Coffee House

The Bank of England panics and misses the point

27 February 2013

Wonders never cease. I awoke this morning to hear that the Deputy Governor, Paul Tucker, had announced that consideration should be given to the Bank of England setting negative interest rates. Whatever next?

Anyone who had seen our current fiscal and monetary predicament, outlined in detail in my Centre for Policy Studies report today, is certainly likely to feel bemused.

By international standards British monetary and fiscal policy has been extreme. Interest rates, at 0.5 per cent, are already at their lowest rate in the 300 plus year history of the Bank. The fiscal deficit, at over 8 per cent of GDP, is far worse than during the 1970s crisis and much greater than the Euro problem children of Spain, France and Italy. The euphemistically named ‘Asset Purchase Programme,’ or money printing in plain English, now exceeds £350bn and is proportionately much greater than that of either the US Fed, or the ECB. You would have thought that the economy would be jumping out of its sickbed with such medicine. Actually Britain’s GDP performance is the worst of any G20 country, bar Italy.

When QE was launched the Treasury said it would be temporary, stimulatory and non-inflationary. It has been none of the above.  Inflation has consistently exceeded the Bank’s targets, despite the worst recession in Britain since the 1920s. And the National Debt has increased from £534 billion just 5 years ago to £1162 billion today. In other words, what was accumulated in building and losing an Empire and winning two world wars has more than doubled in just five. And for what? Good schools, hospitals and powerful armed forces capability? Well, in Mr Brown’s imagination, perhaps.

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This well intentioned policy, designed to prop up fundamental fault lines in the British economy, has failed to deliver on almost every metric it was designed for. Despite this, all the Bank of England can suggest is an even more extreme version of past policy. It is like the old Socialist mantra- ‘well, of course Socialism has not worked, because we haven’t had the real thing yet!’

The reality is that policy makers are trying to keep an overheated bubble on the road, rather than tackle the underlying malaise of a public sector accounting for virtually 50 per cent of GDP (up from 36 per cent of GDP in 2000/01 under Blair and representing over half of the economy in seven out of 12 British regions), a desperately poor productivity performance, and an overdependence on finance and property related sectors which are now inevitably in decline.

Worse, this policy has created arbitrary winners and losers. Funnily enough, the winners include the Government, as artificially low interest rates insulate HMG from the imperative of reducing spending, which continues to rise despite George Osborne’s austerity rhetoric; and the indebted, through negative real interest rates.  If the problem was too much debt, it seems bizarre to encourage piling yet more on.

The losers have been the innocents of this recession. The young, who can neither get on the ladder of an artificially inflated property market and who will bear the burden of the enormous debts piled up by the Government. And savers and pensioners, who have done ‘the right thing’ only to see their wealth inflated away and annuity rates decline rapidly.

No, Mr Tucker. Savers, pensioners and the young have had enough.  If Britain is to have any future the underlying malaise needs to be tackled. Supply-side reforms designed to stimulate private sector growth alongside fair, predictable and gradually declining taxes and firm control of public spending are the only long term sustainable choices available. Mucking around with helicopters and negative real interest rates merely delays the inevitable.

Ewen Stewart is a Director of the consultancy Walbrook Economics and is the author of Masking the Symptoms: Why QE and huge deficits are not the cure, published today by the Centre for Policy Studies.

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  • IPIN Global

    Does anyone at the BoE have any idea what they are doing though? Take a look at Professor David Miles for example – in 2009 he claimed “The worst of the housing market crash is now over”, then last year, made the following pair of statements:
    “House prices to rise for years” and “It probably never made sense for there to be 100pc mortgages. There may be no price at which it makes commercial sense for such a loan to be available.” More:–the-banks-dont-understand-the-housing-market

  • pigou_a

    Where do you find these liquidationists? Does neither the Spectator nor The Telegraph have any one who understands macroeconomics or monetary policy to vet these pieces? You just come across as laughably ill-informed. There are hundreds of economics bloggers out there, very elegantly explaining this stuff for free, e.g. Mark Thoma, Scott Sumner, David Beckworth, Lar Christensen, Brad DeLong, in the UK Wren-Lewis, van Reenen and Portes or even the anonymous Britmouse is infinitely better informed than the nonsense published here.

    Many of these bloggers have PhDs and professorships in economics.

    Who am I going to believe, the professionals who have actually understand the difference between the deficit and a stimulus, or a bunch of desperate hacks trying to spin a story?

