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G20: Sticking plaster not cure

Robert Peston | 11:05 UK time, Wednesday, 1 April 2009

On the Ten O' Clock News last night, I said there's unlikely to be a return to business as usual in the global economy unless and until there's confidence that the banking system has been fixed and reformed.

Barack Obama and Gordon BrownWhich is the respectable reason for the shows of passion by some G20 members - especially France - for the London conference to signify that the riskier elements of the Anglo-American, financial-markets model are dead and buried.

But as Mervyn King, the Governor of the Bank of England, has pointed out, governments can afford to take their time over the detail of reconstructing the banking system and reining in the activities of less-regulated firms, such as hedge funds.


Well, with very few exceptions, most financial firms have been so battered and chastened by the collapse in the value of their loans and other assets over the past 20 months that there is not the faintest possibility that they're going to start taking stupid risks again for months, probably years.

In fact, the problem for the global economy right now is not that banks are taking too many financial risks, but that they're taking too few: what has precipitated the worst global economic downturn since the 1930s is that the flow of credit has become an inadequate trickle, because banks and other financial institutions lack both the resources and the confidence to lend.

Arguably the return of confidence to banks and in banks - and the return of the ability to invest for the long term by business in general - requires rather more fundamental reform of the global financial system and of the global economy than what's at the heart of the G20's agenda for the next couple of days.

The big point for me is that many of the business leaders and bankers to whom I talk have little ability to forecast business conditions beyond the end of their noses.

And the reason is that what they see from government heads is quick fixes to our economic woes rather structural reform.

Take, for example, national governments' attempts to sanitise their respective banking systems, their various initiatives to protect banks from future losses on the reckless investments and loans the banks made in the bubble years.

Whether these take the form of the insurance provided by the Treasury to Royal Bank of Scotland and Lloyds TSB or the state-funded purchase of bad assets that's been launched in the US, they all represent a transfer from the private sector to the public sector of the weakest portions of banks' inflated balance sheets.

That would be fine and dandy, if the public-sector balance sheets of the US and the UK - for example - were rock solid.

However that's not the case.

The collapse of the financial services industry, which triggered a general recession, has led to massive increases in public-sector borrowing in both countries.

And this huge public-sector deficit sits unprettily alongside the massive debts of banks, households and companies: the aggregate public and private indebtedness in the UK and the US, including the financial sector, is equivalent to an unsustainable and eye-watering 400% of GDP (give or take the odd few hundred billion pounds).

Which is another way of saying that each initiative for rescuing the banking sector - or for stimulating consumer spending, or for propping up an ailing motor manufacturer - is conspicuously solving one problem by creating another long-term problem: debt that needs to be repaid.

Because in the heavily indebted economies, we're robbing Peter to pay Paul, it's extremely difficult for any business to invest on the basis that there'll be a sustainable economic recovery any time soon.

Instead they feel obliged to keep costs as low as possible, protect as much employment as they can, but put any ambitions for expansion on ice.

Which means that they limp along - and, as a dire consequence, the economy as a whole could limp along for years, even after the recession has ended in a technical sense.

This is not to say that it's all hopeless, that there are no solutions.

But it's to argue that the permanent and lasting solutions aren't national ones; they require international co-operation.

Which is what the G20 conference was supposed to be all about - except that the really hard structural stuff will be a sort of Banquo's ghost at the meeting, scaring the living daylights out of the government heads, colouring their debate, but not at the heart of it.

As Martin Wolf points out this morning, the creation of an enduring economic settlement requires a formal recognition by the great exporting countries of China, Japan and Germany that their financial surpluses are our excessive debts - and that we will be a lousy market for the stuff they make until we've managed to reduce our deficits and have returned to full employment.

In other words they would benefit from reconstructing their economies so that they consume more of their income, because that would help us to reduce our indebtedness.

So even though they won't take lectures from us on how to manage their economies, because they blame our allegedly poor regulation of our banks for the woes of the world, it would be in their interest to help us mend our ways.

That said, there is an even more intractable problem, which is whether it's really possible to rehabilitate our banks while our banks' excessive liabilities are perceived as the liabilities of the over-extended US and UK public sectors.

There is, for example, a constant and destabilising battle between investors who want to sell the US dollar on the basis that America's banking system and entire economy is buckling under the weight of egregious debts and those investors who want to buy the dollar as the reserve currency and putative safe haven at a time of chronic uncertainty.

It is a tension that was elegantly deconstructed last month in a paper by the governor of the Chinese central bank, Zhou Xiaochuan.

He floated the idea that the world needs a new reserve currency, a supra-currency that floats above all national currencies, including the dollar, such that investors would have more confidence that it would retain its value even when a domestic economy as large as that of the US tries to inflate its way out of recession.

Just maybe, there'll be a nod from the G20 leaders that this is an idea worth considering.

And in the unlikely that there's any speedy progress towards the creation of a global supra-currency, many would argue that the truly optimal use of such a supra-currency would be as a unit of exchange for a new global fund, or mega bad bank, into which all banks' toxic assets would be transferred.

A return of near-normal credit conditions would probably be significantly speeded up - to the benefit of all trading nations - if the bad bits of banks were in effect transferred to the balance sheet of the world as a whole, rather than weighing down the balance sheets of individual nations.

However, that's certainly an idea too far for this G20 meeting. Most business people and bankers would, I think, settle for an acknowledgement from the government heads that this meeting is just one stopping point on a long and arduous journey.


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  • Comment number 1.

    the problem is no one appears to know what kind of society is required in the future....Gb appears to want to get back to the status quo pre the 2007 meltdown...well do we really want to go back to boom? i doubt it...there is a need for never ending growth ...but is this even possible or even good for society...I see many years of very little happening...the last ten years in japan are a good example... So GB where are we going, back to boom?

  • Comment number 2.

    This is a holding letter type blog like the government do

  • Comment number 3.

    As you say, the big problem here is over-borrowing, in the private and in the public sectors. Which really makes clear why the US and UK governments' "solution" to the problem - which is more public borrowing - will and is actually making things worse. We desperately need public expenditure cuts in both countries, before it is too late. (Some think it is too late already in fact!)

    Another feature of the current situation is that the balance sheets of the banks that the UK government has taken under its wing, dwarf that of the government itself. So those banks need slimming down urgently. Which is of course the reverse of what the government is telling them to do.

    By the way the Chinese have their own reasons for proposing a new reserve currency - they want to weaken the US for political reasons. We should be deeply wary of these suggestions.

  • Comment number 4.

    A cure? Robert, we need a vision to heal this crisis. It's a shame you're not still at the FT. You don't know what you're missing -

  • Comment number 5.

    Is not the idea of a world currency the modern day equivalent of the gold standard? If it is then it seems like an elegant solution to the problem of wealth measurement.

    The trouble is that if governments and businesses were to measure their balance sheet wealth in terms of gold bars then a great number of them would be quite literally distinct from being solvent in (printed) paper money terms.

    Furthermore if labour rates could be compared through the lens of a unified world currency then our welders, electricians, bus drivers etc would look ridiculously overpaid compared with their Chinese and Indian counterparts.

  • Comment number 6.

    France and Germany don't seem to want to play ball with Brown and Obama.

  • Comment number 7.

    If I were China or Germany, I would concentrate on encouraging my own internal markets first. If these big savers spent their money internally, on developing their internal consumer markets, they wouldn't have to worry about having to bail-out the US and the UK.

    I do not know how self-sufficient China and Germany can become. However, I expect commodity prices will remain low and that China and Germany would be able to easily import any materials they require.

    Japan, unfortunately, has a massive pension deficit. The cost of its welfare state is over-burdening. Despite being the world's second largest economy, Japan's stock market index has slid from 39,000 to 8,000 since 1989.

  • Comment number 8.

    So the Group of 20 are coming to town,
    To see if they can turn the economy around,
    Brown is positive, but the rest all seem grim,
    (I think they've realised the mess we're all in).

  • Comment number 9.

    "It's only words". These two are looking seriously isolated and out of touch. Whilst they're playing bosom acquaintances, Sarko and Merko are chatting with The Chinese!

  • Comment number 10.

    That reads very much an assassination attempt on Brown

    Very much shores up the current Treasury view,

    I wonder if you're going to come around to the fact that we should have all let these banks go bust?

