Why are companies not borrowing?

It must rapidly be approaching the time when the gilt market will be the one to watch. With unemployment increasing and public sector spending about to fall faster than the proverbial lead balloon the 'real' economy has some way to go before bottoming out...surely?

With interest rates presently so low how else are the DMO to fund the national debt? With taxes set to rise, probably significantly, and with interest rates having nowhere to fall, how can consumer spending be maintained? Please don't say that it will be financed by cheap credit and borrowing, such an analysis would make a 'double-dip' correction not only plausible but highly probable, the resulting correction (downwards) would make the present bounce (upwards) look like the fattest dead-cat bounced off a trampoline rather than the street.

I'm almost scared to raise the subject of gilts and government borrowing as the stakes appear so high, the risk and exposure of our economy so great. The media has gone quiet on this subject given recent 'green shoots' rumblings. Average people 'Joe Plummer' et al remain deeply cynical and pessimistic in my experience, perhaps for good reason.

Moody's and the rest can keep their ratings, they didn't help Lehman, they didn't help Iceland and they can change in an instant. Ratings agencies remain the epitome of the problem, reactionary rather than genuinely incisive. We all know this.

Don't be too gloomy Robert, some of us are out there expanding our companies without the aid of the banks - I've just built the world's first treehouse classroom at my children's day nursery in Warwickshire, all without a penny from the banking system. In a recession.... think outside the box!

"So when shares and property rise, they tend to create a recovery which feeds on itself in a positive way, in a benign version of what gave momentum to the earlier plunge in output."

Err, no.

The rise in property values in the run up to the financial crisis was anything but benign - it was a fundamental part in causing the crisis. The fundamental problem is that people will regard property price increases as a 'good thing', just because they themselves own property. It isn't - it is inflation, and is every bit as bad as inflation in the cost of milk or bread.

I'm not sure that corporate appetite for debt reduction is the only thing at work here. That may be part of the issue, especially with large companies, but overpricing of risk and credit by banks is at least as significant.

Speaking as a small business owner (and small businesses make up a sizable chunk of GDP) I can tell you that the interest rates banks are charging right now are crazy. Then there's additional one off charges at very high levels...

Frankly, in my view, this overpricing of credit and risk is very nearly as stupid and the underpricing that caused the credit crunch. What we need for a sustained recovery is a balanced, reasonable approach from banks to lending. This means proper risk assessment, reasonable pricing, and balance and consistency in terms and conditions.

I know of more than one example where people have eschewed banks for lending altogether and borrowed directly from business associates. This is possibly risky but banks have been paying little to investors while charging lots to borrowers. This behavior makes an increase in private lending/borrowing inevitable. And this type of lending/borrowing is hard to measure.

Are you ever going to post a blog that doesnt have "Worst global recession since the 1930s" in it?

Increase in the stock market value and good economic news seems to coinsided with your lack of blogs!

The title of this item "Why are companies not borrowing ?" almost implies that somehow the current malaise is the fault of businesses. The truth is that the banks have caused and continue to cause the problem.
Over the last 18 months, for businesses and individuals, overdrafts have been reduced or withdrawn with sometimes only days notice - loan conditions have been altered mid-term with little or no negotiation - new credit, if available at all, has been criminally overpriced compared with base rate (and continues to be so despite LIBOR's fall) - and arrangement fees have been a rip-off joke.
The banks' blatant victimisation of firms and individuals at a time when they are most vulnerable, coupled with "repairing balance sheets " (a.k.a. opportunistic profiteering)has made the recession worse than it might have been. Nobody is suggesting a return to the credit free-for-all that happened before, but now our financial institutions have gone too far the other way and quite frankly are taking the mickey. And despite bleatings, the Government and the Bank of England seem powerless to force them to lend reasonably, even when they fill their coffers with taxpayer support and QE. Caledonian Comment

So everything back to 'normal', bankers get to play with all the money and pay themselves big bonuses etc. The banks we own will be sold off to get some of the money we have printed to pay for them and what has Gordon’s Debt Binge done, changed anything? Made things better for the future? I suspect my grandchildren will ask why we let the government borrow so much leaving them with nothing but bills to pay to foreign investors.

This just shows why debt isn't such a great thing - it's a quick win when asset prices are rising but it inevitably has to be paid back in the future. Personal borrowing for general expenditure (e.g. holidays on the credit card or taking equity out of your home) must be discouraged if we want to stop these bubbles forming again. Also we've got to get rid of the tax advantage of debt rather than equity - debt interest is tax deductible but dividends on shares are paid after tax.

All that debt has to be repaid so now we have a slump as we all need to repay those debts rather than spending in the real economy.

As I said yesterday read "The 86 Biggest Lies on Wall Street" we need to listen to this guy who predicted the housing crash and subsequent problems in the finance sector.

P.S. The fact is that some of the banks themselves are insolvent too - it is impossible to tell from their accounts their exact positions due to the complex derivatives they hold. Lloyds/HBOS has to refinance over half of its borrowings in the coming year - it won't be easy to do!

We need a plan to balance the books in terms of public expenditure and a forward thinking tax revenue system that can pay the bills. Currently we have neither.

Its obvious to all that the current public expenditure is to high as a percentage of the UK's GDP and the tax system is to narrow and complex on companies and individuals.
Its not rocket science ,its easy to balance the books.Its only gets complicated when politicians try and spin to get the numbers they want based on ideological reasoning.

Gordon Brown is probably in the top 0.1% in terms of intelligence, but he could not run a corner shop.He would to sell Mars bars for 10p (below cost) and bottles of wine for £20.

