Comments on: The Credit Crunch – reappraisal?

By: tim holden

tim holden — Fri, 28 Mar 2008 16:56:11 +0000

…. sorry that went thru before I had finished.

A craven FSA turned a blind eye to the process beyond the point of embarassment, and the Northern Rock fiasco signalled the boom's definitive conclusion.

Spirals of credit are likely to unravel into a bust of lengthy duration. The extreme reluctance of banks to lend to each other is a clear signal of their individual losses – and their surmise that their fellows have also suffered. And if they are short of funds, then it is difficult or them to lend.

Britain may be in a uniquely difficult position – the very opposite of what the dreadful duo of the new PM and the new Chancellor claim. Their optimism almost certainly stems from a mixture of ignorance and the failure to comprehend that their long lucky streak has come to an end.

The switch of manufacturing from Britain to China has kept inflation down. The certainty of Chinese inflation will have the ongoing effect of sharp inflation here. A stronger currency would diminish the effect of higher Chinese prices, but that can only be maintained by holding interest rates high – and high interest rates will adversely affect the local housing market.

It is going to be more than interesting to observe how this doomed pair seek to avoid blame. The first casualty will be the Chancellor because it would be a popular move to get rid of him – despite the excrutiating prospect of Ed Balls replacing Alistair Darling. But the PM is trapped in the searchlight, uncomprehending of the extent of his unpopularity. We do not deserve the bust that he has brought upon us – but there will be some compensation that the exit-stage-left will be of a permanent nature.

By: tim holden

tim holden — Fri, 28 Mar 2008 16:36:52 +0000

Amongst the larger lies developed by the previous Chancellor is the one that Britain is no longer about boom and bust. There has been a lengthy boom funded by a surplus of credit, which was provided by banks that have profited well.

By: mikestallard

mikestallard — Mon, 24 Mar 2008 21:53:42 +0000

What happened during the last Labour administration was that there were a lot of strikes and a subsequent inflationary wage race.
Notice how the NUT have decided on one day strikes and a ballot. The Police weren't too pleased with their pay settlement either, I seem to remember.
We all know on the ground down here away from Westminster that a 2.1% inflationary rate comes straight out of 1984 with the endless self congratulatory figures constantly repeated over the radio.
Meanwhile, the government is taxing alcohol and is about the put up Council Tax. This will cause inflation too, won't it?
At a deeper level, I want to ask, "What is England for?" In the 19th century we were the manufacturer for the whole world. Today that has, surely, fallen to China? I cannot see, myself, what our wealth is actually based on. Can you?

Reply: THE MAIN SUCCESS ECONOMICALLY IN RECENT YEARS HAS BEEN FINANCIAL AND BUSINESS SERVICES – LONDON, ENGLAND HAS BECOME OF OF THE KEY BUSINESS SERVICE CENTRES OF THE WORLD. WE ALSO STILL HAVE SOME GOOD MANUFACTURING, WITH SOME GOOD OFTEN FOREIGN OWNED COMPANIES IN PHARMACEUTICALS, AUTOS, AND AEROSPACE ENGINEERING FOR EXAMPLE.

By: Tony Makara

Tony Makara — Mon, 24 Mar 2008 14:26:53 +0000

John, do you feel that a decline in Sterling relative to the Euro will have an inflationary impact on high street prices? Would such a scenario be enough to put pressure on wages? If/when the Pound falls after such a long period of being overvalued, what policy should the MPC adopt? Should the MPC raise rates to support the currency to protect us from importing inflation?

Reply:I THINK THE FALL OF THE POUND AGAINST THE EURO WILL MAKE US POORER BUT IS NOT NECESSARILY INFLATIONARY – WE WILL JUST BUY A SMALLER QUANTITY OF EURO DENOMINATED GOODS AND START PRODUCING MORE IMPORT SUBSTITUTES AT HOME. IT WOULD ONLY BE INFLATIONARY IF AT THE SAME TIME WE HAD A CREDIT EXPLOSION WHICH DOES NOT LOOK VERY LIKELY AT THE MOMENT.