It's the economy, stupid

I must be stupid because I just don't get it. Everyone from Chancellor Darling to Bank of England governor Mervyn King is saying that in order to 'kickstart' the economy and climb out of depression, we need to somehow get the banks to start lending more money.

Banks will always lend money when they think that by doing so they will make a profit (ie. that they will get their money back, with sufficient interest). The only time a bank is not willing to lend money is when it thinks that the loan will not be fully repaid and that the money will therefore have to be written off as 'bad debt'. So, if the government succeeds in pressuring banks into lending money when the banks are reluctant to do so, surely the result is likely to be an increase in bad debt. But isn't that exactly what got us into this mess in the first place - too much money being lent to people who proved unable to make the necessary repayments?

Clearly, I must be missing something.


1 comment:

Defend Council Tax Benefits said...

Its more simpler than that, Governments need to stop cutting back, employers need to employ people and cease increasing the price of their goods to allow people to buy goods that generates income for banks to lend money to people in employments and businesses and not suffer bad debt.

The government in not cutting back allows businesses that supply government and local authorities can continue to employ people that in turn become consumers, by keeping prices low and not making the mistake of putting up prices as well as manufacturing not putting up prices, the economy will recover.

The key here is manufacturing companies and retail need to stop putting up prices, this is what stifles recovery, greedy chains and retailers asking too much for products slows sales down.

iPhone is a good example, why pay £500 for something that is worth no where near that amount? If companies want more customers, they need to be asking realistic prices, sell more and they can make a profit and order more from the manufacturer. The manufacturers need to look at a longer term process of sales and R&D recovery, stop paying high dividends to share holders who should understand that just because they invest, they should not expect to get as high a return but expect a lesser more sustainable return on the investment.

Greed is one of the hidden factors, it is placed at the wrong end of the supply chain, if the consumers appetites are not wetter, then you have no consumption of goods, no sales means no production and no production is bad because investors and banks suffer, unemployment rises...

The full picture is a bit more complicated but the fact remains that the keys to regrowth lay with employers and manufacturing and government.

Posted by Defend Council Tax Benefits 3 July 2013 10:50