Vince Cable is going to give his update today on how the new Government sees UK PLC developing. There are likely to be some very welcome developments, such as the stopping of Lord Mandelson's crazy idea of picking winners and throwing subsidies at private companies with no promise of any economic return.
One issue though is that Vince is very keen to get banks to lend more to small and medium sized businesses. However, this is very much an economist talking. In aggregate he sees the drop in money supply and a credit squeeze. This needs to be loosened to we get Quantitative Easing and pressure on the banks to lend more.
What it ignores is Reality. In reality the UK corporate sector is awash with leverage, this is one of the main reasons the recession was so painful. The UK as a whole is awash with private debt and public debt. The concept that somehow more debt in the system is the answer is ridiculous. The Government itself is about to start making cuts (therefore another fall in demand, hence economist Vince seeing that we need more private debt to cover this contraction).
What the UK needs is over time to reduce if private, personal and public sector debts. sadly, this entails years of retrenchment - on the plus side with debt, the sooner you start paying it off the easier it gets as the principles are reduced.
Finally, the UK banks re keen to lend, but not to throw good money after bad. Should we really be encouraging state owned enterprises to lend to risky business where the money lent may not be recovered, let alone with interest? How is this a sensible way of nursing the banks back to health and off the public sector balance sheet.
Anecdotally it seems that Barclays, a private sector bank, is more or less closed to new business and has been for a long time. HSBC loves mortgages but no SME lending. leaving RBS and Lloyds already making up more than their fair share