By Rachel Reeves
Today is an historic day in tackling the recession. The Bank of England has already cut interest rates to an all time low, so today's cut in the base rate to just 0.5% is a side show. The real story is that the Bank has started to pursue quantitative easing, to the tune of £75bn - directly buying government and corporate bonds.
Some businesses and the government will now be able to borrow directly from the Bank of England, side-stepping the commercial banks who are either unwilling or unable to lend. The move will boost the amount of cash in the system, something even unprecedented cuts in interest rates has struggled to achieve.
Politically, Labour must now challenge the Tories on whether they back these moves. So far they have emphatically denounced quantitative easing: George Osborne called it the "last resort of desperate governments". But the greatest risk here is not inflation but deflation. Inflation increases when demand exceeds supply. This is the opposite of the problem we face - where demand is drying up and workers, capital and property are under-utilsed. The potential of quantitative easing to get the economy moving outweighs the risks. And we should be mindful of lessons from abroad. The Japanese waited a decade before they used quantitative easing. The government and the Bank are right to use all the tools at their disposal.
If the Tories are willing to leave stones unturned when fighting the recession - as has already been illustrated by their opposition to government spending, then that acceptance of more job losses, business failures and home repossessions must be exposed. Labour is offering real help to businesses and families. The Tories must be asked again and again why they doggedly stick to an ideological position of small government when the public, and all the evidence, cries out for support during these unprecedented times.
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The Government is weakening the few pounds that remain in peoples' pockets, all in a desperate attempt to stave off the worst effects of the recession until post May 2010, and to see their city mates alright- all these people with Brown Knighthoods that you've never heard of, running banks into the ground with no censure from Government.
As usual, the end days of the Labour Government sees them flogging off the family silver, at huge cost to the taxpayer, to preserve and increase their power base.
If someone cannot work out the rules on an expenses form, why should they be running the economy?
Unfortunately, we no longer have this option because the Headless Chicken has decreed that "doing nothing is not an option".
The £750billion figure you quote is simply not appropriate because it assumes that banks will be lending at their absolute maximum capacity, this is simply not going to be the case in the current economic climate.
That's precisely my point?
Anyway the entire purpose of printing money is to stoke up a bit of inflation. If that doesn't work, we lose. If it gets out of hand, we lose. I suggest you be less complacent and stop believing what Brown tells you.
Our (UK/Europe/World) economy is in a desperate mess. There is no clear right way out of this mess, no obvious right answer. The Gov. seems to have chosen one route that any number of well meaning people of right or left find really risky. I'd rather that politicians were honest about their doubts than that they felt obliged by "loyalty" (Labour) or "responsibility" (opposition) to dissemble.
If the Government feels that it is essential that the official opposition lines up behind this policy then they should have attempted quite a bit of serious bridge building first.
But that doesn't mean that the Tories have to "support" or "not support" it, any more than a person "accepts" or "doesn't accept" a bucket of water when their house is on fire. Of course they do, but after the flames have died down the key question is why the house caught fire in the first place and how to stop it happening again. IMO Labour are not wholly culpable but the bottom line is it all happened on their watch, sorry.
Still it's interesting to see Labour in opposition mode once again trying to shift attention onto the Tories. Should stand you in good practice for a year or so's time.
Well that is just like the banks (who have bonds rather than IOUs) and the government buys those bonds so now they have cash!
The explanation ended then... leaving me none the wiser... anyone?
Also the Fractional Reserve Banking System that we run in this country means that this policy is exactly like printing money. By pumping £75 billion into the economy the multiplier affect means that the money supply will eventually increase by at least £750 billion. This policy will destroy the value of people's earnings. But there is no guarentee that this money will prompt any sort of recovery.
This is a recession for the opposite reasons to 1979.
Well done Gordon. Having put the next generation in hock, you will now strip this one of what they have left. Is this what you mean by narrowing class divisions? We all end up as paupers (except of course MPs who will award themselves a new allowance to cover the gap)
It's the same thing, ask Mugabe (yes, that's what we are reduced to).
A quick google reveals I was wrong and he is in fact Gideon George Oliver Osborne, the 18th Baronet of Trumpton.
Japan used quant easing to get out of recession c. 5 years ago, and the US has been using this approach since about
November last year.
The only other country the springs to mind when I think of "quantitative easing" is Zimbabwe... Just thought we should give the Bank's actions some context.
When Sir Gideon Osborne says that printing money is the "last resort of desperate governments", strictly speaking, to those of us in the reality based community, he is, to all intents and purposes, in a telling-the-truth kind of way, technically speaking, correct. Isn't he?
(edited)