Not me Gov....

Douglas Carswell, M.P., today on his website accuses Big Government of making the credit crunch which is now causing so much havoc.

He is surely right, that they have made a great contribution to the problem. In the USA at times the Federal Reserve Bank pushed interest rates down, to almost zero at times. This was for the best of motives, - to stave off economic recession, but it also had the effect of hindering the "market" from making necessary corrections. A consequence was an expansion of borrowing and a reduction in saving. Many people have learned to live on credit and have risked more than they could repay in their borrowing.

In the UK Chancellor Brown also presided over an unsustainable expansion of credit, by the Government and by too many citizens. Here, too, staff sizes became swollen and inefficient practices tolerated. If there was to be a downturn many companies and individuals would pay a price for their profligacy.

Normally an overheating economy will succumb to problems like inflation, he proudly boasted that he had conquered this. He had done nothing like this, rather he had been saved by the Chinese "miracle" which reduced the prices of manufactured goods and largely neutralised tendencies for prices to rise elsewhere in the economy. But "white good" price reductions were merely holding a lid on inflationary effects, and once the former began to tail off there would inflationary pressures added to credit problems.

The other effect that "growth without inflation" had was to raise confidence very high. Gordon was the magician, a ten year miracle worker, or so he said. Once confidence goes, of course, everything collapses like a pack of cards. The cold light of day disperses the rosy hue. Now, even though they have money, the banks have fear about lending.

Douglas Carswell is right, big Government is largely responsible for the the mess. The message must be conveyed to those with siren voices who are calling for significant cuts in interest rates. There is no painless adjustment in the housing market or elsewhere, and doing an Alan Greenspan in rate reductions will do little while confidence is low, and may even exacerbate adjustments.

The other guilty party is the greedy fat-cat bankers, who responded to the apparently benign economic conditions by making risky investments and taking great risks. Their defence is, I suppose, that it was the actions of the Governments which encouraged their "gambling" and over stretching. If so, their guilt is secondary!

Nulabour seems to be arguing that we must persevere with Ditherer Brown because he alone can deal with the mess. As it was largely his policies that made us so vulnerable in the first place, this seems to defy logic. It's like putting a convicted burglar in charge of all security systems!