As David Cameron prepares to speak, I would like to helpfully outline five components behind the mess we see today.
1. Bungling central bankers: As I blogged earlier, the Bank of England refused to support banks with the zero-penalty lending rates offered in every other major world economy. There’s a strong case for such discipline, but I believe a stronger one for keeping liquidity moving if there’s a risk of a run on the banks. 2. Dozy regulators: The FSA hasn’t kept pace with the UK’s fast-evolving banking sector. Northern Rock had stood out a mile as the most highly leveraged bank in Europe, yet the FSA didn’t see any problems. The City did. 3. Monetary loosening: Swapping a 2.5% RPI target for 2.0% CPI effectively loosened the target to 3.0% RPI because the two indices are percentage point apart, not half a point like HMT claimed. A cheap debt binge was encouraged at the worst time. 4. Blinkered BoE: The inflation-only remit set for the BoE in 1997 is too narrow, thus it was programmed to ignore soaring household debt. It could flag up the problem, and did, but had no remit to act on it. 5. Spendthrift ministers: It is rich to hear Darling talk about people borrowing over their means, when this has been the modus operandi of this government since Gordon divorced prudence in 2000. After his ten years of growth, the UK should be in Clinton-style surplus not nursing the highest deficit in Western Europe.
I don’t pretend this is a balanced critique: these are attack lines. But as Dan Hannan pointed out in the Sunday Telegraph, it was grossly unfair to blame Tories for the ERM which had cross party support. The art to successful politics is making mud stick. Let’s see how Cameron does today.
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