    You admit the paralysis in the system, but no one seems to be addressing it.

    At least you're not calling the floor today

    I discovered yesterday that my business might be able to benefit from some of Mandy's stuff...but there has to be a cost benefit analysis to discover if it is worth the candle of filling in the forms and doing the meetings

  • Comment number 11.

    I'm sure we're (UK and USA) just delaying the agony by this continual propping up of bloated Public Sectors, benefit cultures and institutions too big to fail.

    Slash, burn, cut them off, let them sink. Quick and very painful but human resourcefulness will soon build a new order quickly, and allow a new generation of thinkers and do-ers to take the helm rather than the self serving (lazy benefit happy idiot through to high ranking civil servant or banker [also idiots]).

    Bring on the pain - we need it to learn the hard way and will be more careful in future rather than continuing the financial lie.

  • Comment number 12.

    I think it all hangs on more than just trust in the banking/financial sector.

    People have lost their trust in retailers and service providers too, to a great degree. Hardly surprising when consumer protection legislation gets dumbed-down more and more and retailers and providers, like banks, expect their customers to deal with faceless, anonymous ("sorry, it's company policy that we don't give out our surnames"), distant call centres. It's even quite hard to get a registered company address out of people these days. You're lucky if you get some anonymised P.O. Box No!

    And why? Well it's that arrogant, Anglo-American, Harvard Business School, 'dominate the market', 'anihilate the competition', way of doing business. It's the ego-driven, 'we're going to be the best and no-one (i.e. not customers, regulators or shareholders) are going to get in our way' culture of so many companies these days.

    In some other parts of the world - for all their other problems - the driving force of business is a culture of serving the customer, i.e. delivering outcomes for the customer. The Anglo-American way is blank the customer, serve the company's big bosses and one day, who knows, you might be a big boss with a big salary and a big bonus too.

    Interestingly, that is probably a lot of the reason why Mircrosoft had its problems with the EU. An inability to adapt its operational culture for the realities of the marketplace.

    But somehow I just can't see anyone at the G20 suggesting consumer protection as a way of kick-starting the economy. After all, old habits die hard and at least some of the big players there are deeply entrenched in the old way of doing things.

    So, for the ordinary person, the way forward is probably self-reliant local cooperation initiatives to protect local access to food, shelter and energy and to protect the infrastructure to deliver those. Big business isn't going to protect people - it's too busy making profits. Politicians won't protect people - they're too busy making political mileage. Civil Servants won't protect people - they're too busy saying 'yes sir', 'no sir', to the politicians.

    I don't know about who put the 'T' in Britain, but we've seem to have taken out the 'serve' from customer and public service.

  • Comment number 13.

    In the end we always come back to the basic question of what it is the UK produces which is of any value.

    In order for us to buy imports from Germany and China we cannot just carry on doing so by borrowing, we have to make or do something useful in return.

    For the last 10 years we have allowed ourselves the illusion of doing something useful through our financial industry. That has now been proved to be a big con that actually generated no real wealth at all.

    The only long-term solution to our problems is that we actually produce stuff the world needs which we can exchange for the food and energy we need to import.

    Until this basic question is resolved then all the G20 summits, interest rate cuts, QE and fiscal stimuli are a complete waste of time.

    In building a sustainable economy a good first step would be to wipe out all the corruption in politics and the major professions. We also need to come up with a new model for banking and money which does not allow abuse and ensures that the benefits of capitalism are shared more widely, not just among the elite.

  • Comment number 14.

    Crash Gordon virtually guaranteed some kind of worthwhile agreement in his press conference with Obama this morning.

    George Soros has weighed in again in a speech he gave to the London School of Economics.

  • Comment number 15.

    'because they blame our allegedly poor regulation of our banks for the woes of the world'.
    Is it still allegedly? Sounds like this piece came from Gordon himself. He still will not admit our regulatory system failed? Come on Robert. Be your own man.
    Politicians who have to battle an election soon will try to put out the fire quickly without structural reform. We all know this. To actually achieve a new system would take too long for them. Gordon may bankrupt us.
    Nationwide 7.9% for a loan above £7500, Barclays 8.9% and HSBC 9.9%. The banks are happy. If mark to market gets shelved they will be the best investment in town for may be a year until it blows up again.

  • Comment number 16.

    "many would argue that the truly optimal use of such a supra-currency would be as a unit of exchange for a new global fund, or mega bad bank, into which all banks' toxic assets would be transferred."

    No wonder the only ones that only want this are the UK and US

    any other reasonably prudent economy would be mad to accept this proposal.

    I ask you, would you accept that everyone that lives on your street should pool their debts and everyone chip in to pay them?

    If Brown thinks the world will accept this he truly has gone doolally

  • Comment number 17.

    As you say there is a glaring inconsistency in the current debate. Excess credit caused the crisis but renewed credit is needed to get out of the crisis! Meanwhile the real economy, its factories, offices and consumers are in good health. The problem is only with the intermediary financial sector. This suggests that the root cause of the crisis has not been accurately identified. We need to consider alternative diagnostics. One is that credit has not been excessive but just right as otherwise rampant inflation would have resulted which during the NICE decade it hasn't. A probable cause is that massive increases in productivity have reduced the wage and earnings content of GDP requiring credit to fill the gap. But this credit is not repayable from future wages ... for more see

  • Comment number 18.

    "A return of near-normal credit conditions would probably be significantly speeded up - to the benefit of all trading nations - if the bad bits of banks were in effect transferred to the balance sheet of the world as a whole, rather than weighing down the balance sheets of individual nations".

    Ah.... so you mean that the stupid US and UK bankers should be able to palm off all this ridiculous toxic stuff not just on to their national governments, but on to the citizens of China, Japan and Germany, and then further on to all the citizens of the world?!!!

    I can see how that will help US and UK tax payers but crikey.... talk about moral hazard.....

    If I was China, Japan and Germany, the only basis on which I'd agree to this is, very much like the UK bail out deal, if an absolutely enormous fee was charged to the US and the UK for this 'arrangement'.

    And if you're going to consider this then maybe you should seek solutions in history, go back many generations, exchange debt for equity by effectively doing land deals (....when was Alaska purchased by the US?).

    Perhaps the US could sell some of its sovereign land to the three countries to settle the debts.

    And maybe the UK could get rid of those ridiculous territories that trade in money and just serve the needs of the very rich around the world.

  • Comment number 19.

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

  • Comment number 20.

    Good idea no.11. Why don't we just sit back and let the entire economy collapse - I'm sure you life will be wonderful when you can't drive your car, power your home or cook your dinner.

    Let's just go back to the stone age, shall we?

  • Comment number 21.

    "... conspicuously solving one problem by creating another long-term problem: debt that needs to be repaid"

    Yep. That's it really. But we're still not grasping it, are we? Few people, including Mr Peston from what I read, are drawing a strong enough link between historic and future economic growth as an indication of just how dire is this situation.

    All that debt we now hold was stoked up on the assumption that aggressive economic growth was and would be, by and large, infinite. We'll always be able to earn more and repay more, because our profits and salaries would rise inexorably. Take out another loan. Pay it off tomorrow. Jack up the loan higher. Pay it off tomorrow.

    Then, the markets twigged that infinite aggressive economic growth relied upon, er, infinite cheap energy. As we approached the height of this crisis, funnily enough oil was changing hands at nearly $150 per barrel because the markets (including speculators) could at last see that we don't have enough of the damned stuff (at cheap prices) to keep fuelling infinite, aggressive economic growth. The word went out. Oh hell; stop lending; they'll never be able to pay it back; indeed, with oil at that price, some folk and businesses were already buckling and couldn't pay. STOP LENDING! And, so, the money markets seized.

    So, it remains to be seen how we now pay down debt running at 400% of GDP without returning to the notion of infinite, aggressive economic growth. However, as soon as we press the re-set button on that idea, watch the oil price.

    As the oil price rockets back into the stratosphere (it's nosing up now as tiny, incy, wincy bits of confidence emerge here and there around the world), let's see how long we're able to keep up our payments on that 400% of GDP debt overload. My guess: not long.

    So, we're in a fix guys. We've had one hell of a cheap energy party and now we've got the mother of all hangovers. It'll take more than a few politicians meeting in London and huffing and puffing about this and that to solve the world's (cheap) energy crisis and so enable the US, the UK and others to set about paying off that debt mountain.

