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Paying back the debts.

So when does the pain begin? After the General Election? The Government has run up huge debts allegedly tackling the recession. The war cry being to avoid another general depression. So to have many other countries. Now they can claim that they did not do nothing, but when does the pain of paying back the debts start. Will the impact be any less than a full depression. Currently it feels like one of those moments when you know the car is going to crash, slamming on the breaks helps but does not stop the impending impact. I personally can not see much sunshine until our debts are paid. Okay the economy may start to recover, but as soon as they decide things are improving enough to start paying back, then the recovery will weaken.

Slow motion Crash

It feels like a slow motion crash. You know you've hit the brakes and know your not going to stop in time. AD in the budget has announced that this years deficit will be around £175 Billion as a result of the Government's borrowing. There is no immediate pain by raising Tax's but you just know its going to happen in the future. The excuse for not doing anything much now is that if they do then that will only make the recession worse. There is also the small matter that there has to be an election in June 2010 at the latest. Its difficult to see where all the investors are supposed to come from to lend the UK, USA and what seems like every where else. The forecasts for recovery are shear fantasy

Savers Votes.

If what I have read is correct savers out number borrowers three to one. I am surprised that we are not seeing a noticeable difference in the political polls. Surely the fact that Savers are being sacrificed and squeezed till they squeak with the interest rate at 0.5% means they would vote for change, especially as Joe Bloggs next door with a huge mortgage is laughing all the way to the Bank - Surely to goodness no saver in their right mind will vote for the current Labour party. There are rumours that savers will be helped in the budget with tax relief, but tax relief on nothing is nothing so I cannot see that it will or should make any difference. Okay not all the population is a borrower or a saver, but I would have thought the savers would be a high enough percentage that their voice/vote would count. Maybe Gordon Brown and co have not thought this through, but I hope savers vote for change with their ballot papers. Maybe just maybe the European Elections will prove a wake up call for the Government to do something real to help savers.

Quantitive Easing.

Seems to me that Mervyn King & the MPC don't have a clue about what they are doing and don't seem to understand economics.

Now lets see if I understand what they are doing!!! As I understand it they are buying or going to buy billions of Government Gilts off the Banks. Now given interest rates are much lower than the nominal interest rate of the bonds - yields are low and price of gilts high. If the Bank of England keeps the Gilts for the full term they will loose money. Now as yields are already very low there is a limit to how much lower they can go. As we come out of recession the yields should get better which means the price drops. So again if the Bank of England decides to sell them they will again make a loss. So its a no win situation, either they hold them for the full term and make a loss or they sell them some time in the future for a loss. The result is that the Bank of England will be running up a very large debt(loss) in the future. That future maybe 25,30,50 years but a debt loss it will be and a very large one to boot. Seems like they might as well just burn the stuff as I don't think it will make that much difference. Future generations will pay highly for this reckless act

MPC futile attempts.

5th March 2009 - The Bank of England cut interest rates to 0.5% and will start Quantitative Easing. Both seem pointless and futile to me. When are our leaders going to wake up to the fact that the world has changed. Essential Goods are inflating and will continue to inflate - Food is already at 9% and rising - Cutting interest rates might be fine for those with large Mortgages, but are they going to spend to kick start the economy? I doubt they will spend on discretionary goods so anybody working in industries involved with discretionary spending are going to find life tough.
Cutting interest rates and QE are just going to hit the exchange rate and cause imports to become more expensive.

Well Food is still going up. Petrol is sneaking up again. Our Electricity & Gas prices are capped for a year and maybe Electric will not go up too much this spring. Seems to me that essential items are actually going up. No wonder the MPC and Governments actions are not working. The reality is surely that we have to get used to more of our household budgets getting squeezed as essentials go up, that we cannot afford the discretionary things like new cars etc. So those who work in supply discretionary items are going to feel the pressure and possibly loose their jobs. Low interest rates may help those with large Mortgages but again its essentials that will go up in price. Low interest rate also effects the exchange rate which again pushes up essential items.