Osborne unveils £140bn scheme to kick-start stagnant economy

[Cheib]

What the idiots that run this country should do is set up a state development bank like many other countries have. The Germans is called KFW and has been around for decades....http://www.kfw.de/kfw/en/index.jsp

We finance the investments in the future made by German citizens and SMEs to ensure that the German economy remains strong, as well investments in municipal and social infrastructure to advance structural change and the common welfare

Still it's good to see they are addressing the mortgage market. The problem for the banks is that they used to be able to securtise their mortgage books which they can't do efficiently now and also that it uses up more capital than it used to to lend money especially over 75% LTV. So the regulators have amde banks be mroe respnosible which is good but that has put the rates up so BoE needs to get involved.......

It's a mess. Still.

[98elise]

Four Litre said:

mondeoman said:

Four Litre said:

Havent we done all this before??? They give to the banks - banks either keep it, pay bonuses, restore balance sheets etc. Makes no difference to the man or woman in the street.

why not just do this in reverse? Give it to the people in terms of a voucher that expires so you have to use it to pay off loans/Finance or buy something - ultimately this goes back to the banks anyway and hey presto people have more money to spend again...

Everyones a winner yes??!

Too bleedin obvious!

On a serious note - what is wrong with my cunning plan???

Printing adding more currency (in what ever form0 simply lowers the value of the currency. Effectively you have just taken a bit of everybodies money, and handed it back the them in a voucher, that them must spend.....even if they can't afford to do that in the first place.

Currency has no actual value, the value is contained in the goods and service people provide to each other. Currency is just the means of swapping those goods and serives without the need to directly barter. you can print as much as you want, but the "value" of it decreases.

[Otispunkmeyer]

Four Litre said:

Havent we done all this before??? They give to the banks - banks either keep it, pay bonuses, restore balance sheets etc. Makes no difference to the man or woman in the street.

why not just do this in reverse? Give it to the people in terms of a voucher that expires so you have to use it to pay off loans/Finance or buy something - ultimately this goes back to the banks anyway and hey presto people have more money to spend again...

Everyones a winner yes??!

Yeah but you watch samsnung and sky post bumper profits as the knobbers in this country all go out and get 50inch plasmas and sky HD instead of paying off loans or starting businesses.

[Murph7355]

johnfm said:

The banks, as last time round, are given a 180 degree conflicting remit:

1. Increase your capital adequacy;

2. Lend more.

Not sure both can happen at the same time chaps.

Absolutely.

Everyone kick the banks for needing bailing out *because they were lending money to people they shouldn't have*.

Now lend more money.

Has a magic pool of massively credit worthy people suddenly been shipped in from somewhere?

That magic pool of people needs to be created first, then lend on the more stringent criteria.

This means businesses need to be created/grow to get more people earning more money. And in today's climate, that's tricky (which is exactly why the govt aren't tackling it in any meaningful way).

Maybe they should channel *all* the money into business growth...but then you still have the problem of who is worthy and who will simply default. Maybe tax cuts would also help...but then you have a welfare cheque to write so that can't happen either.

[Apache]

There is a pool although it's not magic, its called small businesses who are dropping like flies because the Banks have stopped their lines of credit

[turbobloke]

No use at all, the pass mark is too low.

[Four Litre]

Yes you may get a proportion of the feckless buying Sky HD and Range rover sport bodykits, however surely whatever gets purchased goes back to the bank through the transaction, most companies run debts which would be paid back indirectly.

I am aware that priting money will just add to inflation, but just electronically increasing the banks balance sheet surely does this to an extent but really only does one thing - increase the balance sheet. Its like filling the engine with oil but leaving the gearbox and diff empty - proper PH analogy there!

Just appears the BOE only see this crisis as manageable from a banking perspective, just repeating the same process and expecting different results. We all know by now thats not going to work.

[Apache]

98elise said:

Four Litre said:

mondeoman said:

Four Litre said:

Havent we done all this before??? They give to the banks - banks either keep it, pay bonuses, restore balance sheets etc. Makes no difference to the man or woman in the street.

why not just do this in reverse? Give it to the people in terms of a voucher that expires so you have to use it to pay off loans/Finance or buy something - ultimately this goes back to the banks anyway and hey presto people have more money to spend again...

Everyones a winner yes??!

Too bleedin obvious!

On a serious note - what is wrong with my cunning plan???

Printing adding more currency (in what ever form0 simply lowers the value of the currency. Effectively you have just taken a bit of everybodies money, and handed it back the them in a voucher, that them must spend.....even if they can't afford to do that in the first place.

