companies like Rio Tinto have been digging up so much of the earth and sending it to china to made into my TVs, computers, gadgets etc.

    The worrying thing for the world economy is that most of this stuff can be lived without, or not upgraded as often.

    I've often seen quoted that the rate of our consumption of un-renewable resources will require several more earths to fulfill, if places like China get anywhere near our standard of materialism.

    The problem is that politicians will not and cannot tackle such a massive problem, that for the sake of the future of human-kind, we simply cannot continue the path of consumption we have been on.

    So when I read that Rio Tinto are massively cutting back, and that we are consuming less oil, I think its great. Maybe we will be putting off the day when we have major world wars over resources, at least until after I have died.

    However, my income is mainly dependent on people buying technology products. So do I support and vote for policies that will ignore the future but provide my income now?

  • Comment number 27.

    What is most noticable is that there is convergence in policy between political parties and countries. That smacks of desperation and a total lack of control. It all smacks of reactive not proactive. We are on a track with apparently no forks with a loco driver.

    There is a far bigger issue looming and that is the possiblitity of massive sums of taxpayers money being piped to an ever bigger list of multinational businesses with the begging bowl out. This looks like the conduit set up to do that. The question is if the situation, by its convergence of policies is out of control is this action also out of control. Trying to stop decline with money is dodgey to say the least, it is a black hole. We now have the prospect of a government - which surely anybody must now accept is part of this mess - linking up with businesses that also cannot manage what they are doing. That is hardly a containment strategy.

  • Comment number 28.

    The important thing now is to keep companies afloat and minimise redundancies, which would otherwise lead to a vicious spiral of further reduced demand and yet more company failures/redundancies. So banks need to be able to lend to those companies that have cash-flow problems. I guess that's OK.

    But why provide taxpayer guarantees for the housing market when house prices have still got a long way to fall. That's madness.

    And I hope the additonal lending to companies doesn't include lending to Private Equity - better to let them go bust and then refloat the companies they bought as going concerns without the current burden of debt.

  • Comment number 29.

    # 24

    Well said.

    Rio's problems have more to do with their bid defence strategy versus BHP Billiton than the global downturn. BHP has walked away from the bid, an unexpected victory for Rio's management as measured by the share price reaction when it happened (BHP rose, Rio fell over 30%).

    However, there's now a payback for making the company unattractive to BHP, and today's announcement is it.

  • Comment number 30.

    Robert perhaps you should compare notes with the BBC Science Correspondent, Pallab Ghosh, who reports:

    There is a giant black hole at the centre of our galaxy, a study has confirmed. The black hole is four million times heavier than our Sun. Black holes are objects whose gravity is so great that nothing - including light - can escape them.

    A similar means of describing the economic disaster we are facing is called for and might also help to avoid these million vs billion vs trillion typos:

    There is a giant black hole at the centre of our economy. It is estimated that the total toxic debt relating to the sub-prime crisis and other unsustainable lending is c. 4 million times greater than the total GDP of all the planet's economies since the beginning of time. The economic situation is so grave that nothing - not even Robert Preston himself - can escape it's destructive pull.

    Yes it's a proper crisis of capitalism and when we come out of it we'll need a new paradigm for economic well-being. One which is not predicated on environmentally unsustainable annual growth of 4% globally. We need an economic system that is recalibrated so that it can sustain people at lower levels of consumption and carbon emission.

    Individuals and companies simply do not need to replace their cars every 3 years, on credit or not. We do not need to buy new, bigger TVs every few years. We cannot continue to accept this blatant nonsense trotted out by our govts that we can meet stringent climate-change reduction targets whilst building extra runways at Stansted and Heathrow so that people can use Ryanair to take completely unnecessary day trips to Christmas fairs in Germany etc!

    The current credit crisis may well mark the PERMANENT end to over-production and over-consumption. That leaves us with very large numbers of people without a productive economic role, which is a massive SOCIAL challenge, but one that will actually be better for our poor old planet. Fundamental changes to human behaviour are required.

    There is no point in looking at the crisis solely from an economic point of view!



  • Comment number 31.

    JayPee28bpr @ 14

    inflation expectations are important too - a main driver of tightening nominal gilt yields in the last couple of months. i think deflation expectations in this country are way overdone. we are a small open economy, a heavy importer that does not manipulate its exchange rate, and we have our own fiat currency. i think it is more likely that the pound will collapse further and we see sharply rising inflation 12 months from now. hence another reason for the government to speed up new debt issuance while the going is good.

  • Comment number 32.