    The press is rapidly dying. The Telegraph has lost almost 20% of its circulation in the last two years. Do you think that publishing nonsense like for your readers contributes to its decline?

    Ewen – you are going to struggle making substantive contributions to the monetary policy debate if you haven’t read basic articles on monetary policy. For example, Friedman (1968) who famously observed that low interest rates are not a sign that monetary policy is currently loose, but a sign that monetary policy has been tight. Thus the second point in your paper is wrong. I see little point in reading the rest.

  • Daniel Olive

    £534 billion is not the debt ‘accumulated in building and losing an Empire and winning two world wars’. In Year 2005 constant pounds (the % of GDP figures which show this even more are, I will admit, not very useful given GDP growth) our debt peaked (and has now been surpassed) in the late 40s and then declined from just under £750 billion to a low of under £300 billion in the mid 70s. The post war low was in the early 90s at ~£250 billion. A very useful graph for this is at It can be set for current pounds, % of GDP or 2005 constant pounds.

    • LB

      Twaddle I’m afraid.

      They’ve left off the money they owe people for state pensions.

      That’s 5,300 bn according to the ONS.

      Why use GDP? Why not use taxes?

      After all when you take a mortgage out they don’t work it out on the basis of your income (government’s which is tax), and your neighbour’s (what they allow you to keep).

      They’re 14 times geared with no assets they can sell? eg. PS, do you want to buy a used nuclear sub? Going cheap, I need the cash.

      • Daniel Olive

        I didn’t use GDP, I used inflation adjusted money.

        People are not owed the money for their state pensions, as the non-payment of benefits between the old and new retirement ages shows. It is a serious issue, but I was pointing out that the national debt was not the one run up fighting two world wars.

        • LB

          Of course they are owed it. They’ve paid for it.

          What your saying is that you plan to default on paying the state pension.

          It’s just getting the spin in early.

          Look, you can’t have your state pension. We know you paid for it, but its a tax. When you rang up the DWP and they said you were going to get a state pension, they were economical with the truth, and its all Thatchers fault ….

          So the state owes 7,000 bn. The state taxes 550 bn, The state spend 700 bn

          The state is bankrupt.

          So its a bit more than serious. Not paying the state pension/welfare (doesn’t matter about the label), will make lots of people destitute.

          Not reporting the debts, because you plan on not paying it, is fraud. Section 2, 2006 Fraud act.

          So my prediction, they will default. Initially it will be means testing it. ie. The rich and middle pay all the costs, but get nothing.

          Then they will nationalise all private and company schemes, for the public good. You get a promise, and they the default on the promise.

          Key workers such as MPs exempted.

  • Smithersjones2013

    Well this is something of an oddity for Coffee House. I agree with pretty much every word of that!

  • DWWolds

    I doubt whether Mr Tucker will still be in his job by the end of the year. Just think though he was a candidate for the next Governor of te BoE.

    • Makroon

      Oh I do hope so !
      The whole set of gobby idiots should be culled.
      Every day there is another “senior BOE official” mouthing inanities to the press.
      Hurry up Carney and make my day.

      • Tom Tom

        Time for a BEANfeast with CARNEYvore getting TUCKERed Up

  • LB

    And the National Debt has increased from £534 billion just 5 years ago to £1162 billion today


    Yet another deluded hack

    5,300 bn of pensions debt missing.

    • Makroon

      You were doing quite well until this post.

    • Tom Tom
      • LB

        You still don’t get it.

        1. The US is irrelevant. They are bankrupt.

        2. The UK is relevant. The state is bankrupt.

        There are two big issues in the UK.

        The major one is the state and the amount of debt it has run up without assets to pay for it.

        The second is the 40,000 avoidable deaths each year in the UK.

        • Tom Tom

          The Green Bar is Banks not Government

          • LB

            And banks have assets (capital included) exceeding liabilities.

            The government has liabillities with no assets that can be sold to meet the claims.

            UK, 7,000 bn plus of debts. (Present value)

            How is the government going to pay that?

            Taxes raise 550 bn. Spending 700 bn.

  • The Laughing Cavalier

    One really does wonder what planet these officials originate from.

  • RKing

    I would have thought the Bank of England would be encouraging saving and RAISE interest rates to discourage the massive personal debts which Brown encouraged.

