“You can’t solve a crisis caused by too much debt by running up even more debt,” say the Austerians. George Osborne and Angela Merkel speak with one voice, at least they do when worshiping at the temple of austerity, for they are its high priest and priestess. They can’t begin to understand the heretics: how anyone with any kind of sense can’t see their argument. There is just one snag: they are wrong. They preach a religion based on a false premise. And they are wrong in the most profound way: for right now we don’t have a debt crisis. What we have is altogether different from that, and because we are not getting that, we are in danger of making things a whole lot worse.
It’s been another week of turmoil. And that once-in-a-hundred-year event – the credit tsunami of 2008/09 – seems to have re-formed. Perhaps we can relax. David Smith at the ‘Sunday Times’ seems to think so. “The crisis of three years ago was a once-in-a-century event,” he said yesterday. “Although the euro crisis is in continuation, it would be unusual to have another such event so soon.”
Meanwhile, leaders at the G8 sit and cogitate and – after taking time off to watch a certain penalty shoot-out – haven’t really said much. What is there left for them to say that has not been said before? François Hollande whispered sweet nothings into Angela’s ear. He literally whispered sweet nothings, for while the German leader has this idea for imposing cuts across indebted Europe, Mr Hollande wants to see nothing, or no cuts, zero austerity, or at the very least, he wants to see less of it. Barack Obama seems to be in the Hollande camp, but as for our David, I’m not quite sure which camp he sits in, other than Camp David, that is.
But it fell to a dove, a man who sits in prime position in the dovecote at the Bank of England’s monetary policy committee, to hit the nail well and truly on the head. See UK’s problems are its banks and zombies, below
But moving beyond Mr Posen, here’s the thing. The errors that were made in the build-up to the finance crisis were so much more than reckless consumers, or even foolhardy banks. What we really had in the noughties was too much saving, too much saving globally that is. And what we absolutely did not get was too much risk. On the contrary, we have the complete opposite.
And when lenders make a mistake on such a horrendous scale, there is only one thing for the debtors to do, and that is default. Otherwise, lenders are not paying the price for their errors. And then, once the punishment is handed out to the reckless lenders and savers, we can re-build. Hopefully, chastened markets will get behind the only thing that will do the trick – a kind of 2012 version of the Marshall Plan.
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