Saturday, 11 October 2008

The Bailout

I have been watching the effect of the £500bn bailout this week with interest. There seems to be a consensus that it is the right thing to do. It is a plan with widespread support from all parties, the finance industry and many professional economists.

I think it is a terrible plan and a bad idea. The sheer scale terrifies me. This sort of plan is a carpet bombing approach to a crisis where a surgical strike would have been more appropriate. The problem is not money it is the fact that money is not moving, the only part of the plan I welcome is the cheaper guarantee for interbank lending which will hopefully get the money moving.

I have said it before the problem is confidence and being told to sort out the problem requires a sum roughly equivalent to a third of the economy destroys the confidence I had.

The £500bn will have to be paid for and my generation will be the ones to pay it. Borrowing is just deferred taxation, it will have to be paid sometime and in 10 years I will be paying it (as well as for the NHS and pensions and whatever else this government wants to fund).

I am also afraid that it has destroyed the argument for low tax for the general population. Now government spending is actively measured in £100s of billions, what chance do the prudent among us have to argue that it was this profligarate spending and massive debts the government ran up which are partly to blame for the crisis.

This is not money the government has magicked into existence it will destroy us for decades and destroy arguments for prudent spending and restraint in public spending for just as long.

I love this country, but I feel as though I am watching her die, but as they say the darkest hour is just before dawn.

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