    He sound like he’s a Brown thinking dimwit who will get us in even deeper debts.

    I remember previous recessions, Harold Wilson in particular, where it was thought that importing less, enouraging savings and higher interest rates were thought to be the answer but of course the EU dictates our policies these days…….

    We just pick up the bills!!!!

    • Daniel Maris

      The issue is what then happens to the economy – if it nosedives and tax receipts go down, then the question is whether the cure is worse than the disease.

      In Harold Wilson’s era we were still manufacturing a lot. Part of the problem now is how dependent we are on the finance sector.

      • Tom Tom

        We are not dependent on the FIRE Sector. The FIRE Sector is dependent on US. It is a “rent-seeking” vampire squid looking for any opportunity to finance and to create debt-dependency. It has Student Loans, it has Mortgage Debt, it has PFI/LIFT/BSF Debt, and it has Consumer Debt, it has Interest-Swap Products, and a plethora of Synethics designed simply to extract money from the Unwilling and Unwitting. The Sector is vastly bloated and in one sense Overcapitalised in its Claims on Society but in reality grossly Undercapitalised in terms of its Liabilities. Indeed, the FIRE Sector counts as Assets that which the Taxpayer ends up with as Liabilities when the fake valuations of Bankers are exposed. Banks have NEGATIVE EQUITY and are extracting capital from the rest of the economy. It is BLACK HOLE Finance

        • the viceroy’s gin

          This post is simply brilliant.

          Londonistan is a monument to this travesty.

  • UlyssesReturns

    Negative interest rates, QE or money printing, marginal deficit reduction while massively increasing debt, ring-fenced spending on the NHS and foreign aid, increased spending on welfare, disabilty allowances to the able, housing benefit, pensioners winter heating allowances, welfare for immigrants, free houses for the feckless breeders, and mansions for Somalis and terrorists – the list is endless and essentially meaningless. The west continues to labour under the fallacy that cheap money and a return to state-sponsored growth will square the circle of debt and continued excessive spending; well it won’t. We are spending more than we will ever receive in taxes and are continuing to borrow to fund a lifestyle which is unsustainable. When will people and governments get it through their thick heads that individuals, families, cities, states, countries must live within their means just as solvent companies and the fiscally correct do? Anyone who argues otherwise is an idiot.

    • LB

      Quite. The core problem is that the state is doing this by defrauding people out of their pensions. State, civil servants (who cares there, they are responsible), and private.

    • Tom Tom

      The cheap mpney feed is just what the Bankers needed to complete their takeover of the whole society

      • UlyssesReturns

        I have no idea what you mean. Are you seriously saying that Bankers wish to take over society? Which Bankers? Is this like Opus Dei or something else? Are you being facetious or ironic? Are you trying to be clever or is it just a bad day for you? I know plenty of senior Bankers all over the world and not one has ever expressed an interest to me in taking over anything other than another bank. If you want me to take you seriously than say something sensible, interesting or amusing; if you just want to get my attention, please don’t bother.

        • Tom Tom

          I don’t a proverbial about your attention. I am tired of Banks owning Schools, Hospitals and other PFI projects. I think t is time to take banks into public ownership or else remove limited liability unless Bank Directors have All their assets at risk. So you know Senior Bankers – whooppee ! I bet we know some of the same. Most bankers are stupid, ignorant about their own line of business, having modest intellectual grasp of monetary economics – oh, and I include your friends at Goldman and LTCM in that pool. “if you just want to get my attention, please don’t bother again.” Arrogant twerp.

          • LB

            I am tired of Banks owning Schools, Hospitals and other PFI projects.


            And that’s down to the government. They want to hide their debts. They want to carry on spending.

            It’s very simple for the government to solve.

            1. Don’t borrow

            Problem solved.

            Er, apart from the fact they can’t pay their debts.

            • Tom Tom

              You clearly live in a bubble. You seem blithely unaware of GATS –……….our Puppet Governments are there to do what their Puppetmasters want and that is privatisation of public services – that is why GATS was pushed by Britain and USA. It is why PFI exists. You live in a peculiarly 1950s world where Government was somehow separate from the Banking Moloch that brought us Globalisation………….Government is a holding company for financial interests to loot the Taxpayer

    • dalai guevara

      Yes Ulysses, we will not find it difficult to all agree on that. A negative trade balance combined with an unbalanced budget will not lead to nirvana.