Currency has no actual value, the value is contained in the goods and service people provide to each other. Currency is just the means of swapping those goods and serives without the need to directly barter. you can print as much as you want, but the "value" of it decreases.

Yes, what four litre has suggested is quantitative easing but done differently.....seems to be anathema to those in power though as it gives some leverage to their common enemy, the joe in the street

[CoopR]

Apache said:

There is a pool although it's not magic, its called small businesses who are dropping like flies because the Banks have stopped their lines of credit

There is a huge pool indeed.

Some good examples are in Aberdeen there are hundreds of specialised engineering SMB's working in the oil industry which are profitable, very profitable! But because they often rely on a handful of large jobs, plus net 90+ terms from big oil companies, they are tight on cashflow which means they can't invest in growth without lending.

Will this cash actually get to these companies and other similar UK companies? It didn't seem to help last time...

[Fittster]

Will giving the Banks more money to lend if SME's aren't interested in borrowing?

"The British economy will stall this year and will not fully recover until UK businesses stop "stashing the cash" and start investing again, leading economists have warned.

The Ernst & Young ITEM Club will say in a report out on Monday that growth will be just 0.4pc this year, half the 0.8pc rate forecast by the UK's official forecasting body, the Office for Budget Responsibility.

...

ITEM said that business investment grew by just 1.2pc last year, despite a corporate cash pile now worth more than £754bn, or 50pc of gross domestic product.
"Business investment has picked up nicely in the US but UK companies remain extremely risk averse, which is sapping strength from the economy," said Peter Spencer, chief economic adviser to ITEM which uses the Treasury model to calculate its forecasts"

source

[fido]

98elise said:

Printing adding more currency (in what ever form0 simply lowers the value of the currency. Effectively you have just taken a bit of everybodies money, and handed it back the them in a voucher, that them must spend.....even if they can't afford to do that in the first place.

That's the problem as i see it. QE or printed money, tends to flow to the most productive assets, and in these economic climes this means commodities, reckless lending (including non-viable businesses which only feature in Grauniad articles aimed at the evil banky people) rather than businesses which can generate future growth. We're essentially re-inflating the same bubble that caused problems in the first place. The BoE should stick to their original assymetric interest rate policy (target inflation of 2%), continue to trim down public spending AND cut taxes. What is the point of having rules, and then breaking those very rules?

[Murph7355]

"The Bank of England is to offer money to high-street banks to kick-start mortgage and small business lending to prevent loans being rationed for many families and entrepreneurs, the Chancellor announced."

I agree on the SME angle - though I'm afraid SMEs have as much potential to get things wrong as feckless mongs do. Because the people running SMEs are just ordinary people

But the quote from the article specifically notes mortgages and lending to families who've had those credit lines "rationed" too. Have they (or indeed the SMEs in reality) suddenly become more credit worthy? Or are we prepared to now accept greater risks in this respect? And if/when those loans turn into "toxic debt" and the market wobbles again, then what will we do and who will be held accountable...?

As johnfm noted, we seem to have two competing objectives. Rather than the govt putting taxpayer money at risk, why not ease up on the capital adequacy rules IF businesses lend to whomever the target audience is the govt want lending to? But at the same time get out of this habit of bail outs - if a bank gets it wrong, it goes down.

Trouble is, the govt are saying lend, lend, lend. But are taking no accountability for who should be loaned money, except that it shouldn't be anyone who cannot afford it. Which will be a rapidly shrinking pool unless people have prospects to earn more...

[Apache]

Murph7355 said:

"The Bank of England is to offer money to high-street banks to kick-start mortgage and small business lending to prevent loans being rationed for many families and entrepreneurs, the Chancellor announced."

I agree on the SME angle - though I'm afraid SMEs have as much potential to get things wrong as feckless mongs do. Because the people running SMEs are just ordinary people

But the quote from the article specifically notes mortgages and lending to families who've had those credit lines "rationed" too. Have they (or indeed the SMEs in reality) suddenly become more credit worthy? Or are we prepared to now accept greater risks in this respect? And if/when those loans turn into "toxic debt" and the market wobbles again, then what will we do and who will be held accountable...?

As johnfm noted, we seem to have two competing objectives. Rather than the govt putting taxpayer money at risk, why not ease up on the capital adequacy rules IF businesses lend to whomever the target audience is the govt want lending to? But at the same time get out of this habit of bail outs - if a bank gets it wrong, it goes down.

Trouble is, the govt are saying lend, lend, lend. But are taking no accountability for who should be loaned money, except that it shouldn't be anyone who cannot afford it. Which will be a rapidly shrinking pool unless people have prospects to earn more...

