Mr Darling has three aims for the Finance Summit this weekend – to borrow more money, to borrow more money and to borrow more money. It’s a strange way of sorting out a crisis brought on by borrowing too much.
His three way plan consists of
1. Countries to agree to borrow more to spend more
2. Countries to agree to find ways to get bad banks to lend more
3. Countries to agree to borrow more to put more into the IMF so it can lend more to overborrowed countries.
No wonder we are in such a mess, with thinking like this at the top.
He forgets the nature of the crisis. The UK, the US, Spain, Ireland, the Eastern Europeans and a few others borrowed too much. Banks got over extended, and then the authorities called abrupt time on the party leading to a huge hangover. Meanwhile China, Germany, Japan, and some others worked hard and saved hard, building up large surplsues which they lent back to the overborrowed.
The different countries need different solutions to help resolve the crisis. The saving and exporting countries could afford to spend more and create more demand at home. That would be very helpful. The countries that have borrowed too much need to control their borrowings and learn to live closer to their means. They need to save and export more, not reflate by borrowing too much.
The bad banks should not be bolstered and subsidised on the collosal scale this government favours. They should be made to own up to their losses, cut their costs, and get their businesses into shape. Far from lending more, they should be getting their risks into line with their capital. If the government must see more lending to UK businesses and individuals it should be done through good banks and new banks, not through the costly and distorting mechanisms of the bad banks. The government should learn that business does not need more loans, but more orders, not more bank debt but more revenue.
Putting more money into the IMF may be timely – who knows which country may next be in need of an emergency loan. They should also discuss what the IMF is going to make the over borrowed do to sort themselves out. Why not start doing it before having to seek an IMF loan? And why doesn’t the UK government see that we need to put our financial house in order as well.
This debtaholic Chancellor seems wedded to more debt. It is not the answer. We need to sober up and sort things out.He should start by calling time on more cash for bad banks. They just pay themselves too much and make bad investments. Haven’t we had enough of that? There has to be a day of reckoning for them. It is wrong of the government to delay it, putting the taxpayer at massive risk. Don’t let them go bust, but keep them short of cash so they have to sell assets, cut high salaries and get wise with their investments.