      May I add to your list of *idiotic* policies? Why not mention the waste where it actually occurs? Trident, highest energy subsidies that are paid for…sorry to point this out, not renewables, but nuclear, foreign military interventions that have created little in return, continued quangofication of what ought to be done in-house, and finally the sticking to the trickle down agenda expected to lead to economic recovery.

      Trickle down simply has not and will not work. The money is parked, it is not invested. This is what Paul Tucker is blatantly pointing out.

  • Daniel Maris

    The idea that all private sector investment is “good” is wrong. To take one example: building bigger airports that require more low paid staff to be recruited from overseas to fill the jobs that entail anti-social hours, so that more people can go to and from the UK doesn’t help our economy – it just overheats the south where most migrants end up. Even you concede that finance and estate agents haven’t done us much good.

    We need to focus on productive employment and national productivity.

    You are wrong to say that “an artificially inflated property market” is preventing young people getting on the property ladder. Really that is nonsense from an economist. The problem is that we have mass immigration which has caused a population increase unprecedented since the Victorian period which means demand has outstripped supply.

    The one thing that is genuine about our economy is that mismatch between housing supply and demand.

    • LB

      And the state’s not going to do that. It’s going to spend it.

      Part of migration has made it far worse. You can’t tar all migrants as bad for the economy, some are good.

      However migration is optional. We need to remove the migrants and prevent more arriving who fit into the uneconomical bracket.

      • Daniel Maris

        Every immigrant needs housing, transport and medical infrastructure. In a very crowded country with limited natural resources or land available for housing or other purposes every new migrant coming in adds to a costly burden rather than stimulating the economy. For instance, in terms of food, we aren’t able to grow the additional food here, and so one way or another the effect is to increase food imports. The same goes for a whole range of manufactured goods.

        In a country like the UK an immigrant has to be of exceptional value in order to outweigh their infrastructure impact costs which I think probably average out at something like £300,000 per person. In most cases unless they are starting up a new business here or bringing new investment here from overseas, their presence is unlikely to add much, and can easily displace an existing citizen out of work.

        • LB

          every new migrant coming in adds to a costly burden rather than stimulating the economy.


          They all have costs. It’s about 11K per head on average.

          So if a migrant pays more than 11K in tax, in my books they can stay. If their taxes fall below, they have to make it up or leave.

          Strikes me that’s a good test. It means they aren’t a burden on tax payers. Non racist. They don’t compete against those people on welfare. When you look at the higher end, then its good for business too. If you want to start a business, being able to bring in, or find higher skilled workers makes it very attractive.

          Migration at the high skilled high wage does make a difference. It’s the low end where its bad. It keeps or allows those on benefits to take the option of not working.

          Hence I think 11K (40K a year plus) per migrant a pretty good level to set. If you cut spending then the left can get more people in.

    • Carl Thomas

      Actually during the 10 years to 2008 we built 3 new houses for each 4 new people – the housing boom was entirely down to easy credit and the growth of buy-to-let.

      • Daniel Maris

        What do you mean “new” people. And why are you going back so far?

        Disregarding illegal immigration (which we shouldn’t really), officially between 2001 and 2011 the population of England increased by 3.6 million. That averages out at a population increase of 360,000 per annum.

        The RICS indicates that the number of households is increasing by 200,000 per annum (remember also the effects of people living longer and divorce).

        House building is only around half that. And of course the quality of housing in terms of space and gardens being built has declined rapidly.

        • Carl Thomas

          I’m going back to the house price boom. We were, after all, talking about the artificially inflated property market. For most outside London its worst period was 1998 – 2008.

    • Tom Tom

      Daniel. Private Equity like KKR is using cheap money to go into BTL property. They outbid First time Buyers and they can tax-deduct interest which Domestic Buyers cannot

      • Daniel Maris

        No doubt – but that is a symptom of the excess demand leading to high rents.

        • Tom Tom

          Subidised BTL through Housing Benefit

  • Tom Tom

    A very good article ! Paul Tucker has developed quite a reputation for unguarded comments, both these and the LIBOR Fraud. The destruction of household wealth, both savings and pension assets by the Great Banker Bailout is akin to Weimar destroying middle class Germans. The consequences of this Expropriation are yet to be felt. Tucker is seemingly a well-fed slob bolstered by 23 years inside the BofE and an Index-linked Pension. At some stage there will be a Day of Reckoning and people like Tucker will experience first hand the intense anger and loathing felt towards people like himself who have looted and pillaged the savings of millions and made it impossible to repair the damage

    • LB


      Re-read the article. The money’s gone to the state. The state has spent it. It’s printing in all but name.