Which is why, even a fiscal muppet like myself, could see that raising taxes and restricting growth would never help the economy 'grow' you need to give people the ability to spend, but not by credit, to get things moving. That can only mean less tax and more pay. Trouble is that goes against the grain for politicians

[Murph7355]

Apache said:

Which is why, even a fiscal muppet like myself, could see that raising taxes and restricting growth would never help the economy 'grow' you need to give people the ability to spend, but not by credit, to get things moving. That can only mean less tax and more pay. Trouble is that goes against the grain for politicians

100%.

But taxes cannot be dropped unless there's an even bigger drop in govt expenditure.

And it's not politicians causing the real problem there. It's those who go up in arms when expenditure cuts are tabled.

More pay comes from stimulating business...but that's not straightforward in today's market.

[Murph7355]

Cheib said:

What the idiots that run this country should do is set up a state development bank like many other countries have. The Germans is called KFW and has been around for decades....http://www.kfw.de/kfw/en/index.jsp

We finance the investments in the future made by German citizens and SMEs to ensure that the German economy remains strong, as well investments in municipal and social infrastructure to advance structural change and the common welfare

Still it's good to see they are addressing the mortgage market. The problem for the banks is that they used to be able to securtise their mortgage books which they can't do efficiently now and also that it uses up more capital than it used to to lend money especially over 75% LTV. So the regulators have amde banks be mroe respnosible which is good but that has put the rates up so BoE needs to get involved.......

It's a mess. Still.

We want a govt body to decide who to lend to etc...?

[Cheib]

Murph7355 said:

Cheib said:

What the idiots that run this country should do is set up a state development bank like many other countries have. The Germans is called KFW and has been around for decades....http://www.kfw.de/kfw/en/index.jsp

We finance the investments in the future made by German citizens and SMEs to ensure that the German economy remains strong, as well investments in municipal and social infrastructure to advance structural change and the common welfare

Still it's good to see they are addressing the mortgage market. The problem for the banks is that they used to be able to securtise their mortgage books which they can't do efficiently now and also that it uses up more capital than it used to to lend money especially over 75% LTV. So the regulators have amde banks be mroe respnosible which is good but that has put the rates up so BoE needs to get involved.......

It's a mess. Still.

We want a govt body to decide who to lend to etc...?

No what we want is effectively a not for profit bank to lend at low rates. KFW borrows money in the international capital markets and lends it to German SME's.....it borrows that money at very low rates because it is explicitly guaranteed by the German government.

The Govt would need to start it, inject some regulatory capital (peanuts in the grand scheme of things), give it a mandate and that's it.

[DieselGriff]

Apache said:

Which is why, even a fiscal muppet like myself, could see that raising taxes and restricting growth would never help the economy 'grow' you need to give people the ability to spend, but not by credit, to get things moving. That can only mean less tax and more pay. Trouble is that goes against the grain for politicians

This is my thought (despite having a reasonable A Level in economics), I would have thought a tax cut of £70bn would do more to bring growth and so improve everyone's wealth than any amount of loan\QE.

[Derek Chevalier]

Cheib said:

Still it's good to see they are addressing the mortgage market. The problem for the banks is that they used to be able to securtise their mortgage books which they can't do efficiently now and also that it uses up more capital than it used to to lend money especially over 75% LTV. So the regulators have amde banks be mroe respnosible which is good but that has put the rates up so BoE needs to get involved.......

Why does the BOE get involved?

[NorthernBoy]

Apache said:

There is a pool although it's not magic, its called small businesses who are dropping like flies because the Banks have stopped their lines of credit

That's one way to look at it. The other view is that ridiculous business projects were funded, despite lacking merit, in the past as banks fought for market share, disregarding the business fundamentals. We now have a return to sanity, with hopeless "entrepreneurs" being told to develop their ideas into a sensible business plan before being funded.

let's face it, a bank is not going to walk away from a profitable proposition, they are just no longer lending to monkeys with a barrow and a dream.

[Apache]

NorthernBoy said:

Apache said:

There is a pool although it's not magic, its called small businesses who are dropping like flies because the Banks have stopped their lines of credit

That's one way to look at it. The other view is that ridiculous business projects were funded, despite lacking merit, in the past as banks fought for market share, disregarding the business fundamentals. We now have a return to sanity, with hopeless "entrepreneurs" being told to develop their ideas into a sensible business plan before being funded.

let's face it, a bank is not going to walk away from a profitable proposition, they are just no longer lending to monkeys with a barrow and a dream.

I was referring to situations such as those CoopR responded to earlier