Verdict of the Week
With the prospect of deflation rearing its ugly head; interest rates plummeting further towards 0% and the country plunging further and deeper in recession, it is rumoured that Gordon Brown is considering quantitative easing in an attempt to alleviate the situation. To the uninitiated, this is what failed financial strategists call printing money.
The idea is to increase the amount of money in circulation, to try and get banks lending again, so businesses will have more money to invest and people will have more money in their pockets to spend in the high street and that all this will kick start the economy. This sounds all very good and well, except that are obvious risks, notably hyper inflation and devaluing the pound, either of which would be counter-productive and plunge the country further into crisis.
On top of all that, nobody really knows if it will work or not. One thing is sure, historically speaking, whenever it has been tried before it has never really worked. From the early Spanish conquistadors, through Weimar Germany, Zimbabwe and Japan, the results of printing excessive amounts of money did not work, in fact it was disastrous in each case.
Gordon Brown seems not to have grasped the simple fact that the credit crunch, the collapsing property market, share prices in freefall, manufacturing industry on its knees, falling commodity prices, the subprime scandal and the entire banking industry on the verge of imploding, were all fuelled by the greed in the financial industry which had become reliant on using debt as a means of driving growth and the economy.
Surely by using quantitative easing to alleviate this mess, is making exactly the same mistake all over again and just throwing good money after bad. A recession is the economy’s way of telling us that we’ve been doing something wrong and that is why we are suffering this pain. It seems like the financial equivalent of a drunk with a blinding hangover believing that by drinking more it will solve his problems. The only difference is that instead of calling it a total piss-up, he terms it quantitative easing.
If the banks have made too many bad investments then they should be allowed to go bankrupt. It is therefore it is they agreed and that is the price that you have to pay in an honest economic environment. The good parts of the banks will be bought up by private equity and the bad parts should be allowed to disappear.
Certainly, the economy would suffer terribly for a year or two and it would be a bloody mess, but the good bankers would keep their jobs and the bad ones would not. The economy would survive and would emerge newer, fresher, leaner and fitter that before. To carry on shoring up the big fat bloated style of banking that landed us all in this mess in the first place, is tantamount to a long slow, financial genocide of an unprecedented scale.
The eCourt Verdict is that quantitative easing amounts to a “more of the same” philosophy, and surely, common sense dictates that is the exact opposite of what's needed just now. The Government, the economy and indeed, the British public as a whole, need to pay off their debts and build up their savings, because the economic model we've been following is just not sustainable.
So propping it up is just postponing the inevitable and building up a debt that will destroy a generation. Worse still, quantitative easing would frighten off foreign investors who would lose faith in the currency, and the economy which in turn could lead to hyperinflation, provoking an even worse slump.