Britannia Radio

The scenario Janet Daly paints here of 'printing money' and letting 
the public have it is terrifying but it IS being contemplated right now.

People would panic and buy stocks of necessities to hoard, because 
they would rightly suss out that things were about to get even worse!

When you have a madman with delusions of saving the world in charge 
it is vital to get rid of him as soon as possible.  Which is why 
Cameron is desperate for an election as soon as possible although, 
electorally, it would suit him to delay it till things DID get 
worse.  He's thinking of Britain first.

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TELEGRAPH   15.12.08
Recession: If you want people to spend, don't take their cash away
Any attempt by the Government to print money to stimulate the economy 
will make things worse, because it won't cure the lack of consumer 
confidence.

By Janet Daley

So contagious is the current mood of anxiety that I find myself doing 
something I have not done for a long time - not since my financial 
circumstances were really parlous.

I'm now constantly looking for the cheaper alternative. I have 
rediscovered the pleasures of braising less expensive cuts of meat 
and hand-washing things that might have gone to the dry cleaners.

The thought of a post-Christmas Eurostar break in Paris has gone out 
of the window. Christmas in our family will not be the usual 
electronic gadget orgy.
And all of this prevails in spite of the fact that I am relatively 
unscathed by the economic crisis. Of course, my pension fund has 
collapsed, which means that I will have to go on working until I am 
put in a box, and my savings will shrink as interest rates fall below 
the rate of inflation.

But neither of those things should, in rational terms, be affecting 
my day-to-day attitude toward spending to such a degree.

If this strikes a chord - if you are hoarding and watching every 
pound that you pay out even though there is no immediate need, then 
you have caught it too: loss-of-confidence disease.

It is that epidemic sweeping the country which is the chief reason 
for the failure of the economy to show even the first signs of recovery.

With its mouse squeak of a pre-Budget report, the Government almost 
certainly made this situation worse: its VAT cut remedy was so puny, 
and the warnings about future tax rises so dire, that it actually 
served to increase the sense of inevitable doom.

So now, having been almost absurdly timid in its first intervention, 
it seems to be contemplating a move that would be truly terrifying in 
its boldness.
Serious thought is apparently being given to the Weimar solution: the 
Bank of England would simply print money and hand out fistfuls to 
every citizen in the hope that he would spend, spend, spend, thereby 
saving the retail and investment markets.

Forget about all that jolly, and rather grotesque, cheerfulness on 
the Prime Minister's face. This is a tale of genuine governmental 
panic. We will have gone from the sublimely minimal remedy to the 
ridiculously reckless one in a matter of weeks.

Those of you old enough to recall the last time a British government 
printed extra money will no doubt remember the consequences: the 
Barber Boom (under chancellor Anthony Barber) during the Heath 
government produced the worst inflation in modern memory, with the 
prices of basic necessities rocketing by up to 30 per cent in a 
matter of months.

That is what happens when there is a sudden flood of cash into an 
economy whose productiveness cannot keep pace with the new supply of 
money.

Back then, we never quite got to the stage of pushing wheelbarrows of 
worthless notes into shops, as the Germans did during their similar 
experiment. But now - the banking crisis being what it is - we could 
well reach just such a point.

Even if that horrific scenario were avoided, there is a more obvious 
reason why we should not simply produce stacks of Monopoly money and 
hand them out like party bags for grown-ups: because there is plenty 
of real money - that has been produced by real work - around.

The problem is that it cannot be spent (or saved) by the ordinary 
people who earned it because it is has been confiscated from them by 
the Government in the form of taxation.

God knows, I have said this so often on these pages that I am getting 
sick of hearing it myself but, clearly, the message cannot be 
repeated too many times: why should we go to extreme and terrifying 
lengths - including debauching the currency - in order to give people 
money that they might more fairly and cheaply have been allowed to 
keep in the first place?
There are a number of reasons, of course, but I would suggest that 
they are political rather than economic. The official rationale for 
manufacturing more money rather than cutting taxes is that nothing is 
subtracted from the national wealth: government has as much revenue 
to spend as ever, but there is more cash around for private 
individuals to spend too.

Magic, eh? But money is only worth what real productive wealth it 
represents, and the true logic of this is more sinister. When the 
Government takes large proportions of people's earnings in tax, and 
then, to provide them with some disposable income, hands out some 
more freshly printed money, it is seizing control of the economic 
levers in a way that would never be possible if those who earned the 
real money were left free to spend it.

So what would happen if virtually all of those in work (who are still 
the overwhelming majority) were to see their take-home pay increase 
by a significant amount - and, at least as important - were told that 
the income tax cuts they were being given were more-or-less permanent 
because public spending was going to be given a radical overhaul?

Well, the first thing a lot of them would do, I expect, would be to 
get themselves out of their most alarming debts. This would help to 
relieve the credit crisis by restoring some liquidity to the banks 
and credit agencies. Then they would spend.

This would help the retail sector and so the stock market would begin 
to recover. And then interest rates could start to rise again, so 
they might save, which would further strengthen the liquidity of the 
banks.

That may sound like a fairy tale, but it's a damn sight more likely 
than the alternative happy ending which is supposed to follow from 
the Bank of England handout scenario. How are you likely to react to 
a one-off payment of cash from the state?

My guess is that you will think: "My God, this is a desperate 
measure. Things must be even worse than I thought."

And you will hang onto it for dear life, as most Americans did when 
they got "fiscal stimulus" cheques from the Fed which were meant to 
encourage spending.

It is almost impossible to exaggerate the political, as well as 
economic, danger of the position we are in at the moment.

When governments start nationalising banks and printing money to be 
dispensed directly to the citizenry, they are taking concrete steps 
toward totalitarian control of the economy which will be appallingly 
difficult to reverse