      It’s not the banks, its the state.

      • Tom Tom

        The B of E increases supply of liquidity to banks at 50bp and in return buys Gilts back from Banks at 300bp. The spread increases Bank liquidity. The Banks simply gouge customers by raising Credit Card rates to 29% and expect Customers to make do with <2% on their deposits. I reckon these are great spreads.

        • LB

          In part yes.

          1. No new investors in banks, because they are the target to pay for the spending.

          That leaves the customer.

          However, on the credit card issue, its very simple. Don’t use them unless you pay off each month. That way its cheap.

          What you need also to do is work out what rate you have to charge to break even if you’re in the credit card business. You might be surprised.

          Here’s a small example. Borrow at 5%, with a 12% default rate, and a 3% cost of processing. What rate do you need to charge to the borrowers to break even?

          • Tom Tom

            I think there should be total default. It is time to destroy bank credit and impose interest-rate caps. Time to regulate Banks as utilities and impose a PUC on them

            • the viceroy’s gin

              Break them up.

              Enact Volcker type rules. Keep them split off. Consumer and personal banking services split off from everything else. Force local banks to hold a goodly chunk of the assets they finance, so they have responsibility and aren’t just dumping them off like bookmakers.

              Install proper walls, floors and ceilings, so it will be easy to monitor most of the banking system. The rest of the banks can go casino all they wish, as if they go bust it won’t effect hundreds of millions of people directly. And when a casino goes bust, no central bank will be allowed to intervene.

              • LB

                So why did the retail banks go bust, and not the investment banks?

                • the viceroy’s gin

                  I’m not sure many banks went “bust”, of any type, did they?

                • LB

                  The one’s that needed a bailout were bust.

                  Without they bailout they would be bankrupt.

                  In the UK Alliance & Leicester, Barnsley Building Society, Scarborough Building Society, Dunfermline Building Society, Chesham Building Society were busts and taken over.

                  RBS, BoS, Lloyds would have gone under without being bailed out.

                  London Scottish Bank and Kaupthing Singer & Friedlander were liquidated.

                  Icesave, Heritable Bank and Kaupthing Edge had likewise to be rescued.

                  Can’t see any casino or investments banks there Looks very retail.

                  In the US, Lehmans was one of the ‘casino’ banks that was hit, taking out the UK side in the process. But that’s the US not the UK.

                • Tom Tom

                  you should read up on DETAILS. All those Banks were engaged in traditional investment banking activities and Derivatives. The Icelandic Banks were run by fraudsters wanted in Latvia

                • Makroon

                  No, Lloyds was all Brown-Darling’s own work.

                • LB

                  Still bust without a bailout.

                  Shows just how incompetent Brown is.

                  Sells gold low.

                  Hmmm, must have learnt is his less. Next time, I must by high. I have to make a profit then and I can be a hero.

                  What a dilbert.

                • the viceroy’s gin

                  Well, in the US, banks were sometimes forced to take the bailout cash, even if they didn’t want it. So it’s a muddle.

                  I guess I don’t really agree on your distinction that only retail banks went “bust”. The story is mixed. If they were truly retail entities, or watched their p’s and q’s, they didn’t go bust.

                • LB

                  US – different country.

                  UK – Retail banks only.

                  The causes?

                  1. People didn’t pay their mortgages.
                  2. NR – They didn’t securitise their loans and relied on the interbank market, and they didn’t have a big enough depositor base.

                  So who were the investment banks in the UK that went under? Lehmans perhaps. Oh dear, US bank.

                • Tom Tom

                  What are you talking about ? HBOS, Northern Rock, RBS were all “Investment Banks” trading securities and engaged in corporate finance. B&B was engaged in asset trading buy BTL Loans from GMAC and securitising mortgages. There were no RETAIL BANKS after 1986. All so-called Retail Banks were engaged in prop trading of one form or another

                • LB

                  No they weren’t They all wen’t bust because their mortgagees didn’t pay their loans.

              • Makroon

                Break them up so that they can be more easily gobbled up by the likes of Santander ?

                • the viceroy’s gin

                  You could foreclose that occurring, couldn’t you?