    Sadly, few politicians understand this matter, so steel yourself for a very long twilight.

  • Comment number 22.

    "a new global fund, or mega bad bank, into which all banks' toxic assets would be transferred."

    You don't say who the "many" are who would argue for this. Let me guess! They are all sitting around holding, and looking for somewhere to dump, their "toxic assets".

    Toxic assets, by the way, appears to be the new euphemism for "potentially bad debts". But either the debts will be repaid or the debt will have to be written off. The problem, for debts are not yet repayable, is that no-one can be sure which will be the outcome; and so the market cannot set a "price" for the debt.


    So why not let the banks etc simply hold onto these "assets" and then write off those that ultimately default? Why is it so imperative that they sell the debt before it matures?

    If the answer is that the debts would otherwise have to be written off, then anyone taking them off the banks' hands would be giving them money for nothing and the idea that some, or all, of the money given to the banks will one day be recovered is pie-in-the-sky.

  • Comment number 23.

    You miss something from the real world .With all the risks and toxic debts the best way to earn profits without any risk is to add to the interest payments made by the vast majority of responsible UK borrowers . Credit card rates and o/d/business loan rates to excellent customers has gone through the roof . With bank rate so low the cost of borrowing are usurious for the put upon ' non-toxic' consumer .

    A good reason why new labour will be annihilated at the next election . Further burdens on the only people not responsible for this mess.

  • Comment number 24.

    For as long as we hold the quaint idea that we have an automatic right to a certain level of wealth we're not going to go anywhere. When the population at large is indebted to a greater or lesser degree it's hard to see how anything will change.

    There is no end to the things people will vote for themselves as long as Someone Else is paying. Look at the benefits culture, the welfare system, the topical issue of MP expense accounts and so on.

    No matter how we play this out there's going to be a lot of pain for a lot of people. It's not a question of stopping the pain, it's a question of who is going to get it in the shorts.

    It's said that democracy is like two wolves and a sheep voting on who gets eaten for lunch. I wonder who the sheep will be?

  • Comment number 25.

    No.16 potkettle - why don't you actually try reading the article and engaging your brain? It is the Chinese that have floated the idea of a supra-currency.

  • Comment number 26.

    Toward the end of your 'Sticking Plaster..' blog you say "many would argue that the truly optimal use of such a supra-currency would be as a unit of exchange for a new global fund..." Didn't currencies used to get valued against a old fashioned supra-currency called GOLD...? Would this look like 'The Gold Standard' then?

  • Comment number 27.

    #20 GHBRich

    Perhaps Skid427's point is a wee bit more subtle than that.

    Allowing the paper-IOU-money-cum-credit economy to flounder (which it seems will be its natural course anyhow) and focussing on the real economy would not necessarilly bring the world to an immediate end.

    We survived in days of yore on growing things, hunting, making things, foraging and barter. The money economy hasn't existed ALL through the history of human existence.

  • Comment number 28.

    A lot to talk about, but can't help thinking it's the wrong people doing the talking. They can discuss the desired outcome all they want. In my opinion politicians have a nasty habit of coming up short with, amongst other things, "unintended consequences." I doubt we need anything like that in the next 12 months.

    If Sarkozy is genuinely wanting the German economic model, surely he's got to walk? I mean is he really going to get it?

  • Comment number 29.

    What people need to realise is, where the source of the debt that is crippling our economy resides......central banks. That's right those privately owned institutions that lend money to our governments at, wait for it........interest. This is not the only way that a banking system can be run. Indeed the American war of Independence was fought predominantly for the very reason of extracting themselves from the Central banking systems of England/Europe, which enslaved them through debt.

    The long term solution is for the government to remove the privately owned central banking systems and take them 'in-house'. We are at a point were the interest on these debts are becoming unservicable. Which raises the question of who is really running the country? Removal of the current Central Banks will ultimately remove the initial interest that is created when 'printing money', thus reducing the overall lending costs for each respective nation! Does this not make sense? If so why is no-one addressing this issue?

    For a more detailed explanation on Central banking systems please see this link, it may open your eyes a little:

    China are already calling for a world currency and this scares me a lot!

    We are entering unchartered waters, and I believe that this 'crisis' is far larger than many people realise! We are heading towards a One World Government, One World Currency, One World Police Force and Army. This is in effect the beginning of the New World Order.

    See MSNBC News feed here:

  • Comment number 30.

    it's said that "in the land of the blind the one eyed man is king" it's just not true - cyclops is flouncing around the world at our expense trying to save his political skin - he hasn't got a clue about what to do and is in denial. he should take the hint and go. after all he's fundamentally responsible for the mess the uk finds itself in as much of the light touch approach to regulation and encouragement provided the banks came on his watch at the treasury! i predict a trivial pursuit question of the future along the lines of "name an unelected prime minister" we'll probably have to drag him out of No. 10 but he should do the honourable thing and resign

  • Comment number 31.

    I have not made a significant purchase for many months. I will be clear of all debts by the summer. I will then have to accumulate some kind of financial buffer, so that I can feel remotely secure about my short-term financial situation.

    The pension plans which my wife and I have in place have probably fallen significanlty in value. We will have to invest considerably more in these.

    Our future tax take will creep ever upwards, although governments will attempt to deceive us that it is not happening.

    I am not buying, and, outside of necessities, will not be buying for quite some time.

    Millions upon millions of people like us will not be persuaded by any bogus show of solidarity from G20. We're in trouble and we know it. We're lowering the hatches in order to survive.

  • Comment number 32.


    How do you think the real economy funds itself? If we allow what you call the 'paper-IOU-money-cum-credit economy' to flounder, even well run companies that produce valuable goods (I'm talking here about auto manutfacturers, power generation companies and the like) will be unable to fund themselves to continue their operations. This will mean that they cannot pay their suppliers (who will in turn go bust), cannot pay their employees (who will in turn face severe hardship) abnd ultimately will not be able to continue making the goods that our lives depend on.

    Your last sentence is correct, and is exactly what I meant by going back to the stone age. We could return to hunting and foraging, but, as a student of history, I wouldn't recommend it! It is easy for people such as yourself and Skid to make these rather silly off-the-cuff comments, but I don't think you would actually want to live that kind of life!

    If you do, then I agree we let all the banks go bust.

  • Comment number 33.

    20. At 12:00pm on 01 Apr 2009, GHBRich wrote:
    Good idea no.11. Why don't we just sit back and let the entire economy collapse - I'm sure you life will be wonderful when you can't drive your car, power your home or cook your dinner.

    Let's just go back to the stone age, shall we?

    Im sorry, but what do you think is going to happen? The economy that allows us to have all these wonderful, pointless, ego massaging, time saving, keeping up with the Jones'es gadgets is broken.

    Some people understand this and are trying to do something about it, others are standing in the way and must be shown the stupidity of their views. You Mr Rich are a dinosaur, and if Darwin is to be believed will be rendered impotent by your Blase Gene.

  • Comment number 34.

    we can fix the banking systems immediately
    but all the monies been sucked out already
    and the victims spat out like an ex-partner

  • Comment number 35.

    @25 GHBRICH

    It doesnt really matter who proposed it.
    I take it that you agree with the policy.

    So would you be open to your entire street pooling debt and everyone chip in.
    If so let me know where you are I could do with a whole street sharing some debt.

  • Comment number 36.

    In trying to strike the right balance between smart regulation and over-regulation, leaders in the U.S. and Europe could do worse than to look at the experiences of the emerging market nations joining them at the table in London.

    Brazil is a good example:

  • Comment number 37.

    I think there are many countries that would love to see something else replace the dollar as the world`s reserve currency. China and Russia have made some rumblings but just how far are they prepared to force the issue. This would be an absolute disaster for the US and they would fight this to the bitter end.

    If China is prepared to take on the US the question becomes "What Will be the Next World Reserve Currency?" Here`s an article which attempts to answer the question.

  • Comment number 38.

    "A return of near-normal credit conditions would probably be significantly speeded up ... if the bad bits of banks were in effect transferred to the balance sheet of the world as a whole".

