Paul Heaney © 2004
Overview
There is an underlying necessity for re-introducing ‘confidence’ back into the economic system. This can be done is the several ways I have outlined below. But essentially, there needs to be a re-introduction of liquidity into the system, both on the consumer side and the commercial or personal and corporate banking side.
For this to happen, it is necessary for the banks to know they can lend at a worthwhile profit. So, they need to be able to lend at rates that are not too low, nor too high that will harm or endanger the well-being of both the borrower, and therefore ultimately the lender or bank.
The banks are currently going through a period of consolidation, and whilst they are reeling from the shock of huge recent losses, they find themselves in uncertain times, not sure in absolute terms as to their eventual losses from the contagion arisen from bad investment decisions and products over recent years. They therefore need time to finalise their losses and draw a line under them. Whilst they are going through this period of uncertainty and unknown extent of their losses, they are not prepared to commit to lending that they cannot guarantee in the event such loans are dishonoured or default.
Government and Central Banks can help by guaranteeing loans to an extent, in order to re-introduce liquidity into the system, freeing up the money that already exists in the system, and introducing sums if required on a loan basis to the banks, but at sensible levels of interest, not too high, but actually at lower levels than is generally commercially available through LIBOR.
Once risk is minimised, then confidence returns and feeds through the system.
Lowering interest rates merely lowers commercial profitability for the banks, which tightens or squeezes lending. So interest rates need to be at a level that are profitable for the banks, but are also not too burdensome and affordable for the borrower, both commercial and personal such as mortgages.
Pumping too much money into the system is an unbalanced approach to the current situation and will lead to inflation. And judging by the sums employed, probably will lead to hyper-inflation in 2010-2012.
As has been seen with reducing VAT recently, this does little to encourage confidence or movement in the commercial world. It actually costs business to alter their pricing brochures, and is not significant enough to increase sales as the consumer will not spend in such uncertain times, nor should the consumer be encouraged to do so, as this would be reckless. Instead, the action of lowering VAT by 2.5% has merely squandered a large amount of money to the tune of several billion Pounds, precious tax income for the exchequer, which the Government can ill afford, and only adds to the national debt burden, prolonging the time it will take to redress the debt balance.
The banks need money in at this time, as much as they can garner. For this to happen, they need to encourage saving, and for this to happen, they need to set a savings interest rate that is worthwhile for the saver.
To be able to afford to offer a decent savings interest rate to consumers, banks need to make a decent profit from lending, therefore their lending interest rates need to be higher than savings interest rates. Borrowers expect to pay higher interest rates for loans than on their savings, and they can stand a sensibly set interest rate for borrowing. So, the system has to work both ways, to be able to satisfy both lender and borrower. Anything else simply will not work.
The free market economy can work if it is not hampered. However, it is vital that watchdogs are employed, so that an eye is kept on financial activity to the extent that conflict of interest is mitigated, investors can be confident their interests are being looked after, and bankers or lenders can be confident that proper valuations and credit reports are accurate, in order to minimise risk, and so as not to ultimately undermine financial products and instruments.
Property valuations have been artificially high for several years, and they should be allowed to revert to more realistic values. It will be painful for some, but it needs to happen, and always has happened, as it is a natural phenomena. Repayments on property loans are not sustainable at levels where there is such a large discrepancy between prices and incomes. The loan multiples based on income have to be lower to reflect a more sensible and more risk averse scenario.
Tax regimes should be sensibly and fairly set, otherwise the wealthy and businesses flee to better tax regimes. Penalising the wealthy does not work as there is then no incentive for them to remain in the country. Similarly too high a tax regime is not favourable for attracting entrepreneurs and businesses into the country.
"If there is one rule that is the best general guide, it is - balance in all things"
Aside from the immediate needs, we also need to be looking at the wider picture. What do we need to look at? We need to instigate creative training schemes and apprenticeships, ensuring a sufficient skilled workforce is on tap with foresight looking 5-10 years ahead, always mindful and encouraging a suitably skilled, strategic, resourceful and balanced economy is maintained wherever possible.
We need to ensure the adequate resourscing of schools in efficient ways by instigating resource sharing wherever possible. This can be achieved through the use of digital resources such as educational webportals.
Government’s Responsibilities & What We Should Expect
The advantage of Government is that it has the power and ability to oversee and facilitate on a grand and collective scale in integrated ways. What this means in practice is that it can facilitate more effective and efficient communication between communities at a distance from each other.
It can help bring to the attention in a collective and unified way, matters and points of best practice that might otherwise go unnoticed or ignored. Government has therefore the ability to act as a great catalyst and facilitator, helping to improve the lives of people in ways that are less costly and more effective by communities learning from each other. This has nothing to do with homogenisation or instilling a dogma, but empowering people to live peacefully, leading vital harmonious lives, in prosperity and harmony with the world around them.