    Why should we not celebrate these huge economic changes being forced on us by the global financial crisis? The massive behavioural change required to combat climate change has until now seemed almost impossible to achieve through democratic means. But now the global economic crisis we are seeing will surely provide the huge kick up the backside to those unwilling to act - and through peaceful means. The investment in generating the carbon free energy needed to save the planet is enormous and will require a change in mindset not seen since the industrial revolution. It will also require global cooperation on an unprecedented scale. Now is the time to invest in the human endeavour required to bring clean energy without emitting carbon; renewable energy, nuclear fusion, carbon capture and storage, energy conservation etc. Let's get those released by Rio Tinto to work in what will be the next big growth industry - solving our sustainable energy problems. We should be thankful that the economic crisis has given us this opportunity to put people to work on what is really important - how we can save the planet from a slow death by overheating.

  • Comment number 33.

    The commodity market always does get a pasting when times are bad so RTZ's statement is not that much of a surprise.

    Neither even is the bald report from NIESR that the economy has already shrunk by one per cent. This just quantifies what those of us in the real economy have seen with our own eyes.

    What does irritate is that the government is trying to introduce another system for lending through the banks.

    This just tells me that the original bail out was hamfisted and expensive. I can forgive incompetence as it was by nature a rushed job. I agree there needed to be a short period to allow the matter to settle down but it is very evident to every business in the country that the world changed in mid-October 2008 and now everybody's job lies in the balance.

    The government has been too slow in following through on the issue of bank leanding and now many jobs will be lost as a consequence.

    In principle there need not be a problem with banks lending taxpayer funds to business so long as provision is made for repayment.

    I only hope we do not get into the mad position of the late Seventies when the entire moribund machine-tool industry in the UK, badly in need of restructuring, was being liberally supplied with cash in order to prevent unemployment. Ma Thatcher came along, stopped the gravy train and has been blamed ever since.

  • Comment number 34.

    At the end of the day, the long-term sustainable global population is around 2B.

    Anything more requires the use oil for making artificial fertilizers etc. And we're past peak-oil.

    I pity the children.

  • Comment number 35.

    Banks won't lend money.
    Banks don't give useful rates on savings.
    It isn't even a safe place to keep money.

    So what are they for?

    Wouldn't we be better to let them go and replace them with a nationwide network of local credit unions where those with savings can get a return and their money directly and traceably goes to local companies and mortgages?

    Mind you if I was a bank I wouldn't lend at the moment. No-one knows how deep this recession is going to be and who will be left standing. Still I suppose it's OK if the money they are lending is the taxpayers - it's only him who loses out. Hang on - that's us!!!

  • Comment number 36.

    So how much would all this scheme have cost if we'd allowed all the banks go to the wall who were financially incompetent, then hoover up the cheap assets and make a UK bank to get the lending going.

    The administrators would have isolated the debt ensuring that they could sell it onto collectors who could then pursue the bankers for payment

    Thus we have got rid of the toxic debt and held the real people accountable.

    So really it is just more dithering from Crash, who realises too late that the situation is beyond his control

  • Comment number 37.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 38.

    Rio Tinto is just adjusting for the loss of froth which has to come off the commodities market.

    So no big surprise there.

    Domestic Lending

    Well if the flow of money via loans stops then we all STOP!

    Inflation is the next worry.

    As we all know the only way to make the DEBTS look small is to increase the amount of money in the system hence the Gov lending to banks.


    I don’t see the subject on this one worthy of you posting it UP ???

    YOU can do better.

  • Comment number 39.

    Gordon Brown worships the sun
    Brings you down...into the doldrums
    Thief in the night
    Taxpayer`s fright
    Always a frown with Gordon Brown

    Every time just like the last
    He`s controlled by the ruling class
    Serves the E.U
    Freemason too
    Always a frown with Gordon Brown

    Gordon Brown tries to impress
    New world order he is obsessed
    Bilderberg tool
    Think`s he`s so cool
    Always a frown with Gordon Brown

  • Comment number 40.

    The Black hole that was found at the centre of the galaxy this week is big brother to the one in the UK governments finances.
    Expect a new Galaxy to pop up around that black hole sometime soon

  • Comment number 41.

    Lets be clear about the where the money for the governments plan comes from. Initially it comes from money managers investing money which is then paid back by the taxpayer through taxes. Robert rightly points out that these managers might get the heebie-jeebies, but I would qualify that and say they are getting the heebie-jeebies as the latest gilt auction shows. The bid to cover ratio on the latest auction was 1.58 in comparison to 2.49 on October the 28th. Global money managers will decide what stimulus the UK gets not the government and it is looking increasingly likely to me that the government may need to change tack as a result.

    The world bank also produced a report on China saying exports of electrical and mechanical goods would hold up, only for Panasonic who have factories across China to announce the next day they were drastically cutting production. The world bank does not appear to me to be keeping up with events.