    I like this idea very much simply because it will affect every nation, indebted or otherwise. By spreading the pain of the recent bubble across the entire globe, prices should stay down. If one nation cannot afford to pay any more than any other for oil (for example), the price should stay at an affordable level.

    Do I think this will happen? Not a chance in hell! No country capable of riding out this recession without racking up absurd debts would volunteer to share this pain, no matter how noble such a sacrifice would be.

    We can't sweep bad debt under the carpet by simply taking it off the institutions which created it. It will remain a very large elephant in the room for a very long time, and no amount of suicidal government expenditure will make it somehow go away.

  • Comment number 39.

    22 & 23

    Get with the program! There is no such thing as a 'toxic asset' any more. Now they are to be known as 'heritage assets' which naturally implies that they are not to be seen as 'bad' or 'worthless' any more, but instead implies that there is some residual value to them and things aren't as bad as they seem.
    As I am sure you will all agree, this is a wonderful idea and one that frees the banks from any taint of stupidity or greed and will allow them to continue on their merry way.
    You do all understand and agree, don't you?

  • Comment number 40.

    ahoy mateys and happy Financial Fools Day

    I was beginning to wonder if Robert would report on the G20 or ever escape from the M and S boxer shorts dept

    Today's blog seems to moving in the right direction in at least summarising many of the issues and admitting that this is a long-term problem

    Not clear to me where he's trying to take this, but perhaps it's part of the 'it's all very difficult and we can't give you any answers right now, but we have to be serious and responsible' mantra that Brown may come out with tomorrow

    Personally I suspect that we are at the start of a PERMANENT and HUGE change, when one takes into account PEAK OIL lurking in the background ready to leap at any sign of a weak recovery, climate change and the inescapable fact that a global population that is nearing 7 billion is unsustainable using current mainstream ideas about consumption of resources etc

    We need some radically new ways of addressing these huge challenges; a global currency might work and could be combined with things like a reform Cap and Trade Carbon voucher system, to replace the current travesty that has been shown to not work and line the pockets of unscrupulous companies

    I also wonder if it would be possible to write-off/cancel all of the potentially bad debt; it would require some kind of complex international agreement and could perhaps be done through the auspices of IF/OECD/World Bank; ultimately a lot of this stuff is Ponzi and also potentially a carousel; if the 100s of trillions of $ of CDSs etc were cancelled, frankly a lot of it would just balance out....

    But there's no chance of any of that happening at the moment

    As noted in my earlier post, it's a lovely day for the Financial Fools Demo in the City and large numbers of demonstrators are collecting; it's a shame that the police and media want to hype up the potential of violence when the vast majority of demonstrators are peaceful, intelligent and willing to get off their butts and try to help build a better society; these people - mostly young - represent our best hope for the future - anyone who can should tune into Radio Five Live and hear the interviews

    one small but good thing that seems to be emerging from this economic and environmental crisis is that more people are avoiding the TV-induced stupor that grips most of the populations of the 'advanced economies' and trying to do something

    good luck at the Bank of England and Bishopsgate

    I think most of us are now protestors against Corporate Capitalism, whether we know it or not! And a lot of us have a rather longer-term viewpoint than our politicians, as we tend to think about our grand-children's quality of life - so 50 or even 100 years hence - rather than the date of the next election - a horizon of 1-4 years in most places

  • Comment number 41.

    Yes, a cure not a plaster would be fine. To find a cure we need a sound analysis of the root causes of the current economic crisis. Somewhat belatedly even Barack Obama and Gordon Brown are talking now about the need to clean up the interrelated worlds of offshore banking, tax havens, hedge funds and a global shadow banking system. It is difficult to ignore a root cause of the current crisis, if the problem has a size of approximately 11.5 trillion dollars, the amount of dollars stashed away in tax havens.
    Strangely enough the BBC has been very, very quiet in commenting on tax havens and offshore banking.
    Why such a shyness in debating tax havens?
    A collection of informed articles, links and academic resources, addressing this 11.5 trillion dollar challenge can be found at:

    Enjoy the reading and do your own research!

  • Comment number 42.

    I'm trying to work out just what working together means!

    We borrowed stupid amounts of money to inflate our own housing market, buy imported goods and have nice holidays... presumably we are looking at countries that didn't do this to chip in more than us help out (it's the same as GB is doing domestically with savers)

    So are we going to ask China (who have made good money from our carelessness) to push some of the people released from poverty over recent years back to the provinces and maybe they could do this my giving up what little human rights gains have been made over the past decade, to help us out!

    Or are we going to try and punch above our weight again by being the braggart in the bar buying the rounds and waving our wad about....

    It's not happening is it... here or anywhere - we keep trade barriers down and support our own economies and see what shakes out. It's the only solution acceptable to the votes of the world

    We have already been conned in to using Keynesian economics on the basis that the money will be spent many times over in the economy. Can anyone think of what they can spend their money on and 100% of it stays in the country – I can’t, we are a NET importer of goods!

    As for the banks, set the rules now! Isn’t this the Gov of action after all, doing nothing is wrong isn’t it! Once the rules are set we can start getting on with our lives – good or bad………

  • Comment number 43.

    Mervyn King is being dangerously complacent saying that regulation does not matter because the financial community has no money to speculate with.

    He is still making the hole deeper and bigger through his (and his MPC's) actions. His economic eduction is fundamentally flawed. His economics is wrong!

    The essence of my criticism is that there are huge numbers of wrongly priced assets (and liabilities) around the UK (and the World). They are wrongly priced because nobody dares sell them. They will not sell them because the bookvalues of these assets (and liabilities) are huge compared to the price that the market will pay. This problem locks up the market in deep freeze and nothing can improve until and unless these resources become liquid again.

    He may think he has 'fixed' the banking system but he has done so, and is continuing to do so, at huge damage and cost to the real World and any chance of any kind of real recovery.

    And of course there can be no recovery (read my previous postings for a definition) unless and until a rational level for interest rates resumes ( at least 4-6 percent)

    Mervyn please resign today! (almost anybody could do a better job!)

  • Comment number 44.

    set the people free
    instead of setting up a toxic-indentured-slavery bank for the slave masters owners

  • Comment number 45.

    #30 datamrf,

    Go to the top of the class. Am truly in need of some humour and that was worth paying for!

  • Comment number 46.

    Robert as you know and i appreciste you disagree with my theory what the banks are doing now that they have got their bailouts in being smug and putting even more pressure on good business which are unnecessarily being forced to bankruptcy,all they are interested in is repairing their balance sheets so that in a few years they can justify paying thmselves lots of big bonuses again believe me Robert a senior banker has more or less confirmed this to me.What is needed Robert is for the Goverment to appoint Sir Digby Jones,Richard Branson,Michael O Leary and Sir Alan Sugar to the boards of these banks with two briefs 1st to get the banks to start lending some of the billions they have received to businees which are fundamentaly sound but have cash flow difficulty and 2nd to get rid of the public schoolboy culture from these banks.When Robert is someone going to stand up and say that banks are only 1 off the tools needed to keep the economy flowing they are not and never will be the economy,they need to realise this Goodwin thought he was god he wasnt and we have got to tell these Braces bridage they are not important in building the economy they are only a tool

  • Comment number 47.

    Oh btw GHBRich

    The Chinese didnt propose a global currency.

    They suggested using a different currency as world reserve currency.
    You can bet your US dollar they meant their curreny

  • Comment number 48.

    the BBC says some City workers are trying to taunt protestors by waving 10 pound notes at them

    a couple of years ago it would have been 50 pound notes at least

    sums it all up really; the bankers seem to have less money in their pockets than the average uni student

    save a banker today? maybe not

    the Climate Camp is now established in Bishopsgate; good luck with your protest against the EU's carbon trading scam

  • Comment number 49.

    Businesses objective should be to give medium to long-term customer satisfaction.
    It is, of course, a necessary constraint to make a profit to continue in business, but that should never be the primary reason for a business.

  • Comment number 50.

    The problem with paying bank debts out of a world currency is that there is no fiscal authority to back it up. So the currency would either have to be capitalised by debt backed by individual countries (a bit like the IMF), or we would need the (pretty unthinkable) prospect of a world authority with the power to raise tax.

    Dani Rodrik has posted about the risks of global regulation and I have written about how regulators should take into account market irrationality. I'm not sure to what extent the two arguments should overlap, but the FSA should definitely be looking at excessive risk appetites - or, in the present environment, excessive risk aversion - when setting policy.

