Comments on: Banks to lend to government

By: Ralph Musgrave

Ralph Musgrave — Tue, 06 Jan 2009 22:58:57 +0000

Government lending to banks at 12% with banks then lending to others at 4% or so is not quite as daft as it sounds. This is because (if I’ve got this right) the private banking system can effectively print money, i.e. lend several times its reserves and capital base. I.e. private banks will lend about ten times what government originally lent to banks, which after expenses, might leave banks with a profit.

By: Blank Xavier

Blank Xavier — Tue, 09 Dec 2008 20:51:00 +0000

I may be wrong, but it seems to me, taking an overview, all this borrowing of money by the State and then spending of money by the State represents a further extension of the State into our private lives.

The State is borrowing private money, paying it back with tax and spending that borrowed money.

Why not just *not* borrow the money and let people invest it however they want? that money would all be invested – it does not require the State to borrow it for this to happen.

By choosing to be the agent which consumes that part of the finite amount of lending, the State is superceeding our private, individual choices – those of the lenders and of those who would have borrowed but now cannot – and pays for doing so by taxing us! which further restricts out freedom to do as we please.

Almost all State action, one way or another, consumes to one degree or another, from the supply of *choice*. There is a finite supply of choice. Choices can be taken by us, individually – which is freedom – or those choices can, by one mechanism or another, be taken from us and be made by the State. That is not freedom.

By: emma2000

emma2000 — Tue, 09 Dec 2008 20:12:44 +0000

For everyone to understand this all we need is just one newspaper headline saying:

Government lends to banks at 12%

Expects banks to buy bonds at 4%

Lend to mortgage holders at 2%

This is not possible and you don’t need a degree in economics to see that. Can’t you get the Mail to publish this.

By: Bazman

Bazman — Tue, 09 Dec 2008 19:12:12 +0000

Why not just let all the banks go bust. The government set up their own and then ‘privatise’ them? Worked for the railways, shipyards, telephone, roads etc. Free money! Have money for having money! Genius.

By: mikestallard

mikestallard — Tue, 09 Dec 2008 16:53:02 +0000

1. The EU imposed Basel I and Basel II. I am not myself sure what part the EU played in introducing the FSA either. I suspect rather more than meets the eye.
2. Mr Cameron’s speech this morning on government borrowing and on cutting back the State was excellent and it addressed this very problem. If the State wasn’t so greedy, then the government’s borrowing from the banks would much less severe. He also told us how very dangerous borrowing by the State actually is. That, he said, is why a general election is now urgent.

By: Not an Economist

Not an Economist — Tue, 09 Dec 2008 16:00:22 +0000

Because they disagre with it.

For one, I was reading Samual Brittain’s website the other day and he seems to be in agreement with much of what the govt is doing. And he is a well respected political/economic commentator.

Also, look to America. The same profiligacy in monetary matters is evident there. Firstly in the behaviour of Greenspan as Fed Chairman for most of the last 10 years and now Bernanke who thinks all of America’s woes can be cured by monetary inflation.

Secondly, I guess there are elements within this govt who genuinely think that a society in which the state had increased control over the economy would be a better place. And because they don’t understand what has happened to bring this crisis upon us, they would argue that the crisis is essentially one of market failure and has therefore strengthened their position. (I don’t include Samuel Brittain in this camp though).

Thirdly – hubris. And its about time they had their fall.

But the issue that intrigues me more is why the electorate seem to be falling for it all. An opinion poll I heard about this morning puts the Tory lead at around 4% – despite all that is happening. If anything proves that Turkeys don’t vote for Christmas this has to be it. Indeed in this instance they seem to be wrapping themselves in the bacofoil and stepping into the oven all on their own accord.

By: jean baker

jean baker — Tue, 09 Dec 2008 12:06:20 +0000

For increased labour unionist control and pofiteering ……

By: Lola

Lola — Tue, 09 Dec 2008 10:32:03 +0000

Look, none of what you say is rocket science. The logic is irrefuteable. Many other commentators are pointing out the same contradictions. And given that there are clever blokes in Government and the Civil Service this must be evident to the Government.

So the question begs itself, why are they contuing to pursue this flawed policy?

By: Ian Jones

Ian Jones — Tue, 09 Dec 2008 09:43:02 +0000

John,

You miss out the ultimate solution to the Governments debt problem and its called “quantatative easing” aka printing money to buy outstanding debt.

Its only a small step between using the printed money to buy existing debt to buying new debt to give the Government the ability to “create” demand or even lend directly to housebuyers through their new banks.

This is a socialists dream!!!!

Reply: Please see earlier post which describes this

By: Stuart Fairney

Stuart Fairney — Tue, 09 Dec 2008 08:04:58 +0000

So for us simple souls, if I read this right, the government master-plan is to

1. Borrow more from the banks
2. Insist the banks maintain a higher reserve against lending

And having themselves taken some of the cash they could loan, and further made other lending more difficult by insisting on higher reserves, the banks then have to “lend more” Hmmm….. Again a tiny flaw in the logic seems apparent.

Doesn’t this incidentally give the lie to the whole concept of the Keynesian fiscal stimulus as there will be no aggregate increase in cash in the economy, it will just be seized by the government and spent less well by bureaucrats on special interests.