Thursday, February 28, 2013

(Politics) Coalition Economic Strategy: Time to consider a new growth strategy?

While it is a fair argument that the incessant pursuit of economic growth is one of the main reasons why the British and global economy in general has been in a malaise for the last five years, it has now become clear that new growth must be considered and drawn up fast. However with the conservatives and Liberals currently at the head of the table , don’t hold your breath for the serious risk of  falling into a state of unconsciousness. It would be a fair assessment to deem the coalition government led by the conservatives to have mastered the ‘day late and dollar short art of governing as the coalition have made poor policy decisions, even those of a political nature.

Prime Minister David Cameron Yesterday doubled down on the government favoured programme of austerity measures in an effort to reduce the deficit in spite of increasing calls for a plan for growth and the UK losing its triple A rating, which will make any borrowing the government makes expensive thus making the deficit even worse. The lack of a plan for growth and the dogged insistence for austerity indicates that the coalition has no idea how to stimulate growth while the answer seems remarkably simple.

The government has been pumping cheap capital into banks for last five years in the hope that it would at once keep banks solvent and provide capital for banks to make loans and invest in businesses but have received very little return on their investment the banks other than international scandal and merit-less ‘performance’ and retirement bonus payments that have left the public seething with anger.

A much better strategy would be to loosen the capital requirements that force banks to hold onto capital ironically derived from cheap money pumped into them and place conditions stipulating that it should go to new loans primarily aimed at new businesses. But this will never happen as the coalition’s aim to is not to improve the economy but to keep the markets happy and content.

This ‘keep the markets happy’ mentality that has become the official economic strategy for every British government since Margaret Thatcher and has not been contradicted even when it has become more than necessary to do so.  David Cameron unwillingness to break the irrational but enduring cycle of throwing money at the banks and getting burned for it down the road in the form of economic turmoil has not brought about progress but has seen one of the greatest transfers of wealth from the taxpayer into private hands.

However, there is signs of change as the Bank of England’s nine member Monetary Policy Committee, contrary to the wishes of its head Mervyn King, voted to freeze the bank’s Quantitive easing program, which triggered an adverse reaction in the global markets.  However this is normal as the markets are predicated on short term interests, a country however cannot and should not be held hostage to the whim of market speculators hungry for  quick profits at the government’s and indeed the country’s expense.

In sum , a plan for growth is needed and should be implemented soon but, I repeat, do not hold your breath. 

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