  • Comment number 51.

    The link I posted earlier should have been this one:


  • Comment number 52.

    The governor of the Chinese Central bank last floated the idea that the US Dollar should not remain the world's reserve currency. This has merit as the US Dollar value against other currencies of late is erratic, which causes China's vast reserves to fluctuate wildly which is unsettling for prudent central bankers (remember those?). The paper did not explicitly push forward the Yuan as the new reserve currency but the undertone was clear.

    As Brown and Obama on the starting line have been soaking up the crowd's adulation before settling down in their starting blocks, unnoticed by the other competitors China slipped off and is now haring down the back straight. They have just conducted a currency swap with Argentina designed to remove the reliance on the US Dollar. Additionally China has signed a string of agreements in recent months promising to lend yuan to South Korea, Malaysia, Indonesia and Belarus if needed to respond to a financial emergency.

    Monday's agreement calls for China and Argentina to exchange 70 billion yuan, or US$10 billion, of their currencies for use in trade and investment, eliminating the need for each other's companies to buy dollars to pay for transactions. They said details have yet to be worked out, leaving it unclear how and when Argentine companies might get yuan.

    "Dollars will not be needed for trade," the Chinese Communist party newspaper People's Daily said.

    "This measure will play a positive role in improving regional currency stability, preventing financial risk and reducing the spread of the crisis at this extraordinary time when the financial crisis is growing daily."

    See here for full article:

    It really is refreshing to a nation's leader putting forward new initiatives and then implementing that idea into reality almost immediately. Don't think that will catch on here in the UK, do you?

  • Comment number 53.

    A business leader, if I can call him that, reported to me this morning that in his view the recession had bottomed. I had a good laugh.

    Well, people can believe what they want as this remains for the moment a free country.

    In my view after the bank bust last autumn nothing will be the same again. Those who think it will `return to normal' are sadly mistaken. They of course are the bonus-getters, the tax-eaters and the political class who don't like this austerity thing as it cramps their cool, expensed style.

    To them and their ilk the G20 is the quick-fix, the necessary visit to A&E to patch them up after an unfortunate tumble from their collective snowboard. Then tomorrow, duly repaired, they can grab some beer and go out to catch a wave or whatever they do when the servants are cleaning their apartments and preparing lunch.

    Sorry guys, but the muck is in the turbine and is being generously redistributed around the world in a seemingly arbitrary fashion.

    We are going to have to embrace change and some of that change is going to be fundamental to our culture. Either we rise to that challenge or we spend the next thirty years trying to avoid the inevitable and blaming Thatcher or Blair for our inconvenience whilst the poor have to eat their own shoes and live in discarded cardboard boxes.

    To refer back to a previous time, to older, better focussed demonstrations: ` run forward, comrade, the past is behind you.'

    PS. Doesn't the MOD keep an eye on who buys their old armoured kit: yet another case of failed government regulation?

  • Comment number 54.

    A super commodity underpinning economies is the holy grail of economics. In theory it can exist but in reality it never will. The nearest we have come to it has been property based securitization. Perhaps the real question for the G20 is how can we make securitization work better and more reliably than it has done? I feel they are going to throw away the baby with the bath water.

  • Comment number 55.

    Good analysis on the realities up until the point where you hope that our toxic debts are shared globally. There the line will be drawn - even if it was "globalised" the 'originator' nations would be tied to their originating losses. Meanwhile we monetise the debt with QE and seek to inflate it.

    The idea of surplanting the dollar with a new unit of exchange is years away - re-denominating for the world's capital markets will take years and need the US' cooperation wouldnt it? The Chinese would need to tread carefully lest they undercut their own dollar denominated assets. All of this is into the long grass.

    The real issue for now is : what is the lending capacity deficit in the UK, and elsewhere for that matter. What is the shortfall between credit demand and credit supply? What is the Lending Panel Bank Forum telling our government on this score. It is precisely this important question that this Forum was designed to answer. Does anyone know? Or, is the answer too unpalatable to share with us? Until we have this number, how can you get down to real solutions !

  • Comment number 56.

    Can G20 persuade us to use our meagre savings, or take out loans, to buy new cars, new electronic gadgets and all the other things we learnt we must have?
    Not on your nelly....
    Whatever these talking suits tell us, my instinct tells me to make like a small burrowing rodent, dig my hole deeper and prepare for the coming Ice Age.

  • Comment number 57.

    @31 Zootmac

    You and me both. I have cut my spending down to essential food purchases, utility bills, housing and travel to work.

    My company made 11% of their workforce redundant three weeks ago and the outlook is gloomy.

    I am just trying to get by, so saving as much as I can, like you, seems very sensible. We cannot be the only ones too.

    Short term I can survive, but much beyond that I am in uncharted territory.

    It seems pretty certain now that GB won't be in Number 10 after the next election, so I can't take much of what he says terribly seriously. So all I can do is save and wait until an election is called...and then see what happens. So when Robert says that Mr King (BOE) says governments have time to make their choices, I think what he really means is that the political climate will change in about 12-18 months, so everybody stop doing stupid things, and wait and see what someone else thinks.

    About the only thing that GB and I have in common, is that I too am likely to loose my job in the next 12-18 months.

    I am not sure the G20 will solve much, the overwhelming sense of self interest from each and every party is far too great to achieve a global and lasting agreement.

    We are all going to have to take a big drop in our standard of living, work for longer, save more, borrow less and generally have a pretty miserable time of it for the next five years, whoever is in power.

    No foreign holiday, no new cars, no big TVs, basic Christmas's and the biggest one of all a big fall in the price of housing. It's going to be very painful and we won't like it one bit.

    Sorry to sound so gloomy, but we need a lot of the Keep Calm and Carry On spirit, perhaps they should start reprinting the old poster and get it stuck up again!

    Clearly changes need to be made to the Financial System, banks cannot be allowed to endanger entire economies if they fail (and make no bones about they should be allowed to fail). When a US bank failure can be allowed to impact the US economy (as large as it is), you surely have reached the point of no return.

    We need our leaders to make brave decisions, which will probably be unpopular and lead to them being voted from office. But the decisions need to be made none-the-less.

    None of the choice made so far seem to be anything other than the sticking plasters. Come on politicians look beyond the end of your noses...and re-election dates.

  • Comment number 58.

    "The big point for me is that many of the business leaders and bankers to whom I talk have little ability to forecast business conditions beyond the end of their noses.

    And the reason is that what they see from government heads is quick fixes to our economic woes rather (than) structural reform."

    At last Robert, at last you've finally spotted it.

    The whole economic world has gone completely wrong, and the US and UK are hell-bent on leading the charge back to the way it was just before it all went wrong.

    Then they think that they can start laying down new rules and regulations ..... just when it will be completely impossible to do so, and we all set course for groundhog day.

    If they take us back there they will have no choice but carry on in the forlorn hope that the train-wreck won't happen again.

    They MUST act now and lay down a clear set of rules for bankers and the like (your structural reform!!) so that the whole financial sector know exactly where the limits of stupidity are and the penalty for breaching them.

    Then, and only then, should governments get further stimulus packages up and running, in the sure and certain knowledge that the money will NOT be flushed down the big white telephone marked "BONUS FUND".

    Too much has already been wasted; most of it probably hidden from us mere mortals apart from the odd bonus or pension package that slipped through the secrecy filter.

  • Comment number 59.

    Errrrm. Robert. One assumes you have some smarts. To suggest that ANYTHING involving Brown can cure anything if frankly preposterous. The man is an idiot with an overweening ego and a personality disorder.

  • Comment number 60.

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

  • Comment number 61.

    Them as think the present problems might continue for a while probably have it right, when things start to turn around as they surely will we will wake up to find the new expensive handicap put in the way of our recovery will be very highly priced energy and minerals.
    Guess who is buying up the worlds mineral resource with the money we gave them to provide us with several years worth of landfill.

  • Comment number 62.

    It all goes back to the same word - confidence

    Fiscal stimuli are just a waste of time if all you are doing, as Britain is, is buliding up debt and, by your actions, encouraging businesses and consumers to build up their own debt even higher at a time when's it already too big.