                  Individual banks could be forced to remain discrete entities.

                • Tom Tom

                  Gobbled up ? Why did Santander buy Alliance & Leicester, Bradford & Bingley, Abbey National ? VBecause the Government let them, gave them a subsidy, and the Bof E licensed them. Why did B&B, A&L and every other Building Society disappear ? Because Thatcher did the City’s bidding and passed the Building Societies Act 1986 so that 1989-2000 TEN Building Societies demutualised and by 2008 not one had survived

                • Makroon

                  I agree.
                  And while Cable is always talking about “more competition”, he turns a blind eye to further crafty “consolidation”.

              • LB

                Except that it was the retail banks that got into a mess.

                So the casino retail banks go bust, and its the customers who take the can,.

                • the viceroy’s gin

                  I simply disagree with you. I don’t think your contention is supportable.

                  Retail customers don’t get hurt, if retail banks go down. That was one of the reasons casino banks wanted to entangle themselves with retail, so they could leverage that government protection of retail customers.

                • LB

                  Well they do if they have more than 85K deposits. Imagine discovering that the money you got from selling a house whilst you are looking for a new one has gone,.

                  Imagine discovering that your employer is bust, and your out of a job because their cash has disappeared.

                  Look at the list, I’ve posted it. They pretty much went bust because at the end of the day, people didn’t pay back their loans.

            • LB

              The problem is with the state debt.

              So one the Credit Card calculation, do you need some help? I think you will find it illuminating.

              • Tom Tom

                You are pert, but stupidly so. I know exactly how Credit Card functions. You reduce Defaults by expanding the Pool and thencharge usurious rates to cover default. It is an old game which comes unstuck when Systemic Risk – let’s call that Alpha overwhelms the Beta. I tokld you bankers were S T U P I D and I assume you are one. The problem is as you say with State Debt – and as charts show MOST STATE DEBT is due to Banks.I think it is time that Debt was unitised and passed out to Citizens so they can repossess Bank Buildings and Staff Pensions

                • LB

                  1. Most state debt isn’t due to banks. It’s down to the state pensions. The banks have no involvement there. That’s 5,300 bn according to the ONS, all off the books.

                  2. So if the state owes lenders money for Gilts, such as annuitants, why should the state not pay out on its borrowings, and reposses the annuitants properties?

                  3. On the credit card. I asked a reasonable question, and it relates to what you call usurious rates.

                  Borrow at 5%, with a 12% default rate, and a 3% cost of processing. What rate do you need to charge to the borrowers to break even?

                  Here’s how you calculate it.

                  Lets say you lend 1,000 people, 1,000 pounds. That’s a million you’ve borrowed at 5%.

                  So after a year, you need to repay 1 million to the lender in capital.

                  You need to pay 50,000 in interest.

                  You’ve spent 30,000 in costs.

                  100 people have defaulted. That’s cost you 100,000 pounds (about the going rate for credit cards)

                  So you need to find 180,000 pounds just to break even. That has to come from the people who are paying. It’s not going to come from the people who’ve defaulted.

                  So the 900 good people, with loans of 900,000 pounds have to pay back 1,180,000 pounds.

                  That’s 31% interest. 900,000 at 31% over a year, comes to 1,180,000 pounds.

                  ie. The credit card business, and any lending business, the rate charged depends hugely on the number of defaults.

                • Tom Tom

                  I am pleased you got to trot out your worked example. It is simply time to cap Interest Rates on Credit Cards as in the USA pre-Reagan. It is time to drive this product out of business

                • LB

                  Why bother with a cap?

                  Just make them illegal.

                  Force people to repay their debts immediately.

                • Tom Tom

                  You have no understanding of markets and seem to be an extremist

                • LB

                  I do.

                  I’ve pointed out to you the economics, with numbers of the credit card business.

                  You want them shut down. Perfectly reasonable.

                  Personally, I want the defaulters to pay up. If they were forced to pay, then the interest rate on credit cards drops to 8% under the scenarios I presented.

                  ie. Credit cards would be the charge to cover the infrastructure, plus the cost of borrowing.

                  It’s people not paying their debts that drives up the cost.

                  Now personally, I quite like CC. That’s because I’m one of these people who pay off each month, so I get 30 days free cash.

                • LB

                  So come on. Why is most state debt due to banks? It can’t be more than 1,100 bn because that’s Gilts? DMO for the numbers.

