It's almost a year since the Conservative Party launched a brief campaign called "Sort-It" which was about the culture of debt that we now have in Britain that has been fuelled by the Government. The campaign, as some might remember, had a character in it called the "inner tosser" and was designed to appeal to young people and drive a message about how "spend today, pay tomorrow" wasn't a good way to go about managing your finances.
At the time, the Conservative Party came under criticism for it mainly because it used the word "tosser" and was apparently insulting to people. David Cameron himself went on television and asked BBC Breakfast "don't we need to do something in our society about the problems of debt?'... Young people, I hope, will watch it and I hope it will make them think about debt." There was, as you'd expect, a holier than thou reaction from the Lib Dems and Labour about the campaign, to put it bluntly, it was derided.
Roll-forward 10 months, and David Cameron write in the Sunday Telegraph that the crisis at Northern Rock, which is primarily a mortage lender, has not in anyway been helped by the culture of debt that the Government has fostered over the past decade and what is the reaction this time? Opportunism.
Apparently he is only saying the same thing the Conservative Party has been saying for some time for cheap political gains. Some commentators have suggested that Cameron is wrong to draw links, the Business Editor at the Times this morning wrote, "To be clear, Northern Rock's problems cannot be blamed on the politicians. It built a business model that was designed for an era of cheap and easy money."
It is true that Northern Rock's problems cannot be blamed directly on politicians. However, the "era of cheap and easy money" can be. For the past ten years we have had historically low interest rates. These have been fed by political rhetoric reminding us, and the quasi-indpendent Bank of England, how wonderful the world is with cheap credit. Brown and Blair before him have made low intereat rates a central plank of their tub-thumping. To ignore the influence that has would be foolish.
The resulting cheap and easy money - not just for finanical institutions with questionable business models - but also consumers who want to spend today, and pay tomorrow, has led us into a culture of debt that has made us far more vulnerable to extrenal pressures. There is little opportunistic about making that statement when it remains in keeping with what the Conservative Party has been saying for some time.
In fact, the idea that when the fifth largest mortgage lender in the country finds itself in trouble the Leader of Opposition should not stand up and point out that the political leadership of the country has helped precipitate a financial culture that exposes people and institutions to these sort of dangers is absurd.
What is even more absurd though is the way in which the reaction to his statements have gone from being derided and dismissed out of hand, to somehow being just about political point-scoring. In both cases the argument has been ignored, and the Government appears to be sticking its head in the sandy foundations of Northern Rock.
12 comments:
How do they keep getting away with it? Labour just put down Cameron whenever he finds a weak-spot, and the media play along with it.
http://lettersfromatory.wordpress.com/2007/09/16/a-well-constructed-argument/
So...what do you think should have been done differently?
Should the government have forced the BoE to raise interest rates? Undermining it's independence?
Should the government have regulated which business models it feels banks should operate under? Shouldn't it be up to the banks who they want to loan money to?
If Labour had done either of those things, you'd have been all over them.
Firstly, I don;t see how one can undermine somethin's independence when it isn't really independent. As I said above, the BoE is quasi-independent. It is told to work its interest rate in line with an inflation target set by the Treasury, and I think it often acts with one eye to the political rhetroic being used.
Personally speaking, I think interest rates were too low, for too long, but then I've been saying that for years. I think the rhetroic should not have been all about the past banging on about interest rates.
And yes, it should be up to banks who they loan money too. They shouldn;t get saved by the taxpayer though. Let them sink.
So what would I have done differently? Not bailed Northern Rock for a start. And second not spent ten years treating interest rate as a totemic thing.
What we could have done differently was use the proper indicator of inflation, RPI, instead of the CPI as the government decided to do in 2003.
Look at the data for the RPI. If the same inflation target were used then interest rates would have gone up a lot sooner, say in early 2003.
That would have saved us all a lot of bother.
There's a task for you there, Dizzy. Look at the RPI and CPI against the interest rate. :)
And how exactly have Northern Rock been saved by the taxpayer?
The Bank of England isn't the taxpayer - and, even if they were, my understanding is that NR haven't had any money of the BoE yet - it's a just-in-case overdraft which they haven't even used yet.
Who's money is the Bank of England going to be using?
And can you point me to when the Conservatives were calling for higher interest rates?
Can you point me to when I said they were?
Where's that Sort It site gone?
"Who's money is the Bank of England going to be using"
Are you suggesting that the BoE is a publically funded organisation?
No I didn't say that either. The BoE is the banker for the UK Government though, and it is governed within the realm of different Acts of Parliament. To imply it is not connected in anyway to the state would be foolish.
Of course, and in relation to this discussion, you seem to have zeroed in on my use of the term "taxpayer". The funds that have been made available, as I understand it, is anywhere up to about £35bn, and will have wider implication for the economy right down to the ordinary man in the street. In that sense that "taxpayer" for want of a better term could very well be involved in the bail-out even if it is not a direct cash hand-out.
Anyways, I'm more interested right now in you pointing out to me where I said the Conservatives were calling for higher interest rates. Because I know that I didn't say it, but I'm guessing that for some reason because I'm a Tory, and I'm saying that interest rates should have gone up earlier, I am saying that the party said it too. Which is a silly argument really.
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