    Rio Tinto may also not be the best example to look at from a bell weather point of view. It is suffering from inventory runs downs in china and some fairly heated pricing negotiations. It will also benefit from any building programs coming out of stimulus packages in China and the US.

    What I keep hearing from the government and to some extent the opposition is that things will stabilise and we will steer a course through this and lets prop up the housing market so first time buyers are still locked out. What I don’t here is contingency planning for possible coming economic shocks. What happens if the problems in Greece or currency problems in eastern Europe force a Euro crisis. What happens if the US Treasury bubble bursts too quickly taking the US economy with it. What happens when investors realise that the metoric rise in the Yen has destroyed the Japanese economy. What we must ask our government to do is to be a lot more efficient in its use of current resources at the very least. What is the point of having separate departments for government to give money with one hand and another to take it away again. Why do we really need 20 different ways of paying tax and is this really a cost efficient way to target very small minorities.

  • Comment number 42.

    To all the whining savers

    Do we HAVE to be shafted in this manner? I have seen a few suggestions about buying foreign currency money markets, etc. but not much discussion generally on how to protect our savings.

    I have this uneasy feeling that after 6 months of deflation the uk will have hyper-inflation as the least painless way of taking our losses and spreading the pain around.

    The world's bond markets will lose their ability and willingness to pay for worthless uk paper. The flight to US treasuries at negative rates is a manifestation of extreme risk aversion. Why would anyone buy uk paper in such an environment?

    What's the answer then? i have 80% salted away in USD currency funds, but is there a prospect of hyper-inflation in the US also?

    Why is the Euro doing so well? will it continue?

  • Comment number 43.

    There is a way to put pressure on the banks to circulate the government capital and that is by encouraging the public to put their savings only in those banks that can show that they are playing fair. This way banks not circulating will have a very hard time improving their "customer funding gap" because they receive less customer savings.

    Couldn`t you encourage the media to pick up?

  • Comment number 44.

    This is all pretty much what the US Fed Reserve has been doing since September - so much for GB' world leadership. As some other posters have said too, the effect will be inflation, but only after the upcoming Election. The net result will be that we will all be poorer than we had thought we were - the bill for te past 10 years must be paid, and shared out, somehow. Inflation is the path of least resisteance in many ways but it will be rough justice and I doubt anyone has much idea yet of how severe it wil be.

  • Comment number 45.

    More Preston doom and gloom; Rio is trying to get over a big takeover bid - which he knows; but forgot to mention. Look at Yahoo at the moment.

    Making working capital available to small businesses so they can continue to survive is a sensible thing to do - why does he think this is bad?

    Preventing the housing market from over reacting is a good thing to do - try for a softer landing.

    Going back to what we were doing before; with sensible banking practices, no sponging merchant bankers and no house price inflation doesn't seem so bad to me. What's the problem?

    Too many people want to talk up the crisis and make it worse; like Peston.

  • Comment number 46.

    #15 sashaclarkson wrote:

    "Yet another architect of the present mess being rewarded for failure, and trusted to get us out of it.
    Why are MPs of all parties not objecting to this?
    Surreal or what?"

    I`m more inclined to ask "corrupt or what?"

  • Comment number 47.

    Here we go again - more attempts by the UK and US authorities to "buck the market" by trying to avoid a shortage of credit without increasing the price. Reminds me of the way the old Soviet authorities used to respond to shortages by exhorting the producers to make more.

    Hey, Robert, how about some elementary economics about the price mechanism??? - Which applies to credit just as much as other commodities.

    The State borrowing to provide funds to banks will have NO EFFECT WHATEVER on overall supply and demand for credit. The State will simply be taking available credit that could be borrowed by the private sector. the ONLY way to get out of the credit shortage is to increase the price of credit!!!

  • Comment number 48.

    Why on earth is the Gvt. underwriting housing loans??
    Can someone please explain to AD & GB that asset prices, need to fall before some normality will resume.

  • Comment number 49.

    Hey there GORDY/Alistair D

    We wont be buying any Government Paper!

    However our Fiscal Prudence Lavatory Paper

    is going well.

    Cheers Guys

    All this day by day Proves that an ELECTION


  • Comment number 50.

    Robert, if the banks are ot totally risk averse with all risk covered by the Taxpayer, what value banks if merely distribution centre.

    When UK government debt carries a higher insurance premiuim than HSBC all we can see is that the banks have successfully hoodwinked the government into a massive bail out with no downside risk save paying a higer rate of interets.

    Very clever we must all agree but if banks are no longer doing what they are deemed to have always done i.e take risk why pay rates of pay to 'senior executives' who clearly no longer justify the money!!

