Monday, 23 February 2009

It's only money (7)

Now I know this is highly irregular, but I’ve got a leak from the next meeting of the Bank of England’s Monetary Policy Committee. They’ve found the solution to the lack of people wanting to lend – they’re going to cut interest rates again to minus 2.5%!

The reasoning works like this. Back in October, if you lent someone £1,000, at the end of a year, you would get back £1,045 – a profit of £45. No one wanted to lend. So what could the Bank do to ensure a steady supply of lenders? Slash that profit margin! So today let’s imagine you’re brave enough to lend someone £1,000, in the middle of a recession. There’s always a chance, of course, that you won’t get some or all of your money paid back at all, but if you are lucky enough to get the whole debt repaid, you ‘ll get the princely return of £10.

Bizarrely, this change has not resulted in dozens of people queuing up to lend money. So now Labour has persuaded the Bank that the way to attract lenders is to charge them for the privilege. From next month, if you’re fortunate enough to get your money back at all, you’ll receive only £975 for every £1,000 you lent. How could any lender resist this prospect? (I understand the government is also planning to ensure a steady supply of orange juice in the shops by decreeing that its price has to be cut by 80%)

Should this courageous initiative fail, the Bank has another trick up its sleeve - “quantitative easing” – printing money to you and me. It is a policy that has been used with great success by the Weimar Republic and Robert Mugabe among others. There is a ready solution available to the crisis we are in (see my blog of January 29) but that would involve helping the poor, so Labour dogma means it cannot possibly be implemented.

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