New Year message 2009

I am a natural optimist. I like to see the opportunity and the possibilities in life. The background as we travel through the end of the old year and into the new is not auspicious. The news background threatens worse to come on jobs, company failures, house prices and much else. Just to make it all worse, violent war breaks out in the Middle East.

Last year I urged the authorities to try to stave off recession. I explained how “If the authorities cut interest rates and make more cash available to the banks we can avoid too sharp a downturn.”

This year I am forced to write about how they could limit the damage of what is likely to be a severe downturn in the UK.

It took them nine months to recognise the dangers of the high interest rates and tight money they were offering in 2008. All too late in the day they started to shower the banks with cash and bring the interest rates clattering down. These changes will have an impact, but not in the early months of 2009. The authorities seem to have forgotten that it takes a year or more for changes in interest rates and changes to money market liquidity to work through the system. In the meantime there is the remaining problem that the banks themselves are still weak, need to write off more from their assets, and are under regulatory orders to strengthen their balance sheets at the moment of greatest difficulty.

So how can I cheer people up? There is the outside chance that Mr Obama meant it when he said he would bring change. If only he would change the US approach to the Middle East that would help. If he would seek to spend the cash the US government is borrowing to good effect that would be a miracle.

The UK authorities could start to get a grip on their banks, and start to make better decisions about helping nurse them back to health so the wheels of borrowing can move the vehicles of commerce again. We need a government to understand that their regulatory and monetary policies need to reinforce each other, not struggle against each other, a government which finds a way for banks to pass on some of the cash it is now tipping into the system, and then controls the amount of that cash, before we start up another damaging inflationary cycle.

Last year at this time I went hoarse asking them to cut interest rates immediately. This year I say the rates are low enough. The problem now rests elsewhere. Indeed it is savers now who need the better deal, and I would like the government to help them.

They could afford to do so, and to lower taxes on income and jobs, if only they would forgo their foolish cut in VAT. We need now intelligent and affordable tax cuts, rather than clumsy and expensive ones which are not going to lift us out of recession.

I wish you all a happy and prosperous New Year. You will need the agility of a gazelle and the solidity of the ox to survive in business in 2009. It’s the year when savers are asked to share the misery of the borrowers, as we continue to sift our way through the debris of the Credit Crunch. I just hope you and yours have jobs that survive and enough cash to see you through.

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3 Comments

  1. Posted December 31, 2008 at 12:35 pm | Permalink

    From one ‘Gaz-ox’ to another, happy new year.

    If there is one tiny bright spot in the middle east, if I know the Israelis, they will be through before Mr Obama takes the oath of office. At least that round will be over.

    You were pretty much spot-on with your economic prognosis and set of recommendations all year.

    May I finish with a quote from a man, I almost never quote, Mr Anthony Blair

    “It is true that we had ten years of record growth when I was prime minister. I have, unfortunately, come to the conclusion that it was luck” (in a lecture to Yale University: source the ASI blog)

    Tony, the rest of us worked that out years ago….

  2. mikestallard
    Posted December 31, 2008 at 5:35 pm | Permalink

    I want to thank our host for telling the truth, for actually bothering to read the rubbish that we all seem to write and, finally, to be so easy to understand.
    I am personally convinced that this will be the last few months of that monstrous fraud Mr Brown and that, behind the good manners of the Tory front bench, there lurks some true talent which, in this vital year, will steer our battered ship of state through the icebergs.
    Happy New Year!

  3. Alan Wheatley
    Posted January 2, 2009 at 4:15 pm | Permalink

    Happy New Year, John, and everyone else.

    I recommend 2009 happiness is not dependent on what happens in the Middle East, at least as far as Israel/Palestine is concerned. The “problem” goes back 3,000 years, and there are plenty of Israelis who cite from that long history in justification of contemporary activities, and plenty of Jews around the world who give sympathetic support.

    I can not see how a two-state solution will ever work as the more viable and credible a Palestinian state the less appeal it will have to the Israelis.

    So I think the best we can hope for is another year of containment and the hope that some genius will come up with an answer that will work.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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