I think that the banks should be wary of lending money, they partly got into this mess by lending to the wrong people so it makes sense to be more prudent. I also makes perfect sense for both companies and individuals to repay debt, all this rubbish about spending your way out of debt is just plain stupid.

As for quantitative easing, what an absolutely idiotic thing to do. Good economics is about long term not short term, Quantitative easing is to me like complaining about the cold and taking your clothes off to set fire to them. Fine in the short term but when the fire burns out .....

Sometimes you have to go through painful experiences to come out stronger at the other end. Businesses and individuals SHOULD reduce their debt before looking to expand etc.

In my opinion what needed to happen was to let the banks go bust, that's the best way to teach someone what not to do, make them take responsibility for their actions.

The only people borrowing now are those that have to. These are the people you least want to lend to.

The borrower is slave to the lender.

#5. quiteLondonLad wrote:

"Are you ever going to post a blog that doesnt have "Worst global recession since the 1930s" in it?"

Only when he gets it right, and says 1870s!!!!

#2. houseflogger wrote:

"some of us are out there expanding our companies without the aid of the banks"

But that is not allowed as the banks will not make a profit from you and the banks have subverted the state. They will some some clerks round and burn your tree house round! Or use their friends in the council to order it taken down as it does not have planning permission! Beware of those who really run the state!

'name the guilty' I agree absolutely - the fact that inflation measure was changed in 2003 so they would not include housing costs is outrageous. This was decided by the BofE in 2003 see link

[Unsuitable/Broken URL removed by Moderator]

Why was this done? - maybe big increases in high house prices are good for the economy and government in the short term but are not in the long term. Shouldn't have the 'independent' BofE been looking at the long term not the short term?

If the old measure of inflation (which included housing costs) had been used interest rates would have had to rise much earlier and maybe the housing bubble could have been less big. RP - you should investigate why the inflation measure was changed!

PS. The above document states:
"The exclusion of certain housing cost elements from the CPI does not
mean that housing developments will not be an important factor for monetary policy purposes or that house prices will be more volatile under a CPI-based target. Although the MPC will target CPI inflation, house prices are – and will continue to be – an important indicator in assessing macroeconomic developments for monetary policy."
In reality this turned out to be untrue as the massive house price inflation was completed ignored by the MPC as they were told to follow the new CPI measure which excluded housing costs.

Sorry - I don't believe that the financial tinkering that has been practised by governments the world over has magicked away the economic train wreck of 2008.
The world was shaken to its core, and it will take a very long time to recover from the catastrophe.
We are nowhere near out of the woods yet.
My own gut feeling is that this is simply the start of a very long world slump.
People would be wise to hunker down, pay off debt, avoid major purchases of all kinds and economise in general.
We are being bombarded by propaganda from every direction from people with an axe to grind, from politicians who want us to think they are wizards to stockbrokers who want us to plunge back into the market and estate agents who want us to buy all the wonderful property bargains before it's too late.
These are all siren calls.

Robert,
The rally staretd when the banks were told to price the toxic debt using their own models. It has not gone away, it is waiting it's judgement day!
A slow volume market always occurs in the Summer and it's easy to use sentiment to move prices. As sentiment improves (as you no longer report bad debts) we see a growing stock market. The problem re-occurs when we see consumer spending remaining weak and business investment. Any figures showing this improving?

Cash for clunkers has saved the auto industry for now but as the funds stop will people be buying? Why would you? If yuo needed a car surely you would have grabbed the $4500 available in the US?
We are witnessing the tide change again. Exports are falling once again in Japan. Take away oil prices and deflation is dominant.

This gamble by the Central Banks may bring us out of recession but what is to be done with the toxic debt? It's there and it's getting bigger. The US default rates for prime mortgages is now bigger than sub-prime. Credit cards defaults are huge and commercial property has started to take down some of the regional banks.
Japan rallied strongly near the start of their problems then fell off a cliff.
HOLD ON.

I'll try posting that link of the pdf from the BofE website regarding the change in the inflation measure:

[Unsuitable/Broken URL removed by Moderator]

If it doesn't work....

alternatively Google "Annex: The new inflation target" and it should be the first result you get.

Indeed, many companies do not seek to increase their borrowing, not just because they are very geared to start with, as Mr Peston alludes to above, but also because it is pointless to increase working capital when consumers are retrenching - you just end up with unsold stock. This is also the context for all the hullaballoo about bank lending.

With quantitative easing, the BoE has become the UK's SIV. It will all end up in tears, but not before the elections, because for now the BoE helps to give the impression investors are still buying gilts, which they are not. The BoE has bought half of conventional gilts by now, foreign investors have been net sellers (and mind you, the BoE's pension fund is still invested in inflation linkers).

Inflation on its way to reduce the debt to GDP ratio - the BoE is not an independent central bank. A short history lesson: in 1950 you needed more than 14 swiss francs to buy a pound, now 1.73. Those who don't have indexed pensions paid for by the taxpayer should be warned!

#13, they took out houseprices because it causes a circular motion.
Housing costs increase -> CPI increases -> inflation increases ->interest rates increase to stop inflation -> house costs increase (mortgages)->CPI increases ...

What I want to know is if things are getting better how come I still cant afford a flat despite being on higher than average wages, my company has announced a pay freeze until 2011 with a cut in benifits, costs of all essentials (food, petrol...) are all going up so I'm going to be a lot worse off in the future and I'm being constantly told that there are hundreds of people in my industry out of work so the chance of getting a better job is non-existant.

This comment was removed because the moderators found it broke the house rules. Explain.

Until now

Poets have hitherto been mysteriously silent on the subject of cheese. GK CHESTERTON

Cheese,
excellent milky food.
On toast,
it's good for the mood.

