economic situation is dire

[ianrobo1]

so you adovcate doing nothing ?

or tearing up the whole economic way of life

remember the major problem is the lack of loans to business's not so much the consumer

[thetrees]

remember the major problem is the lack of loans to business's not so much the consumer

That's my point Ian.

The banks are not supporting business anyway, so it really doesn't matter where the interest rate is.

[ianrobo1]

the ides is to force the banks and in DPMQ's today Harman gave a massive hit that if banks don't lnd they will be forced to, how I am not sure

[thetrees]

And the credit insurance companies have been happily slashing or completely removing cover on some hitherto sound businesses, thus putting said businesses in jeopardy.

That is why the French government have taken on the burden of credit insurance, and is something that would be a far more effective intervention by UK government than cutting interest rates.

Taking the politics out of it, because I'm not convinced that this situation wouldn't have arisen regardless of who was in power, this government appear to be fumbling around in the dark.

[snowychap]

Why such drastic action? The Fed is utterly petrified

After 18 months firing blanks, US policymakers have turned to printing money. Convention has gone out the window

During the decade leading up to the crash of 2007, some of us warned that excessive lending by reckless banks was an accident waiting to happen. We were told not to be so silly. The gods of the financial markets knew what they were doing.

When the global financial system seized up in August of that year, we said there was a risk of an economic pandemic that might plunge the world's economy into a dangerous tailspin. This was greeted with derision. The system was robust, we were told. Economies were well-placed to withstand any problems, we were told. The problem would be contained because policymakers had matters in hand, we were assured.

All of which goes to show that Schopenhauer was bang on the money when he said that truth goes through three stages. In the first stage, it is ridiculed. In the second stage, it is violently opposed. And in the third stage, which of course is where we are now, it is accepted as self-evident.

Hindsight is a wonderful thing, but every policymaker now appears to accept that the global financial system was allowed to run out of control, and that the debt-fuelled expansion has resulted in an economic crisis of great magnitude.

It is now accepted that the name of the game is damage limitation; to prevent what already threatens to be as severe a downturn as any in the postwar era turning into a second Great Depression. From every quarter of the globe, the recent economic news has been dire. Credit has dried up, global trade is at a standstill, and economies are shrinking fast.

Britain's downturn entered a new and more dangerous phase with the news yesterday that the jobless claimant count had burst through the one million barrier, with a 75,000 increase last month. That's the sort of increase seen in the savage labour market shakeouts under the Conservatives in the early 1980s and the early 1990s, but which were supposed to have been banished for ever under New Labour. Well, the reality is that mass unemployment is coming back. Yesterday's unemployment figures reflect what was happening to the economy six months or a year ago; it will be well into next year before the unemployment figures reflect the fact that the economy fell off the edge of a cliff this autumn.

Desperate times call for desperate measures, so policymakers also take it as self-evident that the rules of the game have changed. In the US, the Federal Reserve has dusted off emergency policies last used by Roosevelt in the 1930s because it is petrified that a slump is a very real threat. Short-term interest rates have been cut virtually to zero, and the central bank has made it clear that it will leave them there for a long time.

But there is a recognition that the reluctance of banks to lend means cutting short-term rates is a blunt instrument - what Keynes, in The General Theory of Employment, Interest and Money, called pushing on a piece of string. As a result, the Fed has also unveiled a series of so-called unconventional measures which, once you strip away the financial complexity and the economic jargon, amount to printing money in a bid to drive down the long-term borrowing costs for business and mortgage loans. Margaret Thatcher famously said: "You can't buck the market"; the Fed is about to put that theory to the test.

Why is the Fed taking such drastic steps? The short answer is that for the past 18 months the Fed's conventional weapons have been firing blanks. The US economy is expected to contract at an annual rate of about 5% in the final three months of this year, and a period of falling prices is seen as a real threat. When deflation was last allowed to embed itself in the 1930s it proved hard to budge, and the Fed is determined not to make the same mistake.

All things considered, this is probably the least bad option available, and similar action is being carefully considered by the Bank of England. The unconventional measures will have proved successful if they make mortgages more affordable and throw a lifeline to cash-strapped firms seeking to refinance themselves at a lower cost. While no panacea, there is a chance that the recession in the US will bottom out during the course of next year, with a slow recovery in 2010.

But hang on a minute, I hear you say: isn't there a risk that making borrowing cheaper will get us back in the same dreary speculative cycle that got us into this mess? Without the credit controls that buttressed the system in the 1930s, the answer is yes. There is a risk that the Fed's manipulation merely substitutes a bubble in the bond market for a bubble in the housing market, and that like all the previous bubbles, this will collapse disastrously. And there's a risk that printing money leads to an inflationary surge in two or three years. The Fed knows all about these risks but thinks they are worth taking: that's a measure of how serious things are.

