Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The Availability of Money

Economics / Credit Crisis 2009 Jan 13, 2009 - 01:10 PM GMT

By: Econgineers

Economics Best Financial Markets Analysis ArticleHow does it matter if money is cheap nowadays, if nobody has access to it?
Money is simply not available.
Banks have stopped lending to individuals and corporations.

Although there are clear indications from the Bank of England that further cuts to the bank rate might be ahead, however how will that feed into the real economy if loans are simply nonexistent?

What is the solution?

Nobody has the right answer yet, and like most problems it might not have only one plausible solution. In order to move forward towards an acceptable solution we may analyse the following:

- Government giving more guarantees to banks, so that banks feel less exposed to the credit and counterparty risk.
If the government would give more guarantees to banks, this could lead into a new problem: long and prolonged subsidy of the financial sector, creating a dependency on state backing. The moment that the economy would show signs of recovery the government would find it hard to retrieve these guarantees, as it is likely to cause an immediate reaction by banks which wouldn't be keen to lend without them.

- Government lends money directly to corporations and individuals, cutting the middle man (banks).
By lending directly, the government would invariably increase the competition for building societies, credit cards, and banks. It would force some lenders to participate in the market to protect their market share.

- Corporations and individuals find funding externally (i.e. in the form of foreign investment).
Finding funding externally is a bit of a challenge for individuals, but might be possible for medium and big corporations, that in many cases are linked in one way or another to other countries, activities and industries.

The truth is that none of the propositions above is ideal, nor what one would have wished for our economy, as in one way or another we are being bailed out of trouble by either the state (tax payer's money) or by external investors. In some situations we need to find the least detrimental solution, and this is one of them. The cost of doing nothing and taking the “conservative” approach of not bailing the economy out of trouble would most likely result in a much higher price later.

However, the worst possible outcome is to carry on backing banks, giving out guarantees, and extracting the toxic-loans the banks have in their balance sheets.

It would be no solution to the economy to continue acting like a loving parent puppet in the hands of a spoiled and manipulative child.

So what is the solution then?

Stick and carrot.

Do not bail the banks. Natural selection needs to happen (within the financial sector), the strongest shall survive and the weakest should perish, giving their place to the next in the chain. This would guarantee skilled, hard working and efficient banks carry on, without compromising the quality of the services offered to the public. Getting rid of failing banks is not a bad idea. Most of them are failing due to their own lack of business judgement and excessive risk taking. To keep them, could be dangerous in the long term. It might corrupt healthy institutions by disseminating inefficient, negligent, and irresponsible practises. And although such professional conduct has proven to not work, it has been overlooked through a lack of consequences. This might instigate a sense of impunity, and give little incentive to honest, hard working institutions to keep their professional code.

It is true that corporations and business are at stake, and these do need some kind of support, as they are the ones that provide employment to the real economy. A rescue plan should have been targetted at this layer of the economy, by offering financial support through these difficult times. The government is trying to act on this, with fiscal policy (i.e. VAT cut) and BOE monetary policy (bank rate cuts). However, banks are unable to pass on the cuts in interest rates to the real economy; banks are simply in no place to lend money. They don't have it. Most banks do not have the money available to lend it out and the ones that do might not want to lend it while asset prices will carry on falling.

So although the government bailed banks so that they could carry on facilitating business in the real economy, this is simply not happening. There is not much that the government can do about it, without direct interventionist policies. So how can the government increase availability of cash? Well, tackle it from a different angle. If they would make available funds through an alternative route, such as building societies, this would challenge lenders into participating by threatening part of their market share. It would also accelerate the “clean-up” process that the financial sector is going through, as only the positive cash balance banks would be able to participate in the lender's market.

Additionally, increasing the market share of these smaller players, would greatly improve competitiveness in the financial sector. This is especially important given the recent trend of consolidation amongst the large banks, which seems destined to create a banking oligopoly, with all the market distortions which that brings.


Thank you for reading, if you enjoyed it feel free to join the discussion by leaving comments, and stay updated by subscribing to our RSS feed. We hope you enjoy this space as much as we do. For more, you can visit our blog or send us an email with your requests and comments.

Copyright © 2009 Econgineers - All Rights Reserved.
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Econgineers Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules