Just a couple of snippets of thought following on from my post of yesterday …

BBC Breakfast this morning was reporting on the £400bn pledged by the government for yesterday’s bailout. First of all they insist it is £400bn, not £500bn, as was reported yesterday. How? Why? Well it seems the missing £100bn had already been pledged, so was not new money. More government prestidigitation.

But no matter, Breakfast had calculated that £400bn amounts to £13,ooo for every UK taxpayer. Now how do the government think the “average” taxpayer is going to find £13,000? I am lucky in that I earn around twice the national average wage, which means I pay £7,500-ish in income tax every year (or £600 a month). And whilst I would love to pay much less tax, I see the equity in what I do pay, given that we have to pay at all. (That doesn’t mean I agree with where it is all squandered, sorry spent wisely.) But another £13,000!! Even over two years that means my income tax would double. Now translate that into the effect on someone earning say £20,000 a year and who pays maybe £3000 in income tax. Where do they find all that additional money?

Oh sorry, that;’s OK because they now become poor; below the bread-line. So they can claim benefits. But wait! Where do those benefits come from? Our tax take. So those of us left paying tax get shafted for even more. Ad infinitum. You see what I mean about spirals of debt and destruction?!?!?

Jilly in response to my post of yesterday makes an good point — well several actually. Banking was always smoke and mirrors. Which explains why the medieval Jews so despised; they were operating in an environment where people could still see through the smoke and they didn’t like the (distorting) mirrors that were left? The Emperor’s new suit was seen for what it was. It is just that in recent years, well at least during my lifetime, the smoke has gotten increasingly dense to hide the ever more distorting mirrors.

It’s tempting to blame Mrs Thatcher for all this, with her philosophy that everyone must own their own house, thereby needing a mortgage and generating increasing debt — not to mention the increasing wealth of those years with the instant gratification made possible by having more readily available money. While Mrs Thatcher undoubtedly didn’t help, I think the root cause goes further back: to the spendthrift Labour governments of Harold Wilson and James Callaghan, both of whom spent more than we could afford.

Jilly also makes the point that credit controls should never have been abolished. Well up to a point, Lord Copper. While ideally borrowing only what one can immediately afford to repay is an excellent philosophy, it does mean there is only ever a very constrained money supply. Hence there would be no growth. The controls had to be loosened somewhat to fund growth and an entrepreneurial spirit, otherwise we would still be living in a grim post-war environment. But arguable we have taken progress too far, too fast; maybe a change from a money supply ratio of 1:1 to the current 1:27-ish was a step too far; perhaps a ratio of 1:5 or 1:10 would have been more realistic?

But then 20/20 hindsight is a wonderful thing. We are where we are and somehow we have to get out of it. I just have grave misgivings that the current spiral of debt to pay off debt is a good way. But then from where we are there probably isn’t a pretty solution. But then, again as Jilly points out, we don’t appear to have learnt any of the lessons of history. Plus ça change!