• Larry Elliott is the Guardian's economics editor

[Genie]

When are the MP's expenses due to be published? That will make extra interesting viewing this time round i'm sure

[tonyh29]

Gordon Brown's plan to boost spending is like an "addict returning to the drug", according to the Archbishop of Canterbury.

Rowan Williams says the credit crunch is a welcome "reality check" for a society that has become driven by unsustainable greed.

Interviewed on BBC Radio 4's Today programme, he insisted the country had been "going in the wrong direction" for decades by relying on financial speculation to generate wealth quickly rather than "making things".

The UK had backed itself "into a corner", and must now rediscover "patience" and re-think the way it viewed material gain.

[Richard]

For me the economic policies are all about putting us back to where we were just prior to the collapse. Wrong wrong wrong

[Gringo]

Yesterday's unemployment figures reflect what was happening to the economy six months or a year ago; it will be well into next year before the unemployment figures reflect the fact that the economy fell off the edge of a cliff this autumn.

That's teh big worry - we haven't even started into this slump yet

[snowychap]

I share the sentiments and worries of both chaps directly above.

[drat01]

Why do you share the sentiments Snowy? Genuine question.

There is still a "UK only" slant in how some of the posts read? Old ground I know but has the acceptance that this is a world issue now been taken up?

Also Richard what is so wrong, wrong, wrong with the objective? Surely now realism rather than fanciful promises based on a desire to be elected are what is needed. That is what Cameron said when he promised to back the Gvmt's actions (and then went back on them).

Everyone appreciates the world has got itself in a mess. I find it funny but not surprising when you hear the expert opinion of some people in respect to this problem. If they were so expert then why are they not calling the shots?

[Richard]

That is what Cameron said when he promised to back the Gvmt's actions (and then went back on them).

Yes I think you are confused.

David Cameron promised to back the government (in his talk at the Tory Conference in Brum) in relation to the banking collapse, just after the states did not back Bush (hence Cameron's reference to this in his speech). He has not gone back on that.

What he did not do was promise to back all of Brown's economic policies.

[Awol]

Ian surely the thing that is "wrong, wrong, wrong" with that objective is that it seeks to reintroduce the economic conditions that put us into this hole in the first place. That being massively excessive personal and government debt and an inflated housing market that distorted the entire economy? Richard's comment seems absolutely sensible to me.

[snowychap]

Why do you share the sentiments Snowy? Genuine question.

On Richard's point, I don't believe that we should be trying to return to the economy of 2007.

Perhaps Richard and I diverge on what we think ought to be the case (I'd suggest that was very likely though I hope he doesn't think I'm being presumptuous about his thoughts in saying that) but I think that we agree that the basis for the recent good times has not been sound.

Where I think we might diverge (and apologies again to Richard if this is wrong) is that I don't believe the received wisdom (that continual economic growth is good per se and that this is and should be the main economic target) is correct.

I think we need to address whether even sustainable growth ought to be our main economic target.

As for Gringo's post, it does cause me some dismay when I continue to hear the 'short and shallow' prediction still being trotted out. If we are talking about there being about a six month lag between the actual economic difficulties and the result appearing in the unemployment figures then we still have to account for the second half of this year. I don't think that anyone really would say that this was not substantially worse than the first six months.

If we have not learnt, yet, that unrealistic optimism causes severe problems then I wonder how bad things have to get for people to wake up to that.

Old ground I know but has the acceptance that this is a world issue now been taken up..

In answering that for myself, I have never believed that economic problems were not happening around the world and that there have not been connections between problems. What is the case, though, is that each individual nation's economy has its own traits (whether that be in the proportion of different industries within it or the respective traits of the workforce, for example) and it is in these areas that the governments (and people) of each nation need to take responsibility.

In this situation there are both national and supranational issues. These issues are neither mutually exclusive nor necessarily connected (I suggest that there is a blend of both).

To think that national issues can be solved by global action and vice versa is unlikely, I think.

[Richard]

Ian surely the thing that is "wrong, wrong, wrong" with that objective is that it seeks to reintroduce the economic conditions that put us into this hole in the first place. That being massively excessive personal and government debt and an inflated housing market that distorted the entire economy? Richard's comment seems absolutely sensible to me.

Thanks!

The thing with the government attitude on debt is a classic. It just seems to me that their whole economic doctrine is one that is built on borrowing. It seems to be seen as a solution to everything and in fact it is part of the reason our economy is now struggling and why economic commentators much more on the pulse than you or I are actually saying our recession will be longer and harder then other economies.

