Douglas Carswell

26 DEC 2008

Will we become the new Iceland in 2009?

The BBC's Robert Peston makes an interesting comment on his blog: "if the perceived credit-worthiness of our banks - with their trillions of pounds of assets and liabilities - were to deteriorate further, that would have an impact on the perceived credit-worthiness of the state."

Think about that. 

The liabilities of some of these quasi-state owned banks exceeds our entire annual GDP.  I remember reading someplace that one such bank alone had liabilities several times Britain's 2007 output.  If they go bad, you and me and everybody else becomes liable for all that bad debt.  Each of us will pay for it - with higher taxes, lower pensions and less public services.  For many, many years to come.

Remember that next time someone tries to convince you that Gordon Brown's rescue plan has all been a genius master stroke.  Turning private debt into a public liability might have looked like a smart move in late 2008.  I doubt it'll look quite such a smart move in a year or two.

We'll look back at the initial public policy response to this crisis and see quite how cack-handed it's been.  Interest rates that discourage savings don't help build up credit.  Nor does a glut of public expenditure - designed to raise aggregate demand - which itself soaks up whatever credit there is in the system.  We're still fighting a debt crisis as if it was a problem with aggregate demand.

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