Robert Peston:

Simple reason: Why are companies not borrowing? Is that most companies are seeing that the economy has not recovered enough to take on the additional debt....

=Dennis Junior=

Until now

Poets have hitherto been mysteriously silent on the subject of cheese. GK CHESTERTON

Cheese,
excellent milky food.
On toast,
it's good for the mood.

what's wrong with peoms about cheese then?

When I was working in Congress at the end of last year I went to talk by the Japanese economist Richard Koo, who made exactly the argument you refer to with respect to banks paying down debt. Just 11 months earlier!

He argued in this talk, and in his book "Balance sheet recession", that banks shifted from profit maximising to debt minimising during finance-based crashes. Accordingly, he argued that the most sensible approach for governments seeking to reinvigorate GDP would be to use fiscal policy given monetary policy (especially interest rates) would become increasingly impotent. His evidence from Japan showed that sporadic fiscal impulses were associated with growth while the removal of such stimuli (when the government thought it could stop worrying about recovery and concentrate on public sector debt) were remarkably well correlated with the dips into negative growth Japan experienced throughout the 1990s.

His argument, which at the time was widely dismissed, seems to have become more popular (Krugman for example now follows this line) and more pertinent as events have unfolded. The implication is that if we start to focus on debt-reduction too early - and a point when we are still technically in recession (albeit with data lags) certainly seems to constitute such a time - we could experience a much less appetitising situation than "incipient" recovery.

Yes, there's a strange mixture of optimism and pessimism around at the moment, liberally laced with plenty of fear.
Perhaps the business community is still in a state of shock.....we nearly hit 1929 again.
Fingers are crossed en masse.
But perhaps the visciously greedy brand of capitalism of 2000 to 2008 is best consigned to history....it all ended in tears.
A more caring community may emerge.

6. At 10:46am on 09 Sep 2009, CaledonianComment wrote:
'The banks' blatant victimisation of firms and individuals at a time when they are most vulnerable, coupled with "repairing balance sheets "'

This annoys me too. The fact that some people have openly defended overcharging by banks on the basis that they need to 'repair their balance sheets' seems unhinged to me.

That banks balance sheets got into such a mess is solely the fault of those that run banks. It needs to be put right at the expense of shareholders and not customers.

Clearly shareholders will require a return in the long term and this will come from customers. But this should happen gradually so distorting effects on the economy are limited. And a large chunk of shareholder value should be forfeited in the process (thus motivating shareholders to keep a closer watch on those running the banks they own).

Instead, what we're seeing is short-term balance sheet repair by the Government AND by customers. At least the Government got shares for its contribution – if only on a basis no private investor would have entertained. If customers are also being tapped for balance sheet repair they should be given shares too.

With all the News yesterday about the Technical End of our U.K. Recession expected anythime from now onwards, you would expect to see our High Streets and Economy along with House Sales showing signs of some sort of mini boom, well that my theory at least.

However, in truth we will still be seeing Unemployment rising well into 2010 and perhap well beyond, and what with the forthcoming cuts now fully expected in all Areas of Public Expenditure that will have to be made after the next General Election which ever Political Party wins, will if anything, only add even more People to the Unemployment Register, and will lead to a new round of cuttings in personal spending on luxury items in real terms and leading yet further still too and ensuring that we have a Double-Dipping in the U.K.'s Economy, for once you start cutting away at the Cost of funding both Job's, in the Public Sector and the money generated by having a liveable income, cash receipts will disappear due to any further rises in Unemployment that will most surely come once you start reducing the size of the Public Sector, which will also include those in the Private supply chain Companies, along with pushing up Interest Rates.

You will then see the U.K. go into what can only be discribed as a Full-Blown terminal decline, for with Unenployment still rising and with less National Incomes to spend on the back of rising Interest Rates, this will further lead to many more People falling into Negative Equity by falling even further behind with their payments for Mortgages and Utility Bills etc:. As for trying to sell any non-essential items, well these Companies may has well shut up Shop, that is of course if they have'nt already done so for their will be no spare Cash left over at the end of the Day to buy any Luxury Items.

While, we have now spent all the Public Purse in proping up the Banking System along with Quantitative Easing adding to the National Debt, [ this will further rise due to a future boom in rising Unemployment ], we will now be Strapped for Cash by being unable to raise money to fun the National Debt, and Increase Exports in "New" Technologies that have yet to be built in the U.K.

It is now today not so much as do we expect to see a Double-Dipping in the U.K. Economy, but moreover it is most likely that we will have a Triple-Dipping of our Economy, for no ones knows what will happen in the other World Economies, for will they look to the U.K. to buy Exports, or will they seek growth closer to their own shores.

As sure as I am, that with every Boom you always end up with a Bust, the pressing Question has to be when will the U.K. really start and be once more again in any position to create National Wealth for all our People, before we have another World Recession, assuming of course that the World as a whole ever really recovers fully from this current Recession.

I bet that announcer on Radio 4 who does the shipping forecasts is dying to say Fogarty 40 rising severe dragon warning and some flying beasties portside.

I vaguely remember that in about 1973, the government imposed borrowing restrictions in Control of Hiring Orders, so that, for example, on Hire Purchase you had to put down a minimum deposit (30% ?) and repay over a fairly short time. At the same time the banks were restricted (by the Bank of England?) to lending no more than 3x salary on mortgages, and no more than 90% of valuation, and you had to certify that the loan was only for house purchase or improvement. At that time if I wanted to raise money for business purposes, I had to show not only a viable business plan, but also be prepared to put down from my own resources at least as much as the bank would lend, i.e. a 50/50 arrangement.
All the recent troubles seem to have stemmed quite simply from stupid bank lending, of ridiculously large sums to people who were bad risks, against property either overvalued or not properly valued at all. That may build up a good-looking 'book' of debts as balance-sheet assets, to be chopped-it up and sold on as 'derivatives', and for a while there is a 'high', until the bubble inevitably bursts. That's neither 'investment, nor 'banking'!
In all this, I'm surprised that nobody seems to have recalled the 1970s controls that I mention above.
It's all very well borrowing to spend to oil the wheels of the economy, but why did the banks depart so far from good old-fashioned and proper banking practices, and why did governments allow unregulated credit? As Allan Greenspan says, it will happen again, human nature being what it is. Regulation seems to be the only real answer.

