Tuesday, 13 January 2009

Do something

Watching Gordon Brown’s hilarious “do-nothing” attack on Cameron can lead the observer to only one conclusion: it’s a wind-up. Brown knows only too well that the parties’ economic strategies are closer than the public is led to believe (on numerous economic rescue packages their strategies are the same, only differing on where all the extra money will come from), so accusing Cameron of laissez faire when the chips are down must really smart. Especially when Labour is in a position to cherry pick all the best Tory ideas and repackage them as its own.

So what do the Tories think of the idea that not even Alistair Darling will admit to supporting, so-called “quantitative easing”? Let’s leave this one to Osborne.

“The very fact that the Treasury is speculating about printing money shows that Gordon Brown has led Britain to the brink of bankruptcy. Printing money is the last resort of desperate governments when all other policies have failed. It can’t be ruled out as a last resort in the fight against deflation, but in the end printing money risks losing control of inflation and all the economic problems that high inflation brings.”

Oh George. In your rush to conjure up images of an ink-stained Brown, desperately printing cash in a last ditch attempt to stop the UK going to the dogs, Zimbabwe style, you’ve forgotten three key facts:

1) Quantitative easing is a relatively popular Tory policy. It is supported by the Institute of Economic Affairs, a Conservative think tank, and indeed any sensible monetarist you might care to name. Monetarism, lest we not forget, is supposed to be Tory economic policy.
2) Darling has been very careful to “rule out” quantitative easing, mindful of the market’s current tendency to overreact.
3) As Times journalist David Smith so rightly says, “‘Printing money’, to be clear, is not the same as printing money.

He continues:

“This is not a cash economy. The value of notes and coins in circulation is £51.6 billion, less than 3% of £1.9 trillion of “broad” money in Britain, M4, consisting of bank deposits and the corresponding lending. Printing money means getting broad money growing faster through so-called quantitative easing.

“How? One way is for the Bank to buy government bonds or commercial securities from banks or their customers. This creates a credit in the central bank’s reserve account, which can then be the basis for increased bank lending. It also drives down interest rates throughout the economy.”

2008 wasn’t a great year for Osborne’s sense of judgement. It’s been an inauspicious start to 2009.

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