    This is the classic stitch up and teh government has taken the bait hook line and sinker.

    A child died through incompetant handling by Harringey Social Services and is sacked with no bonus but full persion rights, Banks have hoodwinked the government into underwriting their toxic self inflicted liabilities and no one goes anywhere.

    A government minister says there will be no rewards for failure yet I repeat no bank executives have gone except a few at RBS.

    This isn't rocket science this is a sham of the highest order and no wonder the pound is now treated like a joke currency.

    Cameron is right call an election now for February and lets get this sorted properly we can't afford as a country to have this madness continue.

    The lunatics truly are running the asylum!!

  • Comment number 51.

    Kick the habit
    Go cold turkey
    No more credit
    1 day at a time

    I used to be messed up on credit
    Now I'm all messed up on God

  • Comment number 52.

    #27 glanafon


    A whore on saturday night?

  • Comment number 53.

    Arch left wingers are seeking to convince the electorate thjat only nationalism of everything will save us all from impending doom and gloom.

    The fact that it has been their economic mismanagement aided and abetted by hopeless regulation and a level of greed never experienced before which was compounded by a massive use of derivitive instruments clearly is now of no consequence and surprise surpise the honest tax payer is paying the bill again.

    The tax payer needs honesty and we will never get it whilst ministers whilst the socialist spin machine and its apologists seek to convince everyone they are the innocent party in all this.

    GB you can fool some of the people..................

  • Comment number 54.

    #24 - 'woundedpride'

    "My advice, Robert, would be to save the hyperbole for a time when it is relevant and stop seeking to exacerbate the situation. Your efforts to turn a recession into a full scale depression are increasingly ridiculous."

    Stick to Eastenders; because to think that RPs words have had (and will have) any effect on the hole the world is falling into is ludicrous!

    I thought commentators of that ilk had realised that (just perhaps!) the cause of this thing is a bit bigger than a solitary blogger!

    Aaah well....'there are none so blind......'

  • Comment number 55.

    I agree with brickfielder, no 41. It's all very well for Brown and Darling to leak a report saying they'll borrow squillions to reflate the housing bubble, but the fact is that events are moving at frightening speed. Certainly, the growth estimates in the PBR of a month or so ago look like purest fantasy. My guess is that the government will be forced to cut spending drastically in 2010, or possibly late 2009, maybe as a condition of an IMF loan. Meanwhile, the collapse in Sterling continues and 1970s style inflation can't be far behind.

  • Comment number 56.

    Browns CONTEMPT for us is SIMPLY beyond






  • Comment number 57.

    To coin a phrase often heard at the barriers at London Bridge, too late mate.
    The banks have successfully cocked the most enormous snook at Cruella Darl Ville, who promised payback if they didn't mend their ways in his Pre-Budget Report and several times previously.
    The time to nationalise them was when it could have been seen as a positive gesture. Now it will only be seen as a defensive one.

  • Comment number 58.

    The Rio Tinto downsizing is not necessarily a clear cut example of the economy going really bad as it might seem.
    Just over a year ago they bought Alcan for $38.1bn (after a bidding war with Alcoa i.e. paid too much) most of which was borrowed and has to be refinanced in the near / medium future at higher cost. Hence the expenditure reductions to pay of the loans quicker before they need to be refinanced.
    After the take over there have been relatively few job losses so this is ineffect the first big round of post takeover job cuts which would have happened at some stage anyway (it is probably larger than it would have been but...). Alcan also had problems before the takeover: long term debt levels, some stategic mistakes such as the demerger of Novelis and the most important in this case inability to cut jobs in certain high labour cost countries after a previous takeover of Pechiney of France, 5 years ago. Look deeper, there is more to the Rio cuts than just the current state of economy.

  • Comment number 59.


    TO GO BACK TO THE 70s.




  • Comment number 60.

    As some day it may happen that a victim must be found,
    I've got a little list — I've got a little list
    Of society offenders who might well be underground,
    And who never would be missed — who never would be missed!
    Bill Schwenk
    And in the spirit of goodwill to all men at Christmas, pray complete the list:

  • Comment number 61.

    I've just done the sums
    what we need is a 222.5%
    Income rate tax for 5 years
    paid by credit card cheques
    please check & confirm if correct

  • Comment number 62.

    #46 "I`m more inclined to ask "corrupt or what?" "

    As Francis Urquhart would have said: "YOU might think that, I couldn't possibly comment."

  • Comment number 63.

    The banks have been bailed out with taxpayers'money at 12%. What does the bank do next? It certainly cannot go lending that money to now risky borrowers at something less than 12%. Thanks to the actions of the spivs who have been (and still are) running the banking system, aided by a central bank which has been deprived of its central role of regulating the industry, the banking system is now extinct - dead as the dodo.

