Savers To Save Us

4th January 2009 - Savers to save us

If the monetary pump has not been primed to whatever effect, see yesterday’s diary entry, and still not to risk banks going bust ala northern rock, it makes one wonder if there had been some other way out of the blocked credit conundrum. Had there been, it might have prevented what to a majority of people is the very worst consequence, that is, the pummelling of savings rates. As the central bank cut its bank rate and although the wholesale market only followed suit later and reluctantly, so savings were hit hard. So hard in fact that millions of savers are poised to hear they have zero % accounts. So here is a too-late crazy idea. Supposing the savers who are in a ratio of 6:1 to borrowers had had all their savings guaranteed 100% by the government from the start and then this liability sitting in the banks’ books had been pledged by the government. This would have given the banks a gilt-edged asset to match the savings liability and so increased the banks’ reserves. Could this have worked? If it was a possible goer, then savers would be rewarded for their commitment rather than punished as a consequence of the pump priming. As it is, the likelihood is that the likes of RBS and Lloyds/TSB and HBOS will have to receive more funds and indeed may be nationalised completely. Surly it would have been better to have the savers save us?

It is a sad fact that what is left of the UK’s indigenous manufacturing sector is in the worst slump since the early 1990’s. In theory our exporters should be benefiting from the weak pound but two principal factors mitigate against this. First, the receiving market is likewise weak and secondly the imported raw materials are more expensive. If only we had not stuffed our homes with Chinese-made goods, but this is a global world after all - and don’t we all now know it.