Monday 6 July 2009

Economic Generals focus on the last war

There is much discussion, see here for example, of whether the FSA or Bank of England get to oversee future financial regulation. Personally, I am getting a bit tired of it all as it is a really typical Government-style piece of bureaucratic infighting.
Worse, it is clouding over the real policy failures that have been made these last few months and also ignoring the real crisis we are seeing now in the Country.

Who cares about a macro-prudential economic panel that may or may not help to avoid another bubble in 50 years time. No sane bank or borrower is going to repeat the mistakes of the past few years having learned their lessons in such a costly manner so recently. Not that we do not need new rules, but the market has enforced them much faster than any regulation can be imposed.

So this hypothetical discussion is of little interest. It also is hiding the true debate which is what on earth we can do to both try and stop doing more quantitative easing whilst not letting the economy completely die? This may be happening in any event, in which case all the bureaucratic political warfare is real deck-chairs-on-the-Titanic-stuff: As with Generals down the ages the orders and weapons put in place for a new army are those needed to fight the last war, not the next one. The next economic period is about the controlling the collapse of the fiat money system as was and the huge inflationary pressures of a 6 billion person, resource-constrained world.

The Bank of England has run out of bullets, the FSA is concerned with minutiae and the Government is busy fighting over its future in opposition. This is not the leadership we would ideally like to see us through the crisis, it is a terrible failure of the UK political system as a whole.


Old BE said...

I disagree that we need Leadership from politicians. Everything they do makes everything worse, so the less they do the better. The best thing they could do would be to get the hell out of everyone's way.

We absolutely do not want the kind of planning you seem to be advocating.

Mark Wadsworth said...

It's always the same war, and has been for centuries. We observe, at regular intervals (not every fifty years, it's more like every eighteen years), mutually reinforcing credit and asset price bubbles, primarily in property prices.

Credit bubbles can be fixed by banning inter-bank lending or investing (like in Spain or Canada) and sensible minimum capital ratios. Property price bubbles can be fixed with land value tax.

That only leaves the rather insane 'leveraged buy out market'. Now, to me it doesn't seem too difficult to distinguish between a bank lending to a business (to invest in produtive stuff and expand - all good stuff) and lending to a shell company to do a leveraged buy-out of an existing company (all a bit pointless), so surely that can be fixed as well.

AntiCitizenOne said...

I would also suggest Credit Licensing, so in order to access interest bearing credit you need to pass a test showing you can calculate compound interest and what situations borrowing is useful...

This may help stop too much borrowing for consumption.

CityUnslicker said...

BE - Whether we like it or not, the Government controls the state with a strong hand. Wishing it were not so is not going to make it go away.

As we have institutions my suggestion is they try and do something more proactive than a giant blamestorm concocted for the media to hide their horrendous mistakes.

MW - It it 'twere that easy....

ACO - You mean like a banking 101 course...;o)

Sackerson said...

"No sane bank or borrower is going to repeat the mistakes of the past few years having learned their lessons in such a costly manner so recently."

Oh yes, they are going to. They got bailed, not jailed, and they'll do it all agaion in short order. In fact, they're doing it now:

Old BE said...

CU but going along with it in a corporatist manner doesn't help solve the fundamental problem either.

Anonymous said...

Given that we have no experienced a second major housing boom and bust it is quite clear we need regulations for the mortgage industry. The market may regulate itself but the British people need some protection from the wilder swings of the pendulum.

AntiCitizenOne said...


Credit is now almost 100% fungible with money/currency.

As the government insist on having their local currency monopoly then the government should regulate the amount of CREDIT in the economy (via reserve ratios (also called capital adequacy)) and leave banks to allocate limited credit.

We don't need detailed regulation, in fact that would be full of loopholes and easy to get around.

Attack the cause (BASEL2 removed reserves), not the symptom.