    We need a new system and it will be a clever man who can devise one. Perhaps we could start with a few new mutual building societies; a few new small regional banks; a few new tightly controlled credit unions. Perhaps one or two of the existing big banks could survive in a much smaller form, but those that have taken money at 12% are headed for the knacker's yard.

  • Comment number 64.

    #26 :arle

    quite right. FRUGALITY has been totally out of fashion. Well perhaps the impending depression will change all that.

    What really make me laugh are the fashionable green initiatives. Like people taking their re-usable bags to shop for more more more! We (some of us) want to save the planet whilst clinging on to our old materialistic habits. What we want to ignore is the fact that Rio Tinto and other miners are plundering limited resources. I say plundering, because they are not replacing in any way, it's all take take take...

  • Comment number 65.

    Since September, the Treasury aka BrownDarling has dug a fresh £10000* hole for every manjack of us and now they're merrily planning to - what? - double it? On top of what we already owe?

    What sort of evasive action is that? Quite possibly in the same category as avoiding the pothole and falling over the precipice.

    * £600 billion borrowed from 60 million - please tell me my maths is wrong

  • Comment number 66.

    It is truly depressing to watch as the incompetents steer good ship UK straight at the rocks
    From top to bottom, HM Govt, BoE, FSA, Big Finance CEOs are corrupt and self-serviing. They have conspired to create conditions in which any country would struggle to survive, yet fattened up on the process of stripping out what little provision for protection remained

    If the time isn't now, when will it be brethren? They want nationalism, well we are the Nation. They are only the/ a state

  • Comment number 67.

    All the talk about lending regulation and reform is piffle. The Government a have bought off the banks and in doing so aim to control the market place.

    The disparity between earnings and house prices must be normalised or we are just going to re-invent the crisis.

    I've petitioned the Government to state their aspiration for lending. I can only hope that everyone here, who also believes that the Government talks in riddles, will sign it:

    (Please tell your friends too)

    All I can say is that you shouldn't consider the economic arsonist a hero just because he is trying to save a few from the inferno.

  • Comment number 68.

    Comment 30 has it about summed up, but any politician trying to sell this to the masses is unelectable.
    What we need is people who know this whatever colour winning the next election then taking five years to at least attempt to move on some of the issues, whether the majority in this country like it or not.

  • Comment number 69.

    Our exports are dwindling fast and there is no sign on the horizon that this will change in the near future.

    Their markets are also dwindling and there is no sign that this will change in the near future.

    So where will the real growth come from to pay for all this extravagant borrowing?

    All more lending will do is put off the moment of truth. There is just not enough money to go around.

    Eventually it will run out and heaven knows what the consequences will be further down the line if they have to resort to printing it

    All this government is doing is giving themselves a bit more time.

    I hope they use it wisely because that time will quickly run out.

  • Comment number 70.

    #45 Andywr
    "Too many people want to talk up the crisis and make it worse; like Peston."

    OK, so Peston uses silly language and often writes "stories" when there's nothing of substance to write about, but please! The bubble has burst and no amount of talking the crisis up, or trying to hush it up (as you want) is going to affect the market adjustment.

  • Comment number 71.

    Continuing from the previous question left unanswered on Bob's previous thread.
    I'm painting a scenario. It doesn't have to be like this, but I'm making a case while Mr Bumble remains in charge. It makes people realise the scale of what's being mismanaged, and stops us equating trillions with zero as they're beyond grasp.
    Go look Malachy up. He didn't stop because he ran out of patience, he stopped because the world runs out of time, it hits the buffers, to use your current analogy. Which is roughly what a decent few folks here are starting to worry about. Which is what the environmental lobby have been saying for ages from a different angle.
    There's those who are playing with this, of course, trying to get India to attack Pakistan and the like. One day they'll succeed, according to our security experts.

  • Comment number 72.

    I teach young people aged 16 - 20 business, economics and financial studies.

    Robert's blog and the comments are invaluable in bringing the concepts alive, and I use the BBC videos with the classes to promote discussion and understanding.

    Increasingly students don't want to go to Uni and would like to start working post A levels, but our economy is no longer geared to bringing on young people in this way.

    We're trying to get financial services companies to take on young people as 'apprentices' and have had some success with a small number of companies.

    Apart from the most able students with A grades and going to the top 20 Universities should we be encouraging young people to go to Uni?

    David Fagan

    Orpington College

  • Comment number 73.


    More wall to wall gloom on Peston's blog again - no change there then! As usual he's totally miscalled the RTZ situation and managed to turn into a story of imminent global destruction.

