Just as England won a test match yesterday by losing the toss so losing in June 2010 might be a great result for the Tories. I fear we are headed for a 30s style depression organised as in the 30s by incompetent financial authorities and re-election seeking useless politicians.
The regulatory authorities and idiot politicians are demanding than banks hold much more capital than was previously required under Basel regulations of 8% of their lending book. This meant a bank could lend up to 12.5 times its risk adjusted regulatory capital. The bank regulators seem to want to double this halving the amount a bank can lend on its existing capital. Most banks have had rights issues to rebuild their capital but given the RBS balance sheet was something like twice the UK GDP it is clearly impossible to restore bank lending to its previous level in a short time. That is why bank crises take a long time to fix, say 5 to 10 years. So we are in for a tough decade!
The other way for banks to build up capital is to widen their margins and make more profits to retain as reserves. How do they do this? They jack up lending rates to borrowers hitting business and housebuyers and they reduce deposit rates paid to those with money, largely the retired. Everyone loses except the bankers!
Tim Congdon has just pointed this out describing the authorities as barmy. I agree but it is us who will have to pay. Even in Euroland loans to companies fell by a record 1.9% and M3 money supply fell 0.2%, the weakest performance since records began in 1970. So dear 'philes the Euro is no protection and the BU now expects for a second wave of the credit crisis in Germany especially among the Mittelstand firms.
I find it amazing that we are seeking to return to the same scenario that brought us so much pain. Its time for some good old fashioned Mrs Thatcher housekeeping and cutting the bloated public sector back to manageable size. But who will have the political courage do do this? Not Gordon or Dave for two! So Dave pray you lose in June for the sake of the country.