Credit Easing

[superfrank]

George Osborne's new plan is for government to allocate capital to business because the banks can't do it (funded by more QE of course).

So we've had money printing to give to the government (to fund their rescues of banks)...

Now we're gonna get money printing to give to business...

The next logical step is to print money and give it directly to consumers...

Is it just me or are we on the road to economic hell?

[Iron]

'Printing money is the last resort of desperate governments when all other policies have failed'

George Osborne (Jan 2009)

[Iron]

Is it just me or are we on the road to economic hell?

I agree.

I'm not sure I buy the argument that banks don't lend to businesses because of their own funding problems.

I can't see banks turning away loans that have an excellent chance of being paid back. I think the reason banks don't lend more is because, in the current economic climate, fewer businesses can convince them that they will be able to repay the debt. And if the government starts making loans that the banks consider too risky, it could go spectacularly wrong...

Jeff

[rubysglory]

Banks will still lend but at higher interest rates to satisfy their own funding costs. As for banks turning away loans that have an excellent chance of being paid back, all they will do is increase the security and deposit requirements of the borrower.

rg

[Iron]

Banks will still lend but at higher interest rates to satisfy their own funding costs.
rg

Hi Rg

I realise that banks are having problems borrowing in the inter-bank market.

But doesn't the fact that they can borrow for next to nothing from the Bank of England mean that they can also offer loans to businesses at low rates (just as they still offer very low rates on mortgages)?

Jeff

[rubysglory]

Hi Jeff. Issues in the inter-bank market and the S&P Credit ratings downgrades of individual banks quite possibly represent the single biggest cause of concern of interest rate rises in the short term. I believe that although they can borrow for next to nothing from their respective Central Banks, their shareholder dictated priorities lie essentially in using these funds to service existing debts more so than creating new business. As for mortgages, I believe that the Banks will seek increasingly larger deposits from the borrower, effectively factoring in a potential property valuation downgrade.

rg