    Time for a bit less capitulation and more of the old Dunkirk spirit - though as I suggested yesterday, you wouldn't find Peston manning the boats, he'd be holed up in a bunker somewhere with a notepad, writing about how many had died and what a disaster the whole thing was and how Hitler would be drinking tea in Claridges this very afternoon.

  • Comment number 74.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 75.

    I’ve heard many so called in the know guys on here talk of, cash is king. Really? Deflation / Inflation even Hyper Inflation. I’d argue that buying up cheap property NOW is THE BEST way to protect your savings! At least you WILL get a return on your money via rental income.

    In case you haven’t noticed this is Gordon’s plan ;-)

  • Comment number 76.

    Anyone else remember Mrs Thatcher's guaranteed loans for small businesses? It was one of her first policies, a complete disaster, and arguably one of the first wedges between the public sector and the banks.

    What happened was that people simply didn't repay the loans: they just went bust leaving the government to pay the guarantees. This was a headache for the banks which responded by making things well nigh impossible for small business during the 1980s.

    NuLab have already done something similar with student loans. I believe no one really knows who is liable for these.

    Mrs Thatcher's scheme was staged down very promptly. It was small beer compared to Brown, but the results will be the same.

  • Comment number 77.

    # 3 applepeach

    Yes, I agree that this crisis will soon be moving on from the somewhat arcane matters of failing global financial instruments and systems towards real and serious local economic effects, to social unease and so on to civil unrest.

    It's happening now in China, Greece, Iceland and Italy to name a few countries; only the geographic extent and scale will change over the coming months/years.

    This mess has a very long way to run - and let's always remember that its principal UK architect was Mr Gordon Brown, exacerbated by Conservative Party acquiescence.

    Our problems will be hugely exacerbated by the imminent and sharp decline of mankind's era of cheap energy. Just when we need guaranteed economic growth (on the back of "infinite" cheap energy), we'll discover that we can barely afford to function as a society because of exponential rises in energy costs and dismal UK energy security.

    So, yes, civil unrest will start to climb up the news agenda in the coming months/years as citizens discover and experience the extent to which we're now being hung out to dry by our political "elite" ... to save the banking system whose seeds of destruction were sown by the politicians themselves.

    Enjoy the ride.

  • Comment number 78.

    #14 JayPee28bpr,

    You say that the government should borrow as much as possible as soon as possible. But immediately before that you note that there will be long-term reductions in income.

    Increased borrowing means increased interest payments, yet these would need to come from reduced income. Is it not the case that the strategy you suggest would necessarily squeeze living standards, in order to make up the shortfall between increased expenses and reduced income?

    #26 jonearle,

    You imply that you must choose between greenliness and technology, but that is a false dichotomy. Those are not the only choices you face. You can try to sell the greenest technology you can find. This means well-built, long-lived devices with a minimal amount of useless features, minimal packaging, reusable/recyclable parts etc. It means failing to stock things that are power-hogs, or require batteries. It means finding and promoting products made by companies with solid green credentials.

    Greenliness? I did say that!

  • Comment number 79.

    Clearly some of the most simple and obvious strategies to mitigate our problems are not being pursued.

    For example, why is anyone in the public sector or the rescued banks getting a bonus or pay rise this year? Any half way sensible organisation would tell its staff there was no money for bonuses when it was one step away from bankruptcy.

    Equally, why are we doing VAT cuts and mortgages when the key issue is lack of industrial/technical capacity and balance of payments.

    The question that interests me is whether the government are a. stupid/ in denial about how bad things are or b. calculating political/personal advantage or c. both of the above.

  • Comment number 80.

    "#45 said

    More wall to wall gloom on Peston's blog again - no change there then! As usual he's totally miscalled the RTZ situation and managed to turn into a story of imminent global destruction."

    Are you the Knight that after having his arms, legs and head cut off, crys out

    "its only a flesh wound"?

  • Comment number 81.

    #73 houseflogger

    "More wall to wall gloom on Peston's blog again - no change there then!"

    You do not expect him to say everything is OK do you?

    He calls it as he sees it and has been right up to now.

    I would like to hear what he thinks about the Derivatives Bubble which seems like a much bigger iceberg than we have hit up to now.

  • Comment number 82.

    1. What is the socio-economic future for Britain?

    2. Do we even have one?

    3. Is anyone working on this?

    4. Who's in charge of it?

    5. How does the plan - even if there is one - dovetail into measures to stop climate change?

    6. What's my place in it?

    7. What's yours?

    8. Where is the leadership in all this?

    9. Do we have any leadership or is it every man for himself from here on in till the planet burns to ashes?

    Repossessions, social imbalance, recession, slump, free-for-all, crime wave, banks reducing access to credit, blah blah, labour ministers rolling out pointless legislation nobody wants nor cares about - all de- facto coming your way soon. Just like the 90s all over again.

