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Ben Chu: Cameron's crowding out of reason

Posted by Eagle Eye
  • Monday, 23 November 2009 at 01:59 pm

David Cameron speaks at the CBI Conference (Photo credit: Steve Back - www.politicalpictures.co.uk)


Just where is David Cameron getting his economic advice from?


This is from the Tory leader's speech to the CBI today:

"The idea that the deficit brings the risk of higher interest rates for businesses and families isn’t a theoretical possibility – it is actually happening already. One of the things that is limiting the supply of affordable credit is that banks need to build up their deposit bases and become less reliant on unstable wholesale funding. But amazingly the most attractive – and therefore competitive - one year savings product on the market at the moment is actually being provided by the Government, through National Savings and Investments. So the Government’s need to finance its borrowing is already affecting the supply of credit to families and businesses - and its cost. In other words, government action is already beginning to crowd out the private sector."


So the Treasury-controlled NS&I puts an attractive rate on its bonds and this is crowding out lending to the private sector? Er, bit of a leap here. First, NS&I has a target of raising no new net money this fiscal year. See here, page 83. The size of NS&I liabilities are due to remain constant at some £97bn. How is this crowding other borrowers out?

Second, what makes the Tory leader think that if those funds went into deposit accounts, the banks would lend it out to the private sector? Money has been pouring into the banks thanks to capital raising and quantitative easing, but, as the Bank of England lending trends reports make clear, this hasn't boosted lending to small and medium sized businesses. Why? Because the banks are using these additional funds to repair their damaged balance sheets. They're not interested in new lending.


There's an even bigger economic fallacy in Cameron's thinking. As Paul Krugman and others have made clear, in these special economic circumstances, high public borrowing is, in fact, crowding in private investment, not crowding it out.


photo: Conservatives

Comments

deimosp wrote:
Monday, 23 November 2009 at 03:11 pm (UTC)
... one year savings product on the market at the moment is actually being provided by the Government, through National Savings and Investments

There is a lot of political tooings and froings going on around NS&I at the moment. what he actually said is untrue as, despite NS&I claiming that such growth bonds would remain (interest rates might fluctuate a bit), the other day the government just pulled this product completely. No warning nothing. And then Cameroon mentions it is a speech a couple of days later - me thinks somebody leaked the speech.

Maybe time our politicians stopped messing savers around for their political games. At the moment saving is a totally worthless thing to do - all it does is allow you to watch your money decline in value. But too much debt has made things a lot worse for the economy (except that Labour like to help out those who are the most irresponsible using money from the responsible).

Banks will be needing money to lend to all these Small Businesses and savers are a major source. But with savers being treated so badly there is no point in them bothering. But the banks also need money to increase their capital reserves so savers are again needed. Low interest rates might help make inflation look low (whereas it is not as low as it looks) and might help those with debts, savers are the ones who are actually in a better position to help spend (responsibly) and drive the economy forward as they are the ones who can actually afford to - but not with interest rates so low.
He's not alone.
Dave Sanders wrote:
Thursday, 26 May 2011 at 06:53 pm (UTC)
Everyone points the finger at Cameron but he's not the only idiot in Westminster. They are all as bad as one another and voting for Labour, Conservative or even Liberal no matter who is in charge is a vote for more of the same idiocy and lies that Conservatives have shown. How many election promises has Cameron and the ConLib coalition actually kept? Answer - NONE! How many will Labour keep if they win the next election? Answer - NONE! They are all liars and fraudsters who are hell bent on making their own wallets thicker at our expense. The fact that this leads the country down the rocky road to ruin is irrelevant, they can retire to some luxury island paradise and not be affected by it all. It's the common people who have to face the brunt of this chaos they've created. So when you have to fear what tomorrow will bring, when you are not safe on your own streets, even going to the shops, remember who you voted for. What have Labour, Conservative or Liberals done for the British people compared to what they have done for immigrants and asylum seekers? Now tell me who is the racist because English, Irish, Scottish and Welsh are races also. Patriotism is not racism.
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