    It may hurt (and I speak as a recently unemployed person) but the economic cycle must be allowed to turn. In time prices will return to a point where people want to buy again. Confidence will come back

    You can't buck the market, as someone once said.

  • Comment number 63.

    Sadly the world of politicians is inhabited by people who are incredibly short-termist (to the next election) and think they have to deliver the greener grass on the other side. Crash is the ultimate short-termist and is seeking only to save himself by re-inflating the bubbles that caused all the trouble.

    The reality is that everyone throughout the world has been at fault - the bankers who lent madly, the borrowers who never thought about repaying, the regulators and politicians who failed to oversee things properly, the savers and exporters in Germany, Japan, China etc and the consumers in the USA and UK.

    Re-balancing of the world economy has to happen with the spenders spending less and saving more and the savers/exporters spending more. People like Crash are simply delaying that process so that the cost/pain is spread out over more people and more generations.

    Instead of madly seeking to re-inflate the UK housing and consumer bubbles, the Government should be picking the "winner" industries of the 21st century and pumping resources into them in order to create world leader products that can be exported and help the re-balancing exercise. If these industries are also "green" there might be an environmental benefit as well.

    However, Crash, with his denial philosophy, is part of the problem and until he goes there is no hope of finding the solution. Lets have an election.

  • Comment number 64.

    I was hoping that Somali Pirate would have been able to navigate the Thames this morning.

    We could do with an informed view of proceedings.

    Talking of which, RP has been absent to. Are you locked in the RBS building?

  • Comment number 65.

    Sutara, Somali_pirate, Jd6969_peston, and most importantly the rest of you,

    Click, save and read this,

    [Unsuitable/Broken URL removed by Moderator]

    Rome my friends is burning whilst Gordon brown Fiddles.

    What do we need? A julius Caesar man of the people for the people type change, this will only happen through trail.

    What will happen? I think you can all see it on the horizon, as agent Smith says,'It is Inevitable'.

    'Everyone fights their favorite enemy' - R

  • Comment number 66.

    Any new gold standard would ultimately fail for the same reason that it did before, thus why the US Dollar became reserve currency at all (along with the US' then surpluses). Further, to jump opportunistically on the IMF and Special Drawing Rights as a dumping ground for western bad debts seems more than a little unfair on the third world and emerging economies. And let's face it, the failure of regulation was more than just alleged, it was and is real.

    A more dramatic action is needed, perhaps the scrapping of CDS's and their wild west ilk. No one will have the courage to do that, though. So bail out, watch the cost come to us twice, as consumer and tax payer. All the while, is there going to be any pruning of the governments overheads, i.e the vast and utterly unsustainable numbers of non-productive sector headcount. Of course not, because (and I've said it before) turkeys don't vote for Christmas, but they might just vote for Gordy if he promises not to axe their jobs. This could be a key difference between parties come the election.

    Meanwhile, over at Bank, how come at 12:30 it was peaceful and friendly
    (I was there, be-suited), yet as I walked away Police were bringing in an evil looking armoured vehicle (based on a US GM pickup, with extensive body armour, dark blue bearing Metropolitan Police decals), and mysteriously half an hour later we get reports of increasing disturbance. Why do that, when nothing, repeat nothing, was going on and all was amiable. I am deeply suspicious of the motive fro bringing in that vehicle, which had to be antagonistic.

  • Comment number 67.

    You might be forgiven for expecting the banks to have learned their lesson. Instead they show every sign of behaving like the unreformed alcoholic who can't wait to get home and crack open another bottle. The US Financial Accounting Standards Board is proposing to relax the "fair value" rules requiring them to quote the true worth of "securitized financial instruments that are designated as available for sale" (Financial Week website). In other words, banks would be excused from writing down the true value of falling assets. This move, surprise surprise, is supported by the banks. Is this a nauseatingly hasty return to the oxymoron of self certification, or am I missing something?

  • Comment number 68.

    Suppose that - at some time in the future - economies get back into an equilibrium? It's not a fanciful notion as economies always have done, even if the damage caused by long delays in recovering from recessions have often been heavy. When that dust settles won't the UK public sector be left holding an huge shareholding in UK banks that'll be worth very many billions of pounds?

    So far, no one seems to be taking account of the fact that UK taxpayers are now major owners of quoted UK Banks. Shareholdings that can be sold in the market without fuss and in regular tranches. Those Bank assets are worth a great deal more than they cost at the fire-sale prices they were bought for. Eventually those Bank Shares can be sold to pay-back national debt and to invest in public services or tax-cuts. Which would you prefer?

  • Comment number 69.

    Potkettle - you are wrong (yet again). See the below from the Stephanomics blog:

    "Last week Governor Zhou made those views public, in a short paper laying out the case for a new international reserve currency based on the IMF's internal unit of account, the Special Drawing Right. "

    Please please please don't post again until you have the faintest clue what you're talking about.

  • Comment number 70.

    #35 GHBRich

    Actually, I know exactly how the current economy has been funded over the last few years. I can even remember Harold Wilson assuring us that the pound in our pocket wouldn't be worth any less. (Err, it was worth less, actually). And the point you don't seem to get is that I am not joking.

    People and industries will need to adapt to the new economy, whatever shape it takes. And it would be unwise to expect the new economy to be anything less than a very different shape to the status quo, or recent past.

    And the "big company" thing. We don't necessarily need "big companies". There's a lot of wisdom in the view that big companies and globalisation assisted our problems.

    My proposition is for local level cooperative ventures. I suspect many would prefer to trust people in the nearby streets or villages working cooperatively to produce green energy, or grow food, or raise sheep, compared to some huge globalised organisation which, even if it is British, probably won't be for long. (Call that 'protectionist' if you will, I call it 'survivalist').

    The live on credit, "here's a cheap loan for you" era is gone. It's time to change and to adapt. Or, as Thegrimcrim suggests, risk extinction.

    The future for money? Who knows. Perhaps hyper-inflation, civil riots or war, will make it worthless. My view is that the mammoth amount of bad debt will have to come out of the system in one way, or another, and a lot of people somewhere are going to end up becoming a lot less wealthy as a result. In fact, this already seems to be coming to pass.

    Whatever the future for money - you can't eat it and it doesn't burn for very long, so it's not that useful for heating either. Do you really think that if war or serious civil unrest breaks out, you'll still be able to get cash out of an ATM, or do "online" banking over the internet?

    Back to the stone age? Call it that if you will. Many realise that the quick reward, short-term, fast buck, easy credit economy is dead - all bar the shouting.

    National and regional economies have radically changed as a result of many influences historically, war, pestillence, technological advance, political advantage and many others. Don't for one moment fool yourself into thinking that the status quo, or recent past, are the only alternatives. Humans can be very creative and ingenious.

    Modern economic theory is just great but, despite it, our modern economy has lurched from crisis to crisis and, this time around, the planet's ecological systems are a lot less able to prop it up.

  • Comment number 71.

    'But as Mervyn King, the Governor of the Bank of England, has pointed out, governments can afford to take their time over the detail of reconstructing the banking system and reining in the activities of less-regulated firms, such as hedge funds.'

    Is that a worryingly flawed analysis?

    Won't we have deflation as the public won't spend until THEY see the problems are fixed? What is a risky loan for banks in the near future - GM? Isn't that basically what went wrong in Japan? Lack of transparency and a failure to communicate throughout the economy?

    In fairness there may be dispute over what is a broad brush stroke and what is detail.

    But a G20 is only going to provide words and the public and the markets and business want to know where the "beef" is.

  • Comment number 72.

    Big Bank Drank
    Watch your back
    We keeps big tank
    We keeps big bank
    I mean what they think

  • Comment number 73.

    Ah, supercurrency, like the old ECU (European Currency Unit).

    Won't fly.

    Inflation is the only way out of this mess.

    The Investment Banks need to be permanently separated from the Retail Banks.

    Mortgage backed securities should be disallowed.

    Banks can issue Bonds to raise funds but they should have to keep the loans and Mortgages on their own books.

    That would stop them from lending to just anyone !

    Investment Bankers should be partners in their firms (with unlimited liability whilst in office).

    Just a few suggestions which will be ignored.

    Oh wait a minute how about a nice 40% rise for the whole Public Sector (not just MPs), that would put enough extra money into the system to kick start the failed Private sector economy.