    That's all I want to say.


  • Comment number 83.

    42. At 12:41pm on 10 Dec 2008, courteousnewcitizen

    For what it's worth after a remarkable 18 months in the Yen I am now looking to move out of it, I think it has about run it's course. Top of my list for the new home of my savings is the dollar, the Canadian one.

  • Comment number 84.

    PetersKitchen - Peston's not the Messiah. He's a very naughty boy!

    Sorry - couldn't resist a bit of Python banter on this dismal day

  • Comment number 85.

    just a quick word about Greece. One or two are name dropping as though you understand what the riots are about.

    Greek shops were (until last week at least) heaving. There has been little mention in Greece of a local slow down.

    The riots have as much to do with a levels of corruption inconceivable to most in the UK, rather than the global crisis.

  • Comment number 86.

    # 82 guycroft

    Steady on there Guy; it's early days and this is going to get much worse. Check out my post at # 77.

    But, yes, it would be nice to know where this country's leadership will come from over the coming years: no sign whatsoever of any candidates right now.

  • Comment number 87.

    65. At 1:23pm on 10 Dec 2008, Cheerup-things

    Your maths is wrong, it's only borrowed from tax payers and I haven't paid taxes for 7 years, since they greedily introduced IR35.

  • Comment number 88.

    from reading comments here day after day one would think the only thing in life is money!!
    and I guess it is true of anyone who believes totally in a capitalist system, which rewards those who have the gift of the gab and the utter gall to assume they are god's gift to the human race.
    Zimbabwe would have been sorted out a long time ago if it had had resources that would generate huge bonus,' profits etc but it doesn't, so people are left to starve and die. What a sad indictment on the human race to sit and watch it happen in the comfort of our own homes and do nothing.
    We might think we needed this crisis like a hole in the head but thank goodness it has happened and however painful it is obviously going to be, the World will not survive without a sea change of attitudes.

    It is no good thinking we can go back to what we had,we have to change and as no-one was prepared to do that voluntarily it has now been forced on us by our own greed!! Some obviously much more greedy than others!
    By 2030 we shall need two planets to sustain our current lifestyle, which even the dimmest person will know we don't have. No economist can fix this, no injection of capital will help, no sitting it out and hoping for the best. We cannot mortgage or borrow another from elsewhere. We are all sitting on what we have and the World is not like a human body which can to a point heal itself, its irreparably damaged and the prognosis is dire. Far, far worse than any economic crisis!

    It may take a generation but we have to wean ourselves off consumerism. Why this constant obsession of making more and more profits, year on year. It makes no sense at all.
    As human beings why are we so comfortable to allow others to slave away for a pittance, just so we can indulge ourselves, when at the end of the day whether you are a millionaire or not you will die and you cannot take any of it with you. You only rent the space you live on for the time you are alive and its your responsibility to leave it in as good a condition or better for the next generation.
    None of us actualy owns anything in real terms.
    Now Robert has managed with the help of others in the media to completely destroy the confidence of everyone in the UK with his armegeddon speak maybe he would be so kind as to now look at reseaching the way forward in a sustainable way. A sustainable world not built on cheaper and cheaper goods, more and more profits, higher and higher salaries for a few.
    We need sustainablity in all that we do but we also need to rebalance the whole work structure so that everyone feels that they are contributors and are rewarded adequately. In Sweden incomes do not have this huge descrepancy between rich and poor because as a civilised society they know it needs every aspect to contribute.
    in order to function.
    People on this blog are obviously highly intelligent and a better use of their obvious talents would be to look forward not look back. That has all gone hopefully forever. It was obscene not only for the vast majority of us but for the World's resources it took us to the brink.
    We are still standing on the edge of a precipice but if we really want to we can either step back and give future generations a chance or push them over the edge.

  • Comment number 89.

    Darling Brown has a vested interest in the massacre of the savers. The government will want interest rates as low as possible to reduce the costs of maintaining the colossal debt that they are foisting on the British people. However, long term rates are not falling and sterling is weakening by the day. Foreign investors will not want long denominated debt which is likely to be deflated away and a currency in freefall to repay them. This debt increase is happening without the people having any say in the disaster being created for the future. No one can be certain the proposed stimulus of demand will work and alternative thinking that is more radical is needed.

    An alternative solution may be to crush hedge funds and short sellers of sterling.

    I would like to see interest rates raised suddenly and sharply. This would strengthen sterling, reduce import costs and burn the short sellers. Although it might hurt exporters, I suspect the overall effect will be marginal. The main exports being those of greatest value added and less elastic price driven demand.

