Thursday, 23 August 2012

Austerity or fiscal stimulus

The jury is still out, although it seems clear that the current Chancellor appears to favour the former.  

As I type this, a survey from the Institute of Directors (IoD) has just been released, which is critical of the Chancellor’s ‘belt tightening’ policies.  Sadly, the IoD members conclude that the country will still be in recession at the end of 2012. 

Whether that will be the case remains to be seen but as the Labour PM, James Callaghan, admitted in 1976, additional spending only worked by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment.  At the moment both of those factors are just about under control and no one wants them rise.

Much of the capital injected into the banking system through quantitative easing has ended up there – with the banks…which has increased their capital base significantly.

In spite of claims that lending has increased, small businesses are still not getting the funding they require.  A recent Bibby Financial Services survey suggested that less than one in ten small businesses succeeded in gaining finance from their Bank. Could it be that banks are not lending because they have hidden liabilities?

Unfortunately the whole economical situation is extremely complicated.  But without funding for business where can the country find an impetus?  Rather than pussy footing around, shouldn’t the Government step in to sort out the banking sector once and for all.

Posted on behalf of Advisor Angus.

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