  • Comment number 74.

    #29 Mantis569

    The Bank of England was nationalised in 1946 and is therefore not privately owned. So if as you say "the long term solution is for the government to remove the privately owned central banking systems and take them 'in-house'" then Britain is way ahead of the curve!

    The link you provided goes to an article about protests against the G20 summit. The same site has a rather confused article about central banking systems, which I assume is the one you meant. That article seems to assume that only the central bank can create money, and that this can only happen when they lend to the government. That is not in fact correct. Only the central banks can typically issue banknotes, but banknotes are only a small proportion of the money in circulation. Most money in circulation is created by the commercial (or "fractional reserve") banking system.

  • Comment number 75.

    2 countries with lots of dosh are China and India.
    We need their was our cash spent on their stuff that made them rich and us poor.It was their cash they lent to us for the credit boom which they do not seem to want to keep on lending to us.
    Nobody buys much of our stuff....the only thing we have are our cities and our countryside.
    Strikes me that one way of getting money flowing in is to liberalise residency in UK for anyone from anywhere with say 250k or more to come and live here say with a 5 year benefits ineligibility as part of the deal.

  • Comment number 76.

    It is not just the big exporting countries that cause the imbalance but also oil and other commodities. The issue seems to be quite clear in that these absolutely huge imbalances have to now be corrected with a lot of pain being shared throughout- after all we have the consumers led by the US being unable to pay and the producers having a potential huge bad debt (in business terms). In business if you supply customers with goods that they cannot pay for- on your own head be it - so Germany, Japan and China are right up to their neck in it. Germany is the better placed as it is in the euro zone and the strength of the Chinese is that they are playing a very long game. What this means is that there is going to be some great pain and the politicians are trying to minimise the impact on their own people and that is understandable and turns them towards protectionism.

    The big thing therefore that has to be done is to reform the IMF and make it less of a US/European puppet and to get each country to make sure its banks separate into banks that lend money and investment banks that gamble- investment banks must be forbidden from borrowing- they must not be allowed to use leverage- bank lending is to support real trade. That will put back some of the benefits of hedging but I am sure a mechanism can be developed to get some insurance companies to support hedges in for example currency and agricultural commodities where that helps trade in goods and supports the production of food throughout the world.
    What else can the G20 achieve- I think they have to put down a marker that in future the IMF will have some teeth and that the richer countries in the world will genuinely help poorer countries to develop sustainable economies- not to convert them into slave economies having to sell cash crops to repay debt.
    Not a good place for any of the leaders of the G20 to be- almost impossible to see what they can agree on when a reality check is that their citizens will have to suffer some real pain- they will try and get some respite for their own people at the expense of others.

  • Comment number 77.

    #52 Excellentcatblogger

    I haven't read Mr Zhou's paper, but it seems that either the BBC is wrong, or you are. The BBC reports stated that "Mr Zhou said the dollar could eventually be replaced as the world's main reserve currency by the Special Drawing Right (SDR), which was created as a unit of account by the IMF in 1969."

    Doesn't sound like the yuan to me.

  • Comment number 78.

    Gordon Brown has better make some very good and loyal friends at the G20 summit, because the UK stands to fall harder and faster than almost anyone else. Why? Because we more than anyone have predicated our entire economy on fake money, financial 'products', retailing imported goods and on the service sector. How can we ever think of addressing our deficit when we simply aren't supplying things that the rest of the world wants to buy? Who will trust our financial sector, the City, ever again? Yet we have become over-reliant on the financial service industry to the detriment of almost anything else. If we can't make goods other nations want to import from us, then we will never pay back the loans our Govt have taken out in our names. We will slide down the credit rating scale until our Govt bonds and gilts become more worthless than the paper on which they are printed. Weak Labour Govts in the 70s allowed unions too much power, and Thatcher's revenge was to smash our industry to pieces, turning us all into shopkeepers and financial lackeys. Blair looked the other way whilst the rest of our industry leaked out to the East, and now we're in a situation where we have no means to produce goods that anyone else wants. Thatcher made us worship money and now this has proven to be a false idol. Our road to Hell may be shorter than anyone thinks.

  • Comment number 79.

    It's highly appropriate that all this hype occurs on April Fool's Day. To quote Mr Brown: "We are within a few hours of agreeing a global plan for economic recovery and reform."

    Sorry oh great leader, but I'd sooner believe that the moon is made of pale green cheese. Whereas we all know that the apparent colour is caused by optical diffraction.

  • Comment number 80.

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

  • Comment number 81.

    Just as an aside, in case anyone is interested, the DMO managed (amongst all this hullabaloo) to get away a £3.5bn gilt auction today which was 2.23x subscribed, at a yield of 2.6%.

    Makes Robert and other's slightly alarmist reaction to the "failed" gilt auction last week seem a bit silly really.

  • Comment number 82.

    @60 post me a checque for £20,000 then theres a good chap

  • Comment number 83.

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

  • Comment number 84.


    "And, yes, if my future proseprity depended on your financial well-being, as China's prosperity depends on America's well-being, I would try and help you reduce your debt burden, as China seems keen to do"

    Honestly - you are living in cloud cuckoo land. There is no guarantee that China would ensure its long-term prosperity by doing this, hence it will not happen.

  • Comment number 85.

    #12 Sutara says it how it is and how I have been trying to say but with better words.

    It's 'us' down here the everyday person who needs the help not the Banks and it never was. If we don't survive all businesses are kaput!

  • Comment number 86.

    Well my last comment doesn't look like it's going to make it past the moderators for some reason.

    It's probably the 77 page pdf file I linked to by Martin Armstrong called 'It's just time'. Gunna take them a while to chug through that one.

    It was for all you regs on these forums (And Mr. Peston though I doubt he reads these).

    Thpe it into google i'm sure you'll find it a very interesting read folks.

  • Comment number 87.

    No.70 Sutara

    At last, an interesting and well-put argument, rather than a rant about how Gordon Brown and the bankers have destroyed the world!

    I must admit that your proposition has its attractions, although I fear you are slightly in danger of throwing the baby out with the bathwater. Capitalism as we know it is wounded, but not dead.

    Surely there is a middle ground between the credit-fuelled bubble economies of recent years and a return to a feudal-style barter economy? Don't forget that capitalism and the advent of mass-production that credit permitted has raised living standards beyond all comprehension over the last 200 years.

  • Comment number 88.

    @69 GHB

    Zhou is hardly going to openly say "Use our currency" now is he.

    Tell you what take some of your own advice and when you understand how to code your language politically then post again. Unless and until you do that, dont bother.

    Quite clearly events are far ahead of what you can keep up with.
    Keep beleiving the party line old son and you'll be fine.

    PS no cheque for 20K yet, is it in the post

  • Comment number 89.

    The Chinese are right. A world currency is a good idea. It complements the idea of free trade. Without it countries can avoid the discipline imposed by free trade, by manipulating the exchange rate of their currency, as the BOE is currently doing by allowing the pound to depreciate.

    At Breton Woods there was a movement in this direction by setting up a kind of world wide ERM. This worked well until it broke up under the stress of an IMF dominated by the US and intent on imposing right wing economic dogma on countries whose economies were too weak to withstand its rigors.

    This would not have gone down well with the 1997 vintage Gordon Brown, who would not give up the UK's ability to drive coach and horses through the European single market by joining the Eurozone. Still Gordon is a changed man these days, but I expect he will tamely follow Obama, who is bound to block the creation of a US dollar substitute.

  • Comment number 90.

    The Banks and other financial institutions are certainly in the process of "getting their house in order". Unfortunately they seem to see part of this as clamping down on existing customers, and this process is not helpful to businesses trying to work their way through this difficult period.
    I have a small business which designs and manufactures electronic equipment which we sell around the world. We were around during the last recession and noticed then that banks tend to react to things in a knee jerk sort of way. This time is no different. We use a factoring service (and have done for many years) which helps us as a small manufacturer in that we can borrow against invoices as soon as they are issued. This allows us to build stock and keeps the cash flow smooth. It also gives us bad debt protection.
    Our factoring company has recently come to us with a new contract which increases our basic service charge by 75% and increases the discount charge by 1%. As a long standing customer who has used the service responsibly and within the contracted terms (unlike many others), I am appalled that they should do this, and also by the threatening way in which they try to get us to sign up.
    We have been good customers and factoring really works for us, but I am now forced to spend time looking into other methods of funding the business. It was working fine, both for us, and for them. It seems that they have such a short sighted approach to business and appear to be completely blind to the fact that we are(were) customers.
    They have absolutely made it harder for me to do business, and they have certainly lost me as a customer. I am one of those who is in the fortunate position to say no, I am concerned for those who cannot.

