Economics is all about free market forces

More Interest Rate Cuts to follow

The bank of England cut interest rates from 4.5% down to 3% this month and then commented that they had thought of a bigger drop in the base rate. But they were worried about the message a bigger drop in interest rates would have sent into the market. What they were trying to say afterwards was that the situation needed a bigger drop in interest rates to stimulate the money markets to get the banks to start lending again properly.

What a Bombshell

Mervyn King the Governor of the bank of England suggested that our government should consider nationalise the banks in order to get the banks to start lending money to small business, homebuyers and homeowners. It‘s suicidal to let this government run our banking system; they can’t run the NHS efficiently and properly. Mervyn must have been having a senior moment?  We are already shareholders in Northern Rock and Bradford & Bingley. If they want the banks to play the game then they should consider withdrawing the £500bn already offered to the banking sector. That will grab their attention!

The UK mortgage market is paralysed.

Sir James Crosby a former executive of HBOS warns us about the state of the mortgage market in his report commissioned for the Treasury department. In his opinion he see’s no growth in the mortgage market till the end of 2010 and he feels that house price will continue to fall as will consumer confidence and unemployment will rise. Hard times will continue for housebuilders, first time buyer, homeowners and buy to let landlords wanting to remortgage. The knock on effect of this is job cuts across the board for everyone involved in any way with this sector of the market.

Should we Save the Bank?

Why should we now risk our entire economy and our future on saving these banks?  Maybe we should let them crash and burn? After all that’s how things work normally in real life?  Its dog eat dog and the strongest and the fittest survive or in this case the best run banks survive. These banks have the capability of surviving you only need to look at Barclays Bank. They secured all the funding required to enable them to remain independent of the UK government by sourcing an investor in the Middle East.

Bargain!  Woolworth Stores for SALE

Just look at Woolworths its up for sale for £1 and who ever buys it takes over the debt at £385milllion. It’s a great deal for the right investor; they are buying 800 prime store locations throughout the UK, fully stocked and with 30,000 staff ready to open for business the next day. Granted they need to restructure the business, scale down the number of stores, do a bit of assets stripping and adapt it to make a profit. Woolworths has suffered with poor management for years. Will Woolworths be leaving our High Streets I don’t think so!

Joe Public’s Dilemma

The Chancellor of the Exchequer tax-cuts are high risk. He’s offered 2½% reduction in Vat for the next thirteen months. This one tax-cut will cost the treasury £12bn in lost revenue that the government will have to borrow and we will have to pay back at some time in the future through higher tax rises. Consider a television costing £699 before the chancellor vat reduction; it will now save Joe Public £17.48. This is not enough to encourage Joe Public to spend money £699 when next week he could lose his job. This recession is yet to explode we have not heard the end of it and the chancellor tax cuts may well come back to haunt us all for a generation or more.

Spend and Spend some more!

What is really amazing is that our government want us to spend our way out of this recession. They want us to spend now and pay back later using the 2.5% Vat reduction and the other tax-cuts announced this week. The cost for these tax-cuts is predicted to be over £20billion and don’t forget the £500bn already earmarked and used for securing confidence in the UK banks. Surely to god it is overspending that has got us in this mess coupled with the lack of regulation, greed and mis-management in the banking sector.

Possible Debt of One Trillion Pounds to be Repaid

Our expected level of debt for this recession in the UK could be £1 trillion in three to four years time; if the costs for the interest and other associated costs are included. Then we may have to relying on inflation to devalue our debt in order to make it easier to pay off along with tax rises. But take heart and a deep breath when you consider that the global cost of supporting the banks and tax-cuts is considered to be £5 trillion. Who’s printing all this money?

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