It is Government’s responsibility to look around and look ahead, in order to see future needs and respond to market conditions, and anticipate them wherever possible so the country is always adequately skilled and resourced.
Government should encourage and facilitate the following:-
There is an underlying necessity for re-introducing ‘confidence’ back into the economic system. This can be done is the several ways I have outlined below. But essentially, there needs to be a re-introduction of liquidity into the system, both on the consumer side and the commercial or personal and corporate banking side.
For this to happen, it is necessary for the banks to know they can lend at a worthwhile profit. So, they need to be able to lend at rates that are not too low, nor too high that will harm or endanger the well-being of both the borrower, and therefore ultimately the lender or bank.
The banks are currently going through a period of consolidation, and whilst they are reeling from the shock of huge recent losses, they find themselves in uncertain times, not sure in absolute terms as to their eventual losses from the contagion arisen from bad investment decisions and products over recent years. They therefore need time to finalise their losses and draw a line under them. Whilst they are going through this period of uncertainty and unknown extent of their losses, they are not prepared to commit to lending that they cannot guarantee in the event such loans are dishonoured or default.
Government and Central Banks can help by guaranteeing loans to an extent, in order to re-introduce liquidity into the system, freeing up the money that already exists in the system, and introducing sums if required on a loan basis to the banks, but at sensible levels of interest, not too high, but actually at lower levels than is generally commercially available through LIBOR.
Once risk is minimised, then confidence returns and feeds through the system.
Lowering interest rates merely lowers commercial profitability for the banks, which tightens or squeezes lending. So interest rates need to be at a level that are profitable for the banks, but are also not too burdensome and affordable for the borrower, both commercial and personal such as mortgages.
Pumping too much money into the system is an unbalanced approach to the current situation and will lead to inflation. And judging by the sums employed, probably will lead to hyper-inflation in 2010-2012.
As has been seen with reducing VAT recently, this does little to encourage confidence or movement in the commercial world. It actually costs business to alter their pricing brochures, and is not significant enough to increase sales as the consumer will not spend in such uncertain times, nor should the consumer be encouraged to do so, as this would be reckless. Instead, the action of lowering VAT by 2.5% has merely squandered a large amount of money to the tune of several billion Pounds, precious tax income for the exchequer, which the Government can ill afford, and only adds to the national debt burden, prolonging the time it will take to redress the debt balance.
The banks need money in at this time, as much as they can garner. For this to happen, they need to encourage saving, and for this to happen, they need to set a savings interest rate that is worthwhile for the saver.
To be able to afford to offer a decent savings interest rate to consumers, banks need to make a decent profit from lending, therefore their lending interest rates need to be higher than savings interest rates. Borrowers expect to pay higher interest rates for loans than on their savings, and they can stand a sensibly set interest rate for borrowing. So, the system has to work both ways, to be able to satisfy both lender and borrower. Anything else simply will not work.
The free market economy can work if it is not hampered. However, it is vital that watchdogs are employed, so that an eye is kept on financial activity to the extent that conflict of interest is mitigated, investors can be confident their interests are being looked after, and bankers or lenders can be confident that proper valuations and credit reports are accurate, in order to minimise risk, and so as not to ultimately undermine financial products and instruments.
Property valuations have been artificially high for several years, and they should be allowed to revert to more realistic values. It will be painful for some, but it needs to happen, and always has happened, as it is a natural phenomena. Repayments on property loans are not sustainable at levels where there is such a large discrepancy between prices and incomes. The loan multiples based on income have to be lower to reflect a more sensible and more risk averse scenario.
Tax regimes should be sensibly and fairly set, otherwise the wealthy and businesses flee to better tax regimes. Penalising the wealthy does not work as there is then no incentive for them to remain in the country. Similarly too high a tax regime is not favourable for attracting entrepreneurs and businesses into the country.
"If there is one rule that is the best general guide, it is - balance in all things"
Aside from the immediate needs, we also need to be looking at the wider picture. What do we need to look at? We need to instigate creative training schemes and apprenticeships, ensuring a sufficient skilled workforce is on tap with foresight looking 5-10 years ahead, always mindful and encouraging a suitably skilled, strategic, resourceful and balanced economy is maintained wherever possible.
We need to ensure the adequate resourscing of schools in efficient ways by instigating resource sharing wherever possible. This can be achieved through the use of digital resources such as educational webportals.
Government’s Responsibilities & What We Should Expect
The advantage of Government is that it has the power and ability to oversee and facilitate on a grand and collective scale in integrated ways. What this means in practice is that it can facilitate more effective and efficient communication between communities at a distance from each other.