  • Comment number 91.

    #27 Sutara & #20 GHBRich

    Yes - thank you Sutara - perhaps I was using overly inflamatory language but essentually what is wrong with us taking a step back, using less, abusing less, and learning to fend for ourselves again???

    Only a couple of gernarations ago we were using inginuity and 'Digging for Victory'. Those from this era still with us must be aghast and perplexed by the monumental **** up we've created.

    If we have an almighty shock and cut off the wasteful excesses of public sector and private arrogance, the world wont end, the sun will still rise tomorrow. We would survice, but hopefully with a hugely humbling lesson.

    I'm still a Fundamentalist Capitalist, but I have morals and believe in laws for a reason and those who fail to manage said laws ans implement them, or fall foul of them, should be the first out of the door.

    Quite literally Chaps - Bring on the Revolution!!!!

  • Comment number 92.

    "In other words they would benefit from reconstructing their economies so that they consume more of their income, because that would help us to reduce our indebtedness."

    This is so not true. Even if they increase their consumption (and they are doing all they can to encourage that), the effect is to internalise their spendings. Somehow, I doubt that the Chinese are too keen on tons of haggis or the Japanese on tons of Yorkshire puddings !! Failing that, what is there of *real* value that Britain can sell to them to (partially) equalise the trade balance ??

    "So even though they won't take lectures from us on how to manage their economies, because they blame our "allegedly" poor regulation of our banks for the woes of the world, it would be in their interest to help us mend our ways."

    And there is no "allegedly" about the poor regulations either. Those who say so are in total denial since the facts are not merely before their eyes but they have their noses rubbed in it too !! As for helping to mend our ways, I suppose the Chinese could send over a few squads of their Public Security Bureau (police) to take out the errant bankers *AND* politicians *AND* civil/semi-civil/uncivil servants to Trafalgar Square and shoot them !! That should encourage the others to be more diligent in their given tasks !!

  • Comment number 93.


    Who do you think pays the taxes to pay for public sector pay?

    If you and your chums were paid an extra 40% it would involve taxes going up by huge amounts to support it.

    Also for every 10,000 you receive( given usual time in office) it will cost a further 210,000+ in pension to give you your 60th entitlement.

    Given that the rest of us had to cancel final salary arrangememts when the cost rose to more 30% of wageroll, its a bit rich for you to expect us to use dwindling resources to pay you more.

    + from todays annuity rates.

    Oh, just realised, are you Jackie Smith in disguise?

  • Comment number 94.

    #75 An acquaintance of mine suggested a less savory means of getting the money in. He suggested that London could become Bangkok-on-Thames, which will boost tourism significantly !! He made this suggestion after discovering that a certain ministerial spouse was watching porn at taxpayers' expense !! Goose, gander and all that.

  • Comment number 95.

    The notion of we or us or society is not entirely helpful.

    It is demonstrated in some of the responses.

    Individuals are doing what is right for them. Some are saving more, trying to pay down debt or build up their pension fund or build a cushion in case things go wrong. This is right for them but doesn't necessarily help the small business, the big business or the mrsblogss13c2 cleaning business. Which is right?

    Likewise many have commented that 'we' should let the indebted go to the wall. Some effectively say....they made their bed, let them lie in it. That might be a correct response but it certainly isn't necessarily 'we' making it. Indeed, 'we' may be able to find ways to help individuals manage personal crises. For example, re-negotiating terms of mortgages. Which is right? Where does it stop?

    Many of the contributors bemoan low interest rates (I too). For many individuals, this has been a disaster. Nevertheless, another group has benefited and perhaps has been able to re-mortgage for the long term at sensible rates. Which 'we' or 'us' matters more or most?

    When we talk of Canadians or Germans or the US or the Chinese, how does that get converted to 'we'? If you look at the last seven years, 'we' couldn't coordinate interest rates, for example leading to imbalances.

    'We' might think it right to reduce consumption or our use of fossil fuels. Tell that to the millions of individuals elsewhere in the world who would like a refrigerator or a car or access to a regular electricity supply.

    What is right for any one of 'us', may not be the same as what is right for any one of 'them'. In fact, it almost certainly won't be.

    Having said that, as individuals trying to co-exist in groups there has to be a framework of rules and protection from the potential bad behaviour or excesses of the few. There needs to be a safety net for the weakest in our midst for example.

    So, my hope for the future, is that there can be agreement about the rules required for a 24/7 global financial environment. How these get implemented locally will be another matter altogether.

  • Comment number 96.

    75. At 3:04pm on 01 Apr 2009, onward-ho wrote:

    "Strikes me that one way of getting money flowing in is to liberalise residency in UK for anyone from anywhere with say 250k or more to come and live here say with a 5 year benefits ineligibility as part of the deal."

    And how is la-la land today? Crowded out with baseless assumptions I reckon. Why not decide to tax ginger or very tall people a bit more? How about we clear all the people out of our national parks and into cities with over 1M people, but stick all the welsh in Brum, say. That will help house prices and create some pristine wildernesses for your wealthy new arrivals to commune with. Simple, eh?

  • Comment number 97.

    The G20 Summit is aptly taking place on April Fools Day because it is a total waste of time since they are faffing about trying to find ways of bolting the stable door when the horse has long since left the field. These are the people that have led us to economic apocalypse and thus do not have the answers to get us out of the mess. Unfortunately, this just fuels the agitators, none of whom have any answers either, only anarchy and/or naivity.

    The really scary thing is that we face a vacuum, but what churns my stomach is people like Brown talking about a return to morality and devaluing the importance of this virtue. Yes we do indeed need more honesty, integrity, morality and so forth, but do not want to be lectured by those who have failed to show such leadership when it mattered.

    We are facing a new era and, to my mind, it could go one of two ways. We could descend into anarchy and chaos as - make no mistake - the capitalist system as we know it is broken beyond repair and no amount of fine tuning will make a jot of difference. The situation is akin to Noah and the ark and how he was mocked until the water was up to the noses of the masses and it was too late. The reality will hit home when America and Britain leads us all into bankruptcy and the public sector employees realise that their gold-plated pensions are no more than gold dust.

    Alternatively, we can grasp the nettle now and seek to elevate the level of human consciousness, compassion, sensitivity, other-centeredness to create a society based on contribution rather than production for the sake of financial profit, which has left the world ecologically fractured. Society will need to return to community living, with localised support centres, and the end of widescale migration, travel, consumerism and so forth. We are truly on the cusp of profound social change. It is the end of the material world as we know it. As Michael Lerner argues in Spirit Matters, welcome to the age of Emancipatory Spirituality.

  • Comment number 98.

    I think decapitation is a bit strong but this little discussion tells it like it is and how everybody is dancing around the issue like scared rabbits......

    The Banking System is Absolutely Corrupt and Perverted and Subversive right at the top. DEAL WITH IT by getting rid of the Parasitic Idiots who treat you quite rightly as the Fools they are proving you to be. The alternative is only that you continue to suffer even more, even more catastrophic losses rather than starting to make fantastic gains with a ....... well It would be a new Team in Place, would it, leading you with the Control of Money Honey.

    Dump the Old Guard, they have no Idea how to Play the Better Beta Game.

    Capiche ...... or do you want IT in BIG LETTERS SO YOU CAN HEAR BETTER?

    Strewth, Wise up for Goodness Sake.

    England expects, Robert, .... Stop pussy footing around, there's a good chap.

  • Comment number 99.

    Is it not time to give China and India a leg up to the "top Table"

  • Comment number 100.

    55 Excellent catblogger and 77 GHBRich

    of course almost all discussion on this point is rendered fairly moot by the knowledge that China could cripple the dollar any time it wanted to and yes it wold hurt China to do so, but it would hurt the US a lot more.

    Yes on the face of it, China is pushing the IMF SDR, but we'd be foolish to assume that is all they are after.


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