The Magic of '9'

It started with the banks and it must end with the banks.  

 

Please remember this throughout the next 2 -3 years as the UK economy limps along and we dip in and out of recession……It started with the banks and it must end with the banks.
 

Our Government has no money to ignite the economy when it is insistent on increasing taxes and cutting public spending to tackle the budget deficit (we spend 8% more than we earn). So that leaves the Bank of England……but they have pumped £375 billion into the UK economy and it has had little / no impact.
 

And that leaves just one other option for the UK……the banks.
 

In essence, we need the banking sector to make money easily / cheaply available to allow the UK to spend on goods / services. This will then allow the magic of the multiplier effect of ‘9’. Basically, when £100.00 is borrowed and it is spent, the recipient of the £100.00 then spends it plus the profit they made on the £100.00 (let’s call it £110.00). The recipient of this £110.00 then spends this and the profit they made. And so on, and so on. The impact is that £100.00 borrowed is eventually £900.00 injected / created within the UK economy. The magic of ‘9’.
 

But here is the problem……the banks don’t want to lend. They really have no interest at all in lending. It is not in their best interest to lend. Why? Quite simply they want to meet the requirements of the Basel II Bank Rules that force all banks within the EU to hold sufficient cash reserves within their balance sheets by 2019. These reserves are significantly higher than previous and lending money does not help them meet this requirement as they have to set aside even more reserves with each loan leant out.
 

Banks in the UK are likely to take 2 – 3 years to be in a position to sort out their reserves and balance sheets. In the meantime, loans will be difficult to come by or be far too expensive for the majority.  

With the hands of the Government tied (albeit self-imposed), the banks have Westminster and the UK economy in a hostage situation and we have to wait for them to lend again. The result is a UK economy that will literally limp along in 2013 and 2014.     

Like it or not (and I’m guessing you are a ‘not’), it started with the banks and it must end with the banks.

We have literally gone full circle and learnt nothing.

Shameful