Author Alasdair White
Do the public really care about the banking crisis and the fact that governments are using tax-payers’ money to bail out the financial institutions?
The instinctive response is: YES, they do care and they resent the fact that banks are being rescued having lost a lot of money. But the counter-intuitive response is rather different.
Over the last fifteen years or more, the populations of the developed economies have been saving less and spending more than they can afford. Saving rates in places like the UK and the USA have fallen to virtually zero – well below a healthy savings rate of about 5-7% of disposable income. One explanation for this is simply that interest rates are so low that the saver gets little or nothing for their prudence and with inflation rates almost matching interest rates, the real return is either zero or negative. Combine that with the taxation that is levied on the interest earned and there is absolutely no incentive to save anything.
The governments of the developed economies then decided that eternal growth was required and they simply didn’t want the population to save anything – they wanted them to spend, spend, spend. And the population responded with the most sustained and emphatic spending spree ever – all funded by borrowing on their credit cards and from the bank. Eventually, of course, the borrowers couldn’t afford the repayments and the interest, so the banks started repossessing their homes and that’s when they discovered the loans were sub-prime in the real sense of the word.
The governments have now used the money that the population gave them in income and sales taxes to shore up the banks. I suppose all that has really happened is that the economy has been a bubble based on froth and that the money now being used to mop up the collapse was money the population would have saved had the government not encouraged them to spend.
Who’s to blame? No one and everyone – human nature and human greed drove the spending spree and governmental greed and politics eliminated saving. The economic policies of all the political parties have shown themselves to be truly disastrous, truly policies of the brainless and gormless. Politicians simply didn’t consider the Law of Unintended Consequences and didn’t bother thinking about the inevitable outcome of their misconceived policies. We don’t need a new economic model, we need a new political model and realistic policies.
I suppose it is no surprise to discover that politicians, bankers and lawyers are the three least trusted categories of people.
Posted in Miscellaneous Ramblings