As I've suspected for many months now, this situation seems to be breaking the "Law of Requisite Variety". Put crudely, this law states that the controls of a system must be at least as complex as the system being controlled. If the controls are too simplistic, you won't be able to achieve the outcome you want.

So, using the example of quantitative easing, the government observed that banks were not lending money to businesses so, in order to increase the amount of money available for lending, they decided to print some more (put in very simplistic terms). However, this action on its own was not enough to achieve the outcome they wanted (to get the banks lending some of this newly printed money). Instead they simply took the money and sat on it. In terms of the Law of Requisite Variety, the control the government applied to the banking system was not sufficiently sophisticated to dictate the behaviour of the overall financial system and get the outcome they actually wanted.

As Robert observed, companies are not borrowing and there are several reasons for this (rather than just one: the quantity of money available in the system). More complex and sophisticated controls must be applied to this system in order to achieve the required outcome.

Neatly summed up by the phrase:

'So when shares and property rise, they tend to create a recovery which feeds on itself in a positive way'

Another way of putting this would involve lemmings and a cliff.

Incidentally why are news outlets, (the BBC included) treating Alan Greenspan's view that 'the global economy will experience another crash in the future' with the sort of reverence reserved for papal proclamations?

Another economic crash in the future? Really? Wow, what an amazing diagnosis. My dog could have told you that.

The problem *is* the debt. Personal debt, company debt, bank debt - all reached unsustainable levels and that's what caused the financial crash. We've prevented the banking system from imploding by converting the bank debt to government debt, but the debt hasn't gone away - and nothing has been done yet to reduce the levels of personal and company debt.

During a recession, there is a good reason to encourage bank lending in order to save sound companies with cash-flow problems from going bust. But it's a short-term sticking plaster and just makes the overall debt problem worse.

How do you get rid of debt?

1. everyone (slowly) pays it off. From what Robert is saying this is starting to happen in some companies, and last month showed net personal debt being paid back for the first time for ages. But paying the debt back will take years (decades?) during which we will have Japan-style minimal growth.

2. Write it off. Just let banks, companies and individuals go bankrupt. Perhaps this would have been the natural outcome if governments hadn't intervened in the crisis. Very messy - net creditors (rich people, foreign investors, etc) would have lost most of their money. But the debt would have gone - and I suspect the medium-term prognosis would have been better than with option (1).

3. Inflate it away. ie keep interest rates well below the inflation rate for several years. Would do the trick and have a similar effect to option (2), though tends to be particularly harsh on pensioners etc relying on small amounts of savings.

4. Redistribute wealth. Take a large chunk of wealth from the rich (net creditors) and give it to the poor (net debtors) so they can pay off their debts. Has a similar effect to options (2) and (3) but without most of the bad side-effects.

I'd go for option (4), but I can't see any UK government being brave enough.

"And there is evidence that some legitimate requests for credit are being turned down."

As a SME owner, in manufacturing, (God help me), the reasons for "pausing" investment are simple. It's a question of firstly, the cost and availability of funding and secondly -and much more important - trust.
A bit of background. Our capital requirements - lumps of plant 50 to 100K a throw with a 10 year life - are (were) routinely funded on 5 year HP. We have been profitable in every year since incorporation in 2000 and are a world quality supplier. Up 'til 08 we had borrowed £500,000 (mostly from Barclays) and repaid half of it. All on balance sheet.
Last year we struggled to fund a company car on 3 year HP with 40% deposit. We eventually settled for a rate of 8.41%, having toyed with buying with cash, but decided to keep every cash pound in the business. Our existing Bank - Barclays -offered us 10.5% and required Director's guarrentees - all for 10 grand's worth of motor car. That was in September last year - probably the worst period of the credit crunch, with wholesale money markets totally seized up. It's better now, but not by much, with rates, fees and conditions all at levels that threaten margins and pose significant personal risks. The days are now truely gone where a Limited Company protected the Entrepreneur and made start-up risks acceptable. My guarrentees in the business (excluding equity) stand at a potential £230,000 (£180,000 for LCs, £50,000 for the overdraft). In spite of an impeccable payments record our next machine will require an increase in Director's guarrentees equal to its value. So risk in business is now 100% to shareholders, nil to the Bank - but at unsecured rates plus a big bit.
In a year which - while likely to remain marginaly profitable - has seen a 15% drop in revenue, that sort of Banking "response" and the cost doesn't really encourage me to invest, but it's not the main reason.
Which brings me to the "trust" bit. Two years ago I could talk to my contact in Barclays, tell him I had a biggish order and needed another £20K of working capital for a fortnight and it was ok'ed on the nod (for a fee of course, but that's life), now....well he simply isn't allowed to make that sort of decision. It would need paperwork, a much enhanced fee, guarrentees (with legal costs), would take weeks and would, in any event "be subject to underwiter's approval". IE somebody as highly geared as we are probably wouldn't get it anyway. Certainly not in time to nail the order.
Essentially, at the moment you can't trust the Banks to lend to increase working capital - no matter how good the case - so we have to work entirely within the constraints of our own cash flow. At a time of reduced and slowing payments this makes expansion impossible and maintainig sales difficult.
This, of course, neatly removes the need for further investment! While (due to the downturn) we currently have more than adequate capacity, that's really not a problem. It will be, however, when we have some genuine growth in the economy. When that happens (if?)if Banks don't relax their attitude to allow for growth, we will struggle to supply, and our clients will turn to off-shore suppliers and a another lump of UK manufacturing (and 25 jobs) will disappear.
Just to make life more interesting from a personal viewpoint, should the business "wobble" for any reason (big bad debt for instance - a competitor of ours has just been stung for a potential £184.000), would you expect Barclay's to support us with increased facilities? or call in the overdraft and the guarrentees? Which would more than cover their exposure, but would sink the business. As I said - it's all about trust.....or complete lack of it!
That's why the business (which only turns over about £1.25M), will repay £70,000 this year and take on no new borrowing. That's probably going to be true for next year as well. If we can we'll do the same in 2011 and then we would owe the bastards nothing....you can dream can't you?
If our experience is the norm, it would seem that our ability, as a nation, to climb out of recession, is still worryingly dependant on the Banks' attitude to SME's working capital requirements. I think we are still a long way from seeing the return of common sense to the retail banking sector and we will go nowhere until we do. Not the most cheerful of posts, but owning an SME isn't the easiest job at any time and I'm not looking for an improvement for a while yet.
TM - StH