                  What about the 5,300 bn owed in the form of pensions? ONS for the numbers

                  The problem is as you say with State Debt – and as charts show MOST STATE DEBT is due to Banks.


                  So you’re statement here is completely wrong.

                • the viceroy’s gin

                  You’re forgetting that the credit cards also charge the retail business accepting their card, on each purchase. It’s often 2-3%. That ain’t chicken feed.

                • LB

                  Yep, and it can be higher.

                  It’s not cheap setting up such a network. However, once set up, that part is profitable. Limited competition.

                  The point still stands, the high rates on CC interest, is almost completely driven by the default rate.

                  Force people to pay their credit card debts, and the interest rate comes down dramatically.

                  If you let them off their debts, then don’t moan about the high rates of interest charged.

                  On a personal level, use a CC, but always pay it off.

                • the viceroy’s gin

                  Right. So it’s even higher than 3%, and the set up cost and managing the system is peanuts, meaning it’s ONLY the defaulters that are an expense, and they are not 10%. So the cost is likely less than half of that in your example.

                • LB

                  The set up cost is huge.

                  The default cost is the major one. Where’s your evidence its not 10%

                  What about the money? The money is borrowed, they CC companies have to fund it. That’s interest that has to be paid.

                • the viceroy’s gin

                  Why is the set up cost “huge”?

                  People have been using plastic for years and years. That’s the whole point. Setting these revolving credit things up is a snap.

                  I don’t have to prove the negative. You’re claiming default is 10%. You have to prove that, not me.

                  The interest they pay is a pass through. The only question is, are they passing through the 1/2% Zimbabwe Ben and King Mervyn are giving them, and turning it into 30%?

          • Tom Tom

            Your “analysis” is so flawed. Banks in the UK hold over £1.6 TRILLION in Government Bonds because that is the PRIME ASSET for a Bank System with £4.2 TRILLION in Assets. There is no other Asset Class apart from Gold that a Bank in London can use. They are private appendages of the Treasury essentially creating CREDIT using Government Bonds as Collateral. The Bank Multiplier allows them to create Deposits 10-12 Times the value of those Bonds, so daisy-chaining the Bonds and Deposits expands Money Supply. The simple truth is that Banks should be nationalised if they Create Credit – and that Banks should have Gold as their Core Asset and should not be allowed to run Cash Reserves down to the lowest level in the OECD

            • Baron

              two things have underpinned the economic growth since WW2 – the creation of credit and cheap energy. With the ecochondriacs successfully killing the latter, to also prevent banks from creating credit would just about put us back into the stone age.

              How about abandoning cars, going back to horse driven carriages? Any appeal to you before you get carted away by men in white coats?

              • the viceroy’s gin

                You can’t responsibly “create” credit. That’s the entire problem here. Credit (for unreliable borrowers) has been “created”.

            • LB

              Now you’re a loon.

              There are only 1.1 trillion of Gilts in issuance, and you trying to claim its 1.6 trillion

     for the numbers

              The Bank Multiplier allows them to create Deposits 10-12 Times the value of those Bonds

              Not any more, unless your Branson. It’s dropped to around 8.

              Now if all currency was forced to be back by gold I would be laughing, all the way to the proverbial. The price would rocket.

              “Prime asset”. Get your jargon right. It’s banking capital. Yep, invested in Gilts. Why? The government as you admit says you have to loan your capital to us. That’s what Gilts are. Loans to the government.

              So what’s the government done with the money its borrowed by selling Gilts?

              Why aren’t you answering the questions about state pension debts?

              5,300 bn with no assets. Unlike the banks.

              • the viceroy’s gin

                No, he’s not a “loon”, and you’re not responding to what he’s pointing out, which likely means he’s on to something.

                And neither that 1.1T or 1.6T is to be considered an asset. It’s worthless paper… toxic waste. It’s no different than the 5.3T you’re referencing.

                • LB

                  He’s a bit of a loon.

                  It’s not 1.6 trillion, and you can check my numbers out. I’ve linked to the DMO website where you can go and add up the numbers.

                  If you get the debt wrong you have to start questioning.

                  The problem for the banks, is as you say, 1.1T isn’t an valuable asset, even though its been booked in the books as an asset. So question why that’s going on?

                  Do the banks have to put their capital into Gilts? Yes.

