Thursday, April 22, 2010

And…

What the would-be chancellors havent said

The gap is the difference between what people need to borrow and what they actually can lay their hands on. This year, the IMF says, that debt overhang and the impact of the financial crisis mean that British banks and investors will only be willing to lend around £50 billion. This comes nowhere near to fulfilling the demand for borrowing some £200 billion. Since neither the borrower or the lender can get what they want (and cross-border lending has collapsed in the wake of the financial crisis), the only solution is that, in the IMF's words, "either borrowing needs to be scaled back to equalise the lower supply, or market interest rates will need to rise."

Posted by mark @ 12:24 PM (1725 views)
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7 thoughts on “And…

  • crash bandicoot says:

    In the lax years people who overborrowed used the excuse that they thought that their level of borrowing was safe, because if it hadn’t been the banks wouldn’t have lent them the money. Now that the banks are actually following this approach it seems to be percieved as a problem. Even Vince Cable wants to get banks lending again to small businesses, as if they are deliberately stifling up and coming businesses by starving them of funds rather than electing not to send good money after bad on lost causes.

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  • mark wadsworth says:

    Edmund Conway is top man, but is that £50 billion gross or net lending?

    If he means net increase in total lending (new loans minus repayments), then there is not too much to worry about – for example household debt increased by an average of £70 billion a year from 1997 to 2007, if that falls slightly to £50 billion, what is the big deal.

    If he means gross lending then roll on house price crash!

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  • This strikes me as classic scaremongering, in the interests of the IMF’s neoliberal agenda. The UK national debt is not excessive by historical and cross country comparisions. E.g. after WW2 it was more than 200% of GDP. The USA regularly runs massive deficits to boost its economy and probably is not about to stop any time soon. If the banks really won’t lend it, the government could create the money itself – the way Lincoln financed the Americal civil war, incidentally – which would be better as no interest or repayment would be owing.

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  • Theemperorhasnoclothes says:

    mark wadsworth – problem is the government owes a staggering £800,000,000,000.00.

    Who want’s to lend any money to a government when there is a daily increasing risk of default, or of the government debasing the currency?

    Why do that when there is gold, silver, commodities, US bonds etc. to buy up instead?

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  • “either borrowing needs to be scaled back to equalise the lower supply, or market interest rates will need to rise.”

    mmmm I know which one I’m betting on….

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  • nickb, saying our debt is not excessive by historic comparisons is a bit like saying Hitler was a pretty alright bloke compared to Hitler. If you don’t think this situation is scary you need to open your eyes.

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  • I meant Hitler was alright compared to Pol Pot – you get the gist.

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