Is 'not getting worse' the same as 'getting better'?
I can appreciate why it is helpful to encourage a positive attitude,election imminent or not, but with the threat of unemployment actually rising for the twelve months ahead, the media messages need to to be tempered.
John C.

Any signs of recovery in the UK are entirely premature. We have the VAT rate increasing again in January, more tax on fuel and a government that has virtually crippled the economy with historically high debt levels, which will have to be repaid through higher taxes, lower spending or both. We have banks still not lending, mortgage rates increasing, ever rising gas and electricity bills and a car scrappage scheme which is effectively subsidising foreign manufacturers. Unemployment is still rising and will continue to do so for a long time to come. Its hard to see much light in the tunnel for the UK.

This talk about recovery annoys the hell out of me. What fundamentals have changed to make people think things are getting better? Do people just wake up one morning and say "right, things are better" for no apparent reason?

Robert the answer you require is simple:

TRUST = 0

There is no trust in the system the running of the system and the key players in the system (banks).

Rates from the BoE may be 'historically low' - but you find me a mortgage out there which is comparable (and I don't mean the HSBC low rate mortgage which has more ties than a tie wrap factory) or maybe a business overdraft offering a comparable rate. Don't believe the press releases you keep regurgitating - go to a bank today and see what they have on offer for a new or established SME.

Obviously the 'expectation of growth' which the Government and it's agents keep talking about is not shared by the real Economy - the small and medium sized businesses.

Only the inexperienced fool listens to the Government when it talks about recovery - anyone who managed a business through the 80's - 90's will not fall for the same trick twice.

You can't LIE your way out of recession....

oh great house prices rising,the thing that caused this problem in the first case.well actually the tiny volume of houses on the market has created this blip.They HAVE to come down still for most people to afford a house.i know stacks of people all in major negative equity who would love to sell but can,t afford to.So lets blow the baloon up againt to help idiots who vastly overpaid for their property.wait til the end of the year these prices will start to come down sharply again

I'll tell you why companies are not borrowing from banks, it is because they have realised that by doing so they put their businesses at risk when these greedy muppets decide that they want their money back without giving any notice.

You have to laugh - look at this statement from the master of the bleedin' obvious.
https://news.bbc.co.uk/1/hi/business/8244600.stm

Well it's only taken him about 100 years and running the US Fed to work that one out.....

Did someone suggest we promote the best to the top?

Did someone actually comment that we are governed by intelligent people?

Clearly the man who runs the biggest Economy in the world has never read Karl Marx Das Kapital.

I seriously could not make this up if I tried....

Maybe this is why nobody believes there is a recovery and is unwilling to borrow - because the system is run by fools and liars.

Isn't it time we burnt them out like a wasps nest in the garden?

Banks get blamed when they lend too much and they get blamed when they lend too little. When is the customer going to take some share of the blame. If someone goes into a casino should we always only blame the casino owner when the gambler loses all his money?

You are more likely to get truth out of a politician, than money out of a bank at the moment.

Please don’t accept the banks bleating that they can find anyone to lend money too, they are happy to change overdrafts into loans as this will count towards their lending commitments, but just try to get new funding and you will find it is impossible.

Plus they don’t even have to provide any evidence or proof for their refusal, if they say that your business isn’t viable, that’s it – they are judge, jury and executioner

There is no-one to appeal to, FSA says it is out of their remit and the Department for Business Innovation and Skills who manage the EFG Scheme appear to think that the banks are wonderful and have the all seeing eye when it comes to making judgements.

I am sickened by the whole thing

'Why are companies not borrowing?' Probably because they are in trouble so no-one will lend or they are downsizing themselves to adjust to the downsizing of the local and global economies.

The word growth is an outdated word. A blast from the past. Adjustment is far more appropriate.

The lady from the Wall Street Journal on Sky last night certainly rang the bells. She was a breath of fresh air for her frankness.

How about a new approach as follows

Identify say major issues e.g. when UK will emerge from recession where the out turn can be seeen within a year. Attach a rating to all forecasters based on past performance 0/3 all wrong, 1/3 one right etc. Don't report any forecaster with a sore of less than 2 (more wrong than right so why would you?) You could do some research and produce rankings now based on past performance.

