The FT worries me this morning. First it said this:
The UK can have a growing banking sector without condemning itself to more frequent and costly financial crises, the Bank of England has said.
The sector is on course to double from its current size to more than 950 per cent of UK gross domestic product by 2050, far outstripping projected increases in other Group of 20 nations, the BoE said in a report published on Monday.
The Bank of England says the vast majority of mortgage borrowers could handle interest rate rises of up to 2 percentage points, marking a significant shift in its stance on how higher borrowing costs will hit household finances.
The shift signals that the BoE is getting closer to changing policy and wants to reassure the public and financial markets that Britain's borrowers can cope.
Both of which have to be read in the context of the FT noting last week that:
The new [Office for Budget Responsibility] forecasts show UK household debt rising even faster than previously thought in the next parliament (2015-20) to a record high of more than 180 per cent of gross domestic product.
And this has to also be noted in the light of the Resolution Foundation's quite reasonable warning that maybe one million UK households would be plunged into debt crisis by the mortgage rate rises the Bank of England is now envisioning.
So, what is happening here? I suggest there are three things.
First the Bank of England is suggesting that George Osborne may abandon his aim from 2010 to 2012 to diversify the economy. We're now hooked on finance again.
Second, the Bank of England is paving the way for the OBR's debt forecasts to be considered acceptable, even if the fact that they may result from rate rises will not create the extra consumption that the OBR wish for as a basis for growth.
And third, it is apparent that the risks are being ignored.
We are, in other words heading back to "it will be different next time" land where it is always assumed that the lessons have been learned, debt can be managed and there can't be another crash, and yet there always is.
When will the Bank of England learn?
When will our politicians learn?
And when will we build an economy on something other than finance?
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This is sheer insanity. I think we’re heading for “La La” Land.
Re-balancing the UK economy will require a strategy from central government, I imagine something similar to that applied by South Korea in order to build its manufacturing economy from next to nothing.
Osborne can’t do this, because “Government can’t pick winners and losers” etc etc.
The private sector must drive the Economy forward. Are they going to do this? Not a chance, because it is far easier to set up “toll booths” to charge for something that the UK taxpayer has already footed the bill!
Th ruling elite are such a pathetic bunch, if they set out to sabotage this country, they couldn’t do a better job than they are doing now!
Indeed, which suggests they are absolutely doing this deliberately. Who benefits? If the economy crashes and otherwise sound businesses fail, who picks them up on the cheap? Who gets to buy up the NHS? That same elite.
Our politicians don’t have to learn anything Richard. They are all well off enough to be immune to any crash. It is US who does the learning for them – we are sacrificed instead. Instead of shoving us in front of guns and shell fire, they expose us to the highs and lows of the markets now.
This is also why we have to have austeriy, so that we can always reassure the markets that the risks they take with our money will always be covered by the public purse. Banks know that they will always get bailed out because stupid politicians won’t set up a public banking system to distribute the money Grovernment prints!! It’s absurd.
Proof positive that Carney is Osborne’s man.
At least we now have the answer as to the area from which Osborne is expecting to increase our export income. Not oil, not electric cars but invisible earnings, as we used to call them – in other words shadow banking, all of which will be processed through the City and the rest of the country will have to wait for its handout after the usual commission has been deducted.
Indeed
I think the plan is to get the crash in place just as Labour get in so they have to deal with the aftermath. The Tories will raise rates just before the election.
yes and labour will have to tax more & spend less to clear up “this mess”?
Ah, no they won’t, money doesn’t work like that. This is why we talk about QE and related subjects here, money’s just stuff that’s made up, it’s not like some finite resource.
think i read that report assumed a 10% wage rise (in la la land?), without which 660,000 would be at risk. of course Resolution Foundation will have their own definition of ‘at risk’ (BoE definition (all those spending >40% of earnings on rent) seems a bit crude).
looking forward to response to new OECD report. i think it’s fair to say that it’s now official… ‘wealth creators’ are damaging to growth.
Latter on its way very soon
Japan is proof that QE doesn’t work. Despite massive borrowing by Abe the Japanese economy has slipped into recession. In the crazy interconnected world we live in, this will have repercussions elsewhere. And I really don’t see Britain as immune. To grow an economy by exporting, you must first find an economy that wants to import. Advertising can be used to trick people into buying things that don’t need but with stagnating wages the only way people can afford to buy more and more stuff they doing need is if they borrow more and more. I heard recently that America now had more PayDay lenders that Starbucks coffee shops. I fear that something is about to break and it’s not going to be pretty.
QE has worked: Japan has a functioning economy when it would not otherwise have the cash needed to achieve that goal. I think you are missing the point that QE is providing liquidity in this case that banks are not
Banks seem to have stopped functioning in the traditional sense. Perhaps we should have seen this coming when the bank manager network, grown over centuries, was shut down. It wasn’t intended money would be distributed to the middle and lower classes any more.
We’d do very well, as I know I’ve said before, to be replacing the UK pound with multiple local currencies, the sooner the better too.
Exactly.