It can help bring to the attention in a collective and unified way, matters and points of best practice that might otherwise go unnoticed or ignored. Government has therefore the ability to act as a great catalyst and facilitator, helping to improve the lives of people in ways that are less costly and more effective by communities learning from each other. This has nothing to do with homogenisation or instilling a dogma, but empowering people to live peacefully, leading vital harmonious lives, in prosperity and harmony with the world around them.
It is Government’s responsibility to look around and look ahead, in order to see future needs and respond to market conditions, and anticipate them wherever possible so the country is always adequately skilled and resourced.
Government should encourage and facilitate the following:-
- Balance & Stability
- Foresight
- Justice
- Support
- Best Practice
- Integrated Effective Communication
- Integrated Efficient Travel
- Diplomacy & Inclusive Communication
- Protection
Freeing-up the financial credit system
Financial systems across the world have ceased up. The financial blockage needs to be dissolved before the patient dies. Where there is free flow, there is life. At the moment though, the life blood has stopped flowing and the patient has suffered a stroke. If the blockage is not removed in good time, the patient will die at worst, and suffer long lasting adverse consequences at best. We will have cabbage states the world over.
So, what are the practical options available to us? Here are some ideas …
1. Interest Rates & Savings
Set around 7%
2. Interest Rates & Lending
Set around 10%
3. Tax
Personal allowances should be raised in such difficult times to around £10,000 for at least the next 2 years.
Set tax bands at:-
10% up to £15,000
15% up to £25,000
20% up to £45,000
25% for all incomes above this.
4. Banking
Government should instigate loan guarantee schemes via the banks. By banks, I mean the Government owned banks. This is because the mainstay of high street banks are currently unsure of their real and probably as yet undiscovered liabilities.
We need the shortest route to market for this emergency money to hit the streets as soon as possible. So Governments should use existing channels. If for any reason those channels are not able to offer this facility, then a new bank should be established to facilitate this, although this would prolong the pain and increase the number of business failures and administrations.
5. Regulation
Instigate rigorous scrutiny of the financial sector, including investments, lending and pensions. This is Government’s responsibility ultimately.
It is Government’s responsibility to ensure and maintain stability throughout the financial and economic system, and secure the welfare of it's citizens.
6. Investment
Reduce tax on stock market investments, or make exempt for at least 2-5 years.
7. Property
Raise Stamp Duty threshold to £500,000 for at least 2-5 years.
8. Employment & Training
Instigate creative training schemes and apprenticeships, ensuring a sufficient skilled workforce is on tap with foresight looking at least 5-10 years ahead.
9. Education
Instigate digital resources such as educational webportals.
10. Best Practice
Instigate best practice comparative studies webportals, both national and EU
Financial systems across the world have ceased up. The financial blockage needs to be dissolved before the patient dies. Where there is free flow, there is life. At the moment though, the life blood has stopped flowing and the patient has suffered a stroke. If the blockage is not removed in good time, the patient will die at worst, and suffer long lasting adverse consequences at best. We will have cabbage states the world over.
So, what are the practical options available to us? Here are some ideas …
1. Interest Rates & Savings
Set around 7%
2. Interest Rates & Lending
Set around 10%
3. Tax
Personal allowances should be raised in such difficult times to around £10,000 for at least the next 2 years.
Set tax bands at:-
10% up to £15,000
15% up to £25,000
20% up to £45,000
25% for all incomes above this.
4. Banking
Government should instigate loan guarantee schemes via the banks. By banks, I mean the Government owned banks. This is because the mainstay of high street banks are currently unsure of their real and probably as yet undiscovered liabilities.
We need the shortest route to market for this emergency money to hit the streets as soon as possible. So Governments should use existing channels. If for any reason those channels are not able to offer this facility, then a new bank should be established to facilitate this, although this would prolong the pain and increase the number of business failures and administrations.
5. Regulation
Instigate rigorous scrutiny of the financial sector, including investments, lending and pensions. This is Government’s responsibility ultimately.
It is Government’s responsibility to ensure and maintain stability throughout the financial and economic system, and secure the welfare of it's citizens.
6. Investment
Reduce tax on stock market investments, or make exempt for at least 2-5 years.
7. Property
Raise Stamp Duty threshold to £500,000 for at least 2-5 years.
8. Employment & Training
Instigate creative training schemes and apprenticeships, ensuring a sufficient skilled workforce is on tap with foresight looking at least 5-10 years ahead.
9. Education
Instigate digital resources such as educational webportals.
10. Best Practice
Instigate best practice comparative studies webportals, both national and EU
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