    The increased income available to savers is more likely to be spent than helping a relatively small number of borrowers who are getting the full benefits of the latest cuts and who are likely to be clearing credit card and personal loans before they spend further. Everyone is now aware of the risks of the recession and the most likely to come to the market are those with genuinely disposable income.

    Stop the debt/tax upward spiral before it is too late

  • Comment number 90.

    # 85 reportthetruth

    Yes, but the Greeks' disgust at politicians' ability to find billions to pour into the banking system at the drop of a hat, whilst defending years of non- or under-investment in health, education and other social services is a strong cause for them taking to the streets. Ask them.

  • Comment number 91.

    It seems to me that the financial world is looking too far ahead judging by share prices of oil companies.
    The price of oil has dropped by $100/b and this means a company producing 1mbpd is losing $100m/day or $36.5bn/yr. So a company like BP or Shell is likely to lose money this year, unless I am mistaken.
    Any comment on this?

  • Comment number 92.


    1. dome and gloom

    2. no

    3. no

    4. no one

    5. it does,nt

    6. the same as all of us,we dont know

    7. the same as 6

    8. on nicks blog go see its funny

    9. yes sure we do crash gorden as just said in the commons he,s saved the world,lol


  • Comment number 93.

    We need to take radical action to make sure we have the necessities of life covered. Cheap, good quality food and renewable energy supplies. Once this is in place we will have a much sounder base for the future. This is where a large proportion of the Government investments should be directed. Rebuild our farming and food industry at once. Reduce the crazy reliance on other counties for our fuel. Then if it really does unravel we will have something to fall back on.

  • Comment number 94.

    # 31

    Totally agree. Deflation in UK will be very short-lived, and I expect a fudging of inflation targets pretty soon as well. Under the guise of building in some inclusion of asset price inflation to the BoE target, what we'll have is a loosening of the target, thereby allowing the UK to inflate its way out of the debt problem. I think the US will do something similar. That implies higher nominal yields on long-term debt, and means the US/UK government should flood the market with 10-30 year paper now while the going is good. And, as I noted before, higher nominal yields actually mitigate the worsening of the pension shortfalls too, as higher future yields translate to a lower present value of scheme liabilities.

  • Comment number 95.

    In the old days you bought goods from shops to build up debt, nowadays you go to work. If we used cash for all transactions we would not be in this mess.

  • Comment number 96.

    88. At 2:24pm on 10 Dec 2008, timetoponder

    The world is NOT irrepairably damaged, it's hardly even scratched!. Just as soon as 6 billion little furry animals disappear it will heal that little scratch and move on to the next experiment.

    Whilst I appriciate your concerns for the planet, until someone does something about the exploding population, the rest is just p****** in the wind. In the meantime it matters little if someone dies of starvation today or as a result of world war tomorrow.

  • Comment number 97.

    I notice more and more people keep asking where we go from here and how things will be when this is over.

    There is a man keeps writing about the solution being sharing, and whilst I believe him, it has been difficult to see exactly how this would work. Gradually the penny is dropping, as well as the pound, and the light is dawning.

    It is worth a read, and see how long before you catch on

  • Comment number 98.

    It is interesting and heartening to see so many people already starting to address what kind of economy and society we should build once this whole crisis has worked itself out.

    The majority of actions to date appear to be a desperate attempt to shore-up the old system. We still talk about extending credit to a public that is already maxed on it. We exhort spending to save the economy when the rational individual wants to reduce expenditure. We reduce interest on savings. It's just a repeat of the same old crazy system!

    Marxism 9in its purest form) still has not been tested. Communism has failed. Now Market Capitalism is in its death throws. So the more we start to think about what the future may look like the better.

    the pain in the short term is, I feel, inevitable. So we need the hope of a better tomorrow to sustain us.

  • Comment number 99.

    If you leave the kid in the candy store unsupervised, don't be surprised that they get a little glutinous.
    I have some, some mind you, sympathy with this collective blame theory in relation to consumption, but let's not kid ourselves. The fact that we're all became increasingly greedy and got fat is the fault of those who made the sweets in the first place and encouraged the shop owners to give all us kids the run of the place

    And now we're all sick, obese and at risk of diabetes. Arise the age of big pharma

  • Comment number 100.

    89. At 2:27pm on 10 Dec 2008, sosraboc

    Wow! I was worried for a second with the mention of crushing sterling short sellers and then realized you don't mean me because I am a long buyer of Japanese yen. Must admit, I was worried for a second.

    Always amazazed at the bad press shorters get, I don't hear anybody complaining about shorting oil down from 147 though. Curious.


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