[drat01]

Ian surely the thing that is "wrong, wrong, wrong" with that objective is that it seeks to reintroduce the economic conditions that put us into this hole in the first place. That being massively excessive personal and government debt and an inflated housing market that distorted the entire economy? Richard's comment seems absolutely sensible to me.

The problem is Jon (and Richard) though you have to move to a more stable point than we are now. I don't think you are saying that all of the "rules" that were in place should now be dropped are you? If you are then you are talking about a complete and utter change in economics that would isolate the UK to the point where it would not be able to do anything.

If the policies that are being talked about are so wrong then you must have alternatives that will fit in to both UK and World economics. The alternatives are what exactly in a simplistic form? The B word is the one that has been taken up by the opposition as some sort of battering ram when if you look at it other major economies around the world are doing the same and have done so for many years.

We probably, no strike that, definitely wont solve the problems on VT that's for certain. The world economy has some lessons to learn, real "big 'uns" and there is a real danger that the self-self-self attitude of certain ideals will start to prevail - for me that is the biggest worry. Once bitten twice shy and all that

p.s. cheers for the civil responses chaps, maybe the mods do have a point

p.p.s. I suppose we are still going to have to agree to disagree

[Awol]

Ian surely the thing that is "wrong, wrong, wrong" with that objective is that it seeks to reintroduce the economic conditions that put us into this hole in the first place. That being massively excessive personal and government debt and an inflated housing market that distorted the entire economy? Richard's comment seems absolutely sensible to me.

The problem is Jon (and Richard) though you have to move to a more stable point than we are now. I don't think you are saying that all of the "rules" that were in place should now be dropped are you?

What rules, Gordon's "Golden rules"? :winkold: I didn't know there were any rules left to be honest!

I don't think we are moving to a stable position, we are in the shit and the pound is going to continue falling for a while yet imo. When the actual scale of our indebtedness is realised (ie, someone sits down with a calculator and works out how much PFI is going to cost) combined with a shrinking economy, international investors deciding they've had enough and the suspension of foreign credit lines etc, it's quite likely it will all collide next year and make the impact of a bad global recession on the UK worse than most.

The alternatives are what exactly in a simplistic form?

Well I don't think Labour have handled the part nationalisation of banks very well because they've poured our cash in but don't have the power to force them to lend it back to us as business loans etc. The only thing that will work now imo is full nationalisation to free up the flow of credit and prevent many otherwise sound small businesses from going under because they cannot get a good line of credit with the bank.

When the recession is over and investors have got good money again then float them one at a time and put all proceeds back into the Treasury. It might take 15 years to renationalise them all but it would get us out of corner right now and minimise the damage. It would also make foreign investment think twice about going elsewhere and even encourage new investment in. UK plc is hurting but isn't about to go bust so the money would be safe enough to restore confidence all round.

[snowychap]

High street braced for Christmas sales carnage

UP to 15 national retail chains are predicted to go bust before the middle of January, forcing thousands more shopworkers onto the dole.

The prediction came from insolvency expert Begbies Traynor as well-known retail chains clamour to sell enough goods to meet their quarterly rent payments on Christmas Day. Nick Hood, partner at Begbies Traynor, said: “I would not be surprised if between 10 and 15 national and regional chains collapsed before the middle of January.”

Hood refused to name specific store groups, but this weekend it emerged that The Officers Club, a 150-strong national menswear chain, had been put up for distressed sale through KPMG, while the specialist tea retailer, Whittards, and music store Zavvi remained on the critical list.

According to the accountancy firm Price Waterhouse Coopers, if only 10% of national retailers get into financial difficulty in the next 12 months, that would bring about 4,000 empty shop units onto the market.

Rupert Eastell, head of retail at BDO Stoy Hayward, said: “From tomorrow until mid-January, it’s going to be the worst three weeks for retailers in 20 years.”

A slew of high-profile names have already gone under this year, including Woolworths, MFI, SCS, Dolcis, MK One and Rosebys. Suppliers to big-name retailers are also facing collapse.

House of Fraser has written to 200 of its suppliers asking them to be honest if they run into financial difficulties. It has already extended the offer of financial support to some stricken suppliers.

Leading shops have engaged in unprecedented levels of discounting to woo shoppers in the run-up to Christmas, but sales have continued to plunge.

Leading British retail executives admitted privately this weekend that sales were down by between 10% and 30% on a year ago, and even a last-minute rush of shoppers would be too little, too late, to save their Christmas.

Derek Lovelock, boss of Mosaic, the retail group that owns the women’s fashion chains Karen Millen, Coast and Warehouse, said: “It is the worst run-up to Christmas I have ever experienced. The likelihood is that there is too little time left for the majority of retailers to make up the shortfall from the past two months.”

