Very informative post. Too bad Made in the USA completely ignored it.(Original post by 0404343m)
You are correct in that irrationally lending money wont help anyone- but no one has suggested that is the solution to the problem. This problem was started by something called CDOs, or collateralised debt obligations, where lots of mortgages were bound up and sold on to investment companies that paid huge amounts up front in order to reclaim the interest on batches of mortgages. These 'investors' included the British and Icelandic governments and lots of major banks. When these went bad, people who had sunk tens of billions of pounds into them, expecting a repayment of x amount per month, were suddenly left billions short, so they responded by hanging onto what they had, seizing the money supply up. If banks dont lend, then they dont make money, simple. No one suggests banks lend 120% of the value of a £300,000 house to a receptionist and her unemployed husband (that's an actual example), as they'd be asking for trouble. But to not lend at all is financial suicide, and even the banks know this.
Again, human nature, the thing that has driven stock market bubbles and house price bubbles, has meant people are now liable to hoard their cash for a rainy day. Actually, there has never been a better time to borrow- but even still, companies that make luxury foods are struggling, and this has nothing to do with lack of credit, but fear of the future, so people are saving their money and buying cheaper alternatives, which inevitably helps your tescos of the world, but puts lots of people out of work. Not many people take out massive loans to buy a new television, but now they dont sell as people are happy to make do with the old, again, not helping anyone.
Britain actually manufactures more as a value now than we have at any time since ww2- but its usually in the form of, lets say, motorola, who are paid subsidies by the British Govt to manufacture over here for our own markets, not things made here for abroad. This is where we struggle, because our own markets aren't buying. Britain are still world leading exporters in certain areas, youre right there, but it tends to be (but not always) in small, high value sectors. We made very good high-strength glass for aircraft windows once, for instance. However, the main problem is unemployment, doubling these sectors dont add a lot of jobs, because a few highly skilled craftsmen make a £50k window- this isn't going to get people off the streets. Investing here might make a few people money- but trust me, its not helping the wider economy in the long term. The difference between 1.5million and 3million unemployed is over £30,000,000,000 per year to the British economy, assuming the difference between tax, benefits and the spending power of these people. To get them back in the system, people need to spend money in shops (oversimplification, but anyway) which in turn boost capacity and take some of these people on. These people then get a wage which helps them spend money, and so on. Export industries is not the way forward anymore, too many countries just make things far, far cheaper than we ever can, and it'd be a cash black hole if anyone thought investing there would help.
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- 05-02-2009 00:29