Douglas Carswell

Too many "experts" have got this crisis wrong

Back in mid-August, I forecast "The financial system is bloated ... it will shrink."

I went on "Too much money has been too cheap for too long.  As a result, Western governments and individuals borrowed too much."

"We can no more prevent the consequences that will now unfold than we can suspend the laws of gravity.  This won't stop some politicians from trying."

I suggested that when the crisis hits home, certain politicians would throw billions of tax pounds at it - yet not actually solve it.  Because so many are in thrall to the "experts" who misunderstand its causes.

Now that everybody is clawing about for an opinion on the crisis, many seem to be merely regurgitating what the "experts" keep telling us.  But much of its cobblers.

Turning private debt into public debt has not been a resounding success - see the $700 billion bailout in the US.  What it has done is make the prospect that the US might default on Treasury bills, once unthinkable, a possibility. 

Offering £50 billion for UK banks has yet to work - not one bank has yet taken the money or begun to lend more freely as a result.

Cutting official interest rates has not eased credit.  Despite what all those "experts" thought was obvious, since the Bank of England cut rates, the real lending rates are actually up.

Ten days ago, I warned that credit-default swaps and other non-mortgages backed assets would be the next to blow.  Today we see a growing realisation that many of these IOUs are essentially worthless.  

It's time for some clear thinking; the cause of this crisis is debt. 

Year of lax monetary policy caused too much cheap money.  Cheap money meant public and private and corporate debt.  That also fuelled an asset bubble.  Now everyone is looking to switch assets for cash. 

Worse, new financial instruments that didn't exist a decade or two ago - default swaps et al - made money from nothing (literally).  Many of these financial instruments turn out to be voodoo.  Now anyone holding them wants to trade them for cash.

There's only one sure way out of this crisis; reduce debt. 

But it’s a brave “expert” who’ll explain what polices we are going to need to do that.  Its an even braver government that'll take the action needed to do it.  

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