...more on link

[snowychap]

New figures show that recession is deepening

OFFICIAL figures this week will confirm that the economy has been sliding into recession for months and could show that the downturn is deeper and started earlier than first thought.

Revised figures for gross domestic product (GDP) in the third quarter are set to show a fall of at least 0.5%. Several analysts believe that subsequent information, particularly on the dire performance of manufacturing, will see a sharper quarterly fall of 0.6%.

Whitehall officials are also braced for a revision of earlier data, which could change the timing of the recession.

Existing figures show that GDP was flat in the second quarter. That has allowed ministers to claim that Britain’s recession started later than in other economies, notably the eurozone and Japan. Any downward revision to the figures would mean Britain was in “technical” recession from the spring.

Economists are getting gloomier about the outlook. The Centre for Economics and Business Research, a consultancy, predicts that Britain will contract by 3% in 2009 and a further 0.7% in 2010, implying a long, deep recession.

Capital Economics, another consultancy, now predicts a fall of 2.5% in GDP next year, with a further drop of 1% during 2010.

This compares with the Treasury’s prediction of a decline in GDP of between 0.7% and 1.25% next year, followed by a recovery in 2010, when it expects to see the economy grow by between 1.5% and 2%.

Analysts surveyed by Ideaglobal.com, the financial research company, expect the Bank of England to press ahead with interest-rate cuts in the new year. Asked where Bank rate would be at the end of the first quarter, the median expectation was 0.75%, compared with 2% now.

The Bank’s monetary policy committee is widely expected to cut interest rates at its January meeting, but analysts are split on whether it will repeat this month’s full percentage-point cut, or opt to slow the pace of easing.

Business has welcomed the speed with which the Bank has cut rates, but there is concern about sterling’s slide. Last week the pound hit an all-time low of €1.05 and also dipped back below $1.50.

...more on link

[snowychap]

Poor 'may face state loan charge'

Emergency state loans given to the poorest people in the UK could cease to be interest free, under changes being considered by ministers.

The social fund currently extends £500m a year in interest-free loans to some 1.2 million benefit claimants.

But the government says in future some loans could be run by credit unions, who it says typically charge annual rates ranging from 12.68% to 26.8%.

The Tories accused ministers of acting like "loan sharks".

The BBC's political correspondent Jo Coburn said the reforms were designed to ensure that interest-free loans were not offered to people who did not really need them.

The social fund was set up to help needy people, many of them elderly or disabled, meet the costs of items such as cookers, cots and funerals.

Credit unions

Details of the proposed changes were released in a Department for Work and Pensions consultation document.

It states that the government is considering offering contracts to credit unions to provide "affordable loans", as well as other services such as savings accounts and financial advice, to people at a local level.

"To fund the cost of these extra services, we are proposing that the credit offered under these arrangements could attract an interest charge of 1-2% per month," it says.

The paper states that credit unions of the sort they are considering "typically charge interest at rates varying from 12.68% to 26.8% APR".

The DWP said that in 2007/8 the average "budgeting loan" given by the social fund was £433.30, and the average repayment was £10.54 a week.

In future, if interest were charged at 2% a month, it would take 46 weeks to repay that amount instead of 42, with total interest of £47.80.

A Department for Work and Pensions spokeswoman said: "The social fund provides affordable credit for people who need it.

"We are now exploring how we can make it more widely available to people in work as well as on benefits.

"We want to make sure people in need do not turn to illegal loan sharks who can charge interest of 1,000%."

No decisions had been made and the government would do nothing to create difficulties for low-income families, she added.

'Totally unacceptable'

Labour MP and chairman of the Treasury Select Committee John McFall told the BBC that the social fund "does not work".

"The government needs to... ensure that people get the genuine loans and genuine needs met," he said.

"To put a 26.9% interest rate on that seems to me that it would make a bad situation even worse, so I think that's a bit of a joke."

Shadow work and pensions secretary Chris Grayling said: "These proposals are simply outrageous.

"Thousands of people are losing their jobs every week, and it is nothing short of extraordinary that the government's answer is to propose abandoning interest-free emergency loans, and start charging 27% a year instead.

"Gordon Brown and [Work and Pensions Secretary] James Purnell are behaving like loan sharks."

The Liberal Democrats said the proposal was "totally unacceptable" and "seemed to be destroying the purpose" of the social fund.

Treasury spokesman Vince Cable told the BBC: "It's completely self defeating. It's just driving people who are already in difficulty into even further difficulty.

"It's harsh, it's insensitive and it doesn't reflect the needs of the day."