...it would be hard to believe if interest rates of 0.5% and the printing of "money" did not have an impact on slowing down the recession. Imagine if such policies had been implemented 2 years ago? Asset prices would simply have exploded. The fact that they haven't during 2009 tells you everything. It is almost as if in order to move something by a factor of 1, you have to invest a factor of 10, a kind of dimunition of wealth, but even worse as this wealth has either been borrowed or created out of the ether.

But of course this can't go on for ever. At some point normal service will have to be resumed either through increased interest rates, increased taxes or less government spending or more likely a combination of all three. And then what? Part 2 of the Great Recession which unlike Part 1 can't be abated as we have maxed out all our credit cards, but this time even worse than it would have been as we have no more ammunition.

Whoever thought that debt was a problem that could be solved by more debt is like a person with a hangover who thinks that the solution is to have another drink. We all got drunk on easy credit, we should have taken our punishment and learnt our lessons rather than just dug ourselves into even deeper hole which is what the MacCabinet seem determined to do. Whatever happened to Prudence?

I am amazed that you think everything is back to normal. Companies are not borrowing because they can not. I am mystified that so many people did not see the problem coming. I am just an ordinary individual and certainly saw it coming. I did some research and discovered that companies pay for and request their ratings....... that to me said it all.

I agree with #14, we are a long way from recovery and no amount of spin is going to change that. Do the math, there is huge debt out there and that can not be made to disappear. What we have done is improve liquidity for a period, that is not the same as making/earning money. It is not as my father used to say 'new money', it is money we have to repay.

The very people saying it is all ok now are the very people who did not see it coming!

Poster #31:

4. Redistribute wealth. Take a large chunk of wealth from the rich (net creditors) and give it to the poor (net debtors) so they can pay off their debts. Has a similar effect to options (2) and (3) but without most of the bad side-effects.

I'd go for option (4), but I can't see any UK government being brave enough.
*******************************************************************************

Are you Gordon Brown perchance? Thats exactly what this bunch of communistas ARE doing. Why do you think anyone with any intelligence is leaving this sinking ship?

#18 At 12:01pm on 09 Sep 2009, HardWorkingHobbes wrote:
'#13, they took out houseprices because it causes a circular motion.
Housing costs increase -> CPI increases -> inflation increases ->interest rates increase to stop inflation -> house costs increase (mortgages)->CPI increases ...'

I'm not so sure...
the old inflation measure didn't include mortgage interest but other housing costs - the changes from RPIX to CPI were explained in the in Dec 2003 BofE document...
"8. The RPIX and CPI include different items, giving rise to a coverage
effect. In particular, the RPIX includes seven components of housing costs – housing depreciation, council tax, dwellings insurance, ground rent, estate agents’ fees, surveyors’ costs and conveyancing fees – which have a weight of 9.5 per cent in the RPIX but which are not included in the CPI."

Its totally crazy that housing costs aren't included in an inflation measure when this is one of the biggest expenses of most people. You should at least include capital repayments in the mix - if they had maybe people like me and you would be able to afford a house. Good news for us though I reckon house prices still got to come down further - forced sales/auctions are about 20% down on the current 'market price' so looks like prices will keep going down for a bit!

Companies are not borrowing
Borrowing to do what? Expand their business in times of a downturn in trade - what sense is there in that?
Get with it, we've got a long way to go yet before anyone with a modicom of business sense gets involved in borrowing vast sums - unless of course your talking about the perpetrators of multi million pound deals where all participants get a rake off!!

"Another economic crash in the future? Really? Wow, what an amazing diagnosis. My dog could have told you that."


Sausages.

"a car scrappage scheme which is effectively subsidising foreign manufacturers."

Indeed.
That was a cool idea.
Use taxpayer funds to help a business sector that largely imported goods.
Clever.

#33 & #34

Very inciteful comments and well put.

What the press agency of the state don't realise is the more they cling on to hopeful signs of recovery - the less we believe them when they say a recovery is happening.

I competely agree about the VaT and the increasing fuel prices / duty which are a sure fire way of dragging the Economy back down as between them they just about affect the price of everything and inflating prices in a stagnant Economy is bad news waiting to happen.....

Recovery? What recovery?
How much of the past boom was predicated upon credit?
Credit and confidence made it all happen in the first place. You have to believe that things are going to get better for things to get better.
The site https://www.boho.com asks what whether the 'Doors of Perception' remain open or shut...

There's no point even discussing the Economy anymore as it should be apparent to everyone by now that we're all doomed.

The Economy probably won't be the nail in our coffin, but it's likely to be the attitude of the politicians.

This morning I heard a BBC interview with Tony B-liar from, I think it was 2003 talking about kerbing emissions - and mainly airlines.

His comment was along the lines of (I'm paraphrasing here) "we can't set ourselves unachievable targets - that would be silly, we can't simply tell people they need to stop flying and I have yet to meet the politician who is prepared to make that decision..."

...and there you have it - our ex-prime minister admitting that politicans will not make tough decisions which may appear to be unpopular.

This means that we're all doomed - we (or rather the planet) cannot sustain the consumption levels we're currently running at and politicians are so short term there isn't one that is willing to make that decision.