                  Why are they forced to do that? Because the government says you have to put it in ‘zero risk’ products

                  What’s a zero risk product? Gilts, because the government defines it as such.

                  Just think that through. The government forces banks to put their contigency money into what can only be described, as you say, as toxic waste.

                  So who is forcing whom?

                • the viceroy’s gin

                  That “capital”, as you’re incorrectly referencing it, is flying off a printing press. Government’s don’t “force” themselves to do anything. They either do or they don’t. It isn’t about “banks”, because l’etat c’est moi, in this case.

                  The 1.1T nee 1.6T is alike with your 5.3T. That’s the point. They’re both completely bogus paper… toxic waste. They are not “capital”. They are not “assets”. You’re being disingenuous suggesting otherwise, which is why your “loony” friend seems to be challenging you here.

  • Daniel Maris

    Fraser is always telling us the Swedes know or thing or two about finance. They adopted negative interest rates as a way of kickstarting the economy .

    Personally I prefer time-limited gift tokens for a hard-pressed British public. That would change the mood. I believe the Japanese tried that – but the Japanese are a far more cautious lot than Brits.

    • Tom Tom

      They do not want to put money in the hands of Citizens. They want to prop up the Banks and their huge Commercial Property Portfolio which would wipe out their Equity. They are desperate to keep Asset Values up by creating Asset Inflation so Bank Lending does not suffer huge Colateral losses

    • Archimedes

      “They adopted negative interest rates as a way of kickstarting the economy .”

      No, they didn’t.

      • Daniel Maris

        OK, what did they do then? – or was that one of your jokes?

        • Archimedes

          They had a negative interest rate on their one-week deposit facility – it was not the overnight rate.

  • David Ossitt

    Just look at the photograph, the eyes, the fleshy nose, the chubby cheeks, would you trust this man to manage your personal finances?

    Negative interest rates would surely mean that you paid the bank that annual rate to deposit your cash, fire this idiot.

    • Daniel Maris

      Er – no. Well, happy to be corrected, but my understanding is that this is what the banks get in relation to the central bank…so it’s then not in their interest to lodge it with the central bank but to lend it out or maybe to lend it out at a lower rate, not sure which. But it doesn’t mean that the banks will be offering ordinary depositors negative interest rates, though it would seem they will offer less interest. The banks have to have reserves in the Bank of England by law I believe.

      • LB

        The reserves are capital. They were forced to increase capital. That’s where the QE money has gone. Bailing out the state and its spending.

        • Tom Tom

          No the QE Money has not gone into Capital. It is hard to see how it could. The original Capital Injections in return for Equity perhaps but not QE. If £375 BILLION had gone into Bank Capital Shares of all Banks would be worthless

          • LB

            I agree. Its not gone into capital. It’s gone in loans to the government.

            ie. Follow the money.

            Assets go from the banks to the government in exchange for QE money. It’s secured lending. QE isn’t about giving banks money.

            Then the banks have been forced to use that cash to loan money back to the government in the form of Gilts.

            There are some exceptions where money was pumped in

            The Treasury would infuse £37bn ($64bn, €47bn, equivalent to £617 per citizen of the UK) of new capital into Royal Bank of Scotland Group plc, Lloyds TSB and HBOS plc, to avert financial sector collapse. The government stressed, however, that it was not “standard public ownership” and that the banks would return to private investors “at the right time.”.[23][24]


            So they have invested money in bad banks. This isn’t QE.

            So QE is all about funding the state, not about funding businesses.

            The money pumped in above to the banks, is all about having to prop them up or lose all the money that Gordon ‘invested’, when he nationalized them.

            Strange isn’t it (well not really), that when there are monumental disasters, the governments paw prints are everywhere.

            Mind you, its peanuts compared to the real fraud.

            5,300 bn of debts with no assets.

            • Tom Tom

              “avert financial collapse” ? Somehow I doubt it. Lloyds was prevented from recuing Northern Rock but cajoled into buying HBOS at an inflated price and indemnifying Andy Hornby. Both HBOS and Lloyds breached Section 90 Financial Services & Markets Act 2000. RBS Shareholders are suing over the Rights Issue 2008

      • Tom Tom

        If someone had bothered to keep Bank Reserves in the B of E during the years before 2007 we should have had fewer problems…but BROWN actually reduced Banks’ reserve ratios so they could have a higher lending multiplier

      • David Ossitt

        Of course you are correct in this Daniel.

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