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For months I have been saying interest rates need to come down to 2-3%. The authorities now seem to agree.

For months I have also been saying our public deficit is too high and rising too fast, and needs to be controlled if we cut interest rates to stimulate the economy.

Now the Treasury agrees with the first part of that forecast. I have been using £120 billion as the borrowing figure for 2008-9. The Treasury is now preparing us for a figure above £100 billion on Monday when they announce their new forecasts, followed by another high figure for 2009-10.

Let’s hope they soon get the third message. Borrowing needs to be at a sensible level, to sustain the lower interest rates we need. If they do not show a convincing path to modest levels of borrowing, they will find it increasingly difficult to borrow all the money at a sensible rate, and could feel more strain on the currency.

The quickest and easiest way of controlling borrowing would be to change the way they support banks, and to sell some of the banking assets they already own.

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2 Comments

  1. evil g
    Posted November 22, 2008 at 2:27 pm | Permalink

    If the government immediately sold bank assets that they hold, would they not be selling at an enormous loss?

  2. mikestallard
    Posted November 22, 2008 at 9:03 pm | Permalink

    You have indeed been saying these things. You have also been saying that the support of the banks had to be as temporary as is humanly possible, because the government cannot support them financially for very long without running into both financial and political trouble.
    I want to add that the government should immediately start a severe cut back in public spending. Nurses, doctors, teachers, policemen, soldiers, health visitors, midwives, social workers are, we are told, in very short supply (actually on the streets, in hospitals, schools, etc.) There are indeed very few Indians. But there are a lot too many Chiefs getting in their way and tripping them up.
    We saw both at Harringey and in the BBC how the red tape is actually preventing the few remaining people at the front line doing their job. We need a clean out at Head Office in all the major services.
    The Chiefs, at the moment, are increasing at a rate of 50,000 every time you look.
    No, we do not need a "Restrictive Bureaucracy Board" (RBB) or a "Red Tape Tsar" (£170,000p.a.). We actually need the bureaucracy cut back now, before the election.
    Montgomery did this by instituting PE every morning at 6 a.m. for the staff. JP Morgan, the great American financier, did it by turning off the heating in his house. Ulysses Grant did it by driving out all the ladies of the night when he took over from General Hooker.
    Perhaps Mr Cameron might bring in all these measures at once?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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