There seems to be an unwritten policy about what not to talk about in these economic discussions. The politicians, the bankers and the media do not want to disucss the issue of all the personal financial loss that occurred. All the retirement accounts and personal investments that simply disappeared. Now we all know that our governments who had the responsbilitity of oversight of financial practices betrayed the public and that bankers were no more than common theives with their decisions to be pirates in the financial world. The governments, being owned by the banks, decided the best thing to do was make the bank whole again, with taxpayer money. Public insurance for high risk private enterprise, the dream of all captialist. Because individuals lost personal wealth because of the cabal of banking and government, they would like to make some effort to restore the loss because they would still like to think about retirement prior to death, selfish, I know. Demographics matter, but apparently not to economist and governments. Now we hear the bankers and governments whinning about how the people are not spending enough and not taking on debt. Simple equation for the working man/woman is reduce debt and add to savings (stolen savings). If the governments had made the people whole, replaced lost retirement accounts, rather than making the banks whole, rewarding poor performance and possible illegal behaviors, the economy would not be in a continued downturn. But we have politicians, economist and bankers all in the same nest and view the average person as a pawn in their game. When the collective public establishes a trend that is unanticipated and/or unwelcome by the politicians and bankers, they are to be berated for doing what politicians and bankers do, look out for their own interests. We are sailing on a ship of fools with past centuries' attitudes about the maintainance of the ruling class. People will start spending after they have repopulated their retirement accounts or governments provide credits or other real money options to make them whole. The people do matter and it will take some time for this to sink in with the governments, their economic advisors and financial industries.

46. At 1:35pm on 09 Sep 2009, newEnglishPatriot wrote:

"Are you Gordon Brown perchance? Thats exactly what this bunch of communistas ARE doing. Why do you think anyone with any intelligence is leaving this sinking ship?"

...oh so the people who failed to see this coming and in fact helped create it, who kidded themselves that booms will go on forever defying the laws of Economics and who are clearly not well read in either History or Economic history or have no grasp of the theory of dinishing profit were all 'intelligent'?????

Bye, bye, bye - I'll help you with your bags.

Those of us who are 'intelligent' have already worked out that there is 'nowhere to run to' - only the fools who have been found out are touting their failed business logic elsewhere.

46. At 1:35pm on 09 Sep 2009, newEnglishPatriot

P.s. You need to read up on Communism yourself as you would realise that if you call the Governments actions communist - I can call them Facist - as they are about as close to each other as they are to the current system.

What you are expereincing is the sale of your life to the private sector - it's been going on for a long time and will continue to do so into the future.

No political philosophy seems to want this as a goal - but that's where we're heading.

...it's a bit like slavery but instead of being taken by a ship in the night from your village, your Government is herding us all into the pens in the name of 'saving your way of life'

ahoy there Pestonites! I hope that you have all had a lovely summer and that Bob's month-long vacation got him well and truly tanned. I've been on hols for 4 months now and the tan is coming along nicely, especially given my new calling as an inland pirate, here on the Great Lakes

it's heartwarming to see that Bob has found the gloom in the silver-lining of the so-called green shoots; and he is right

companies continue to batten down the hatches; cutting staff numbers, rebuilding inventories etc; this is not an end to the recession (though it might be temporarily over from a technical point of view, so what?) just a transition the next phase

I have also let some of my crew go (using the plank to implement a piratical LIFO policy) and have amalgamated the survivors into a single crew on a single ship; rechristened as the Muller-Numpty; with longer range cannons I prowl the shipping channels, awaiting the proper upturn in world trade

will let you know when it happens, as that would be a REAL sign of recovery, though of course it will remain unsustainable from an environmental point of view, if anyone cares.........

Why has no one investigated the obvious question: If the extra money is not being lent then where is it? I would have thought you and other contemporaries would have started asking eth banks what theyare doing with it and I doubt one will tell you they are bailing out their own off balance sheet companies.

Have you or any contemporary ever looked into what teh banks technically own or are responsible for? No I thought not.

Further when they got up to leveraging lending to 30-40 times capital when 'prudence' always dictated 15-20 until the gap is secured they are using every penny from the tax payer to protect themsleves first and foremost and pulling teh rug form any customer who looks questionable.

Well barring one or two all banks still look over leveraged and very questionable, whichsi why gold will not drop in price when logic dictates it should.

Please Robert stop the dated headlines and look seriously at what is really happening. Suffice to say nothing is being helped by Crash Brown and his cohorts led Lord Spin who no doubt will claim Libya was nothing to do with him even when he is de-robed form his ermin offices.

We have government by fiasco and joke which is why teh people are looking to the press for absolute honesty and why you need to ask teh questions that aren't politically correct.

Please do it then go collect an ermin robe!!

I have to agree with many of the comments above along the line of 'borrowing - who's lending?'

I have a business associate who has a build project and she has been left hanging as the bank (RBS) decided they required a huge increase in deposit for the build.
Despite managing to scrape this together the bank has now found a 'new problem' with the funding and is requesting further advances.

Now considering this deal was all but agreed pre-credit crunch, and was supposed to go ahead once the planning came through - now that it's here the bank is behaving very differently.

Apparently she feels like the bank simply want to default so they can get their hands on the site. Now that she has further increased the deposit this is rather unfair as she stands to loose a lot more than previously as their charges for default will eat up the additional funds.

Does this sound like a fair system to you?

Maybe this is why busineses are not interested in borrowing, the banks keep issuing press releases stating they are lennding (which lazy journalists print as 'fact') - but I am struggling to see who is borrowing, where and for what purpose at the moment.

As I said in a recent post the prudent will NOT borrow at the moment and only the foolish will continue to do so.

...here's a thought for you all - banks make their money from lending (not savings) - so what do you think the consequences are for the massive stakes the Government hold in the banks and the much trumpeted 'exiting at a profit'?

As the banks are well off enough to pay back some of their loans - where did this come from? Lending is down on any measure (by a long way) - so how did banks repair their balance sheets?

Could it be the printing presses at the BoE?

....and then that means the pound in your pocket is worth less than it did when the presses started to roll.....but of course this is NEVER picked up by journalists because that's where the payback for the banks came from - by making every man and woman in this country relatively poorer.

You will all find out when you next try to go on holiday...

There appears to be much moderation today..............

#53. writingsonthewall wrote:

"There's no point even discussing the Economy anymore as it should be apparent to everyone by now that we're all doomed."

WOTW - there is more to life than economics!

I do agree that the theft of personal savings from the poorest is totally unacceptable, as the the subversion of the state by the banks and even worse to declare that we have a recovery when the banks are still stealing money from the poor and further that only opn this basis can they decide that there is a recovery.

The banks (and I include their agents the regualtors and the politicians) were talking about raising interest rates a couple of months ago but now all that is gone and apparently we will now have a zero or negative interest rate regime for ever - just so they can steal more money from the poor - enough is enough! Rates must go up NOW to at least five percent - OK so this will stop the recovery that is based on re-inflating house prices but that is essential, if there is to be a real recovery.

I am also still incensed by the arrogant stupidity of Alan Greenspan (BBC TV Tonight)when he could not see that the failure of the regulators to prevent the credit bubble was his (and the other regulators) fault. The man looks decrepit and quite obviously his mind has also gone! If stopping these bubbles was not his Job what on earth was his job - to take the money and act as a pundit - I think NOT, we had the right to expect that he maintained economic stability, particularly when he (and Mervyn King) and many others knew that the bubble would burst - he must have been, and still is, insane. Now, it also follows that as he did nothing it demonstrates just how far the state have been subverted by the banks!

On a personal note, please don't despair - it is only money and as one door-to-door collector for an East London Jewish charity once said to me - if you have your health the rest is profit!

It’s great to know that Robert Preston knows what requests for credit are “legitimate requests” and which are not. It’s great that Robert Preston knows exactly how much fiat currency should be conjured into existence by monopolist currency issuers. It’s great that Robert Preston knows the implications of living by debt financing and knows the implications of repaying ones debt. All Hail Robert Preston, let’s hope he’s made the central economic planner of our society, so his great wisdom can benefit us all.

If property prices are rising then Govt has failed.

The other measure of a worthwhile, socially useful economy is how many new companies we're not just creating but also funding properly..... I would say that number is extremely low.

The problem with this type of recovery is that the basic flaws in the economic model remain unrepaired and although shored up the structure remains fundamentally unsound. Looming ahead are spending cuts, tax rises, a public sector pensions crisis which is already there but largely ignored and government debt on an unprecedented scale. It looks as if we may have missed the opportunity to build a better model and will therefore totter from one crisis to the next with little booms in between as we did for much of the post-war period.

The public are paying down debt: this affects demand.

Companies are paying down debt: this affects demand.

Before long the government will begin to pay down debt: this affects demand.

Banks are reluctant to lend: this affects demand.

So why invest when you can speculate in fantasy green shoots?

All that's happening is the bubble is being reinflated.

Government policy equals Pump Up The Bubble.

I can see New Labour's cunning plan here: pump up the bubble so that it goes pop again six months after the Tories win the election.

You've got to laugh at the frivolity of our state's understanding of the crisis.

Apparently (according to some overpaid and underskilled agency) we were out of the 'technical recession' some time ago - May 2009 I believe.

Technically bees cannot fly as their aerodynamic properties are not sufficient to lift their weight.

Isn't it time man admitted he knows nothing, and that the more he learns the more he shows how little he knows? It seems some folk in this country think there are now 2 types of recession. A technical one (based on the GDP numbers) and a real one (based on the GDP numbers)

Are they serious? Do people actually fall for this rubbish?

The state acts very much like the soothsayer or the medium / psychic - by making every definition very loose and ambiguous and by using phrases carefully like:
'starting to turn the corner'
'coming to the end of the slowdown'
'green shoots'
...you are able to imply things are gettig better without actually saying it (because it's highly likely you are wrong)

...and get out clauses like Roberts one today:
'UK could easily slip back into a contraction'

Leaves you able to make predictions which you have no basis of fact for but that can be engineered later so that you can say you were right.

So here's my predictions:

1) The recession will slow at some point in the future
2) Growth will return to the UK, although it might be invisible to the naked eye for some time.
3) The banks WILL make a lot of money and further eat into their ownership of us all.
4) There will be less competition at the end of this recession, and less choice for the consumer and more monopolistic positions in various markets.

You don't need to be an economic expert to see your way through this one - you just need to be able to spot a fraud.

Just as asset prices are falling and the consumer will be paying closer to 'true worth' from now on - the lies which have boosted this economy during the boom are also exposed and left naked for all to see now that we're starting to question them.

I lodged my 4th complaint with the financial ombudsmand a couple of weeks ago and I received a letter back saying "Thank you for your complaint and apologies for the delay but we are dealing with an unusually high number of complaints at the moment"

....now doesn't that tell you something?

I cannot wait for the result of the court case regarding bank charges - one way will possibly result in the collapse of the banking system, the other will possibly begin a revolution.

This will be the defining moment of this crisis - does the law work for US or for THEM?

There is a very simple reason why companies aren't borrowing and post 6 got it about right and post 38 put it better than I ever could.

UK companies have been treated like Marcellus Wallace in the cellar in the film Pulp Fiction so I can imagine any business who doesn't have to go near a bank for money in the near future won't.

I imagine that more than a few small and large businesses in the UK would love to followed Marcellus's response to his tormentors and done that to the bankers.

65. At 4:23pm on 09 Sep 2009, stanilic wrote:

Very good post - but I disagree with this last comment.

"I can see New Labour's cunning plan here: pump up the bubble so that it goes pop again six months after the Tories win the election."

Sorry to have to be the one to break it to you - but New Labour actually think they're going to win the next election - otherwise they would have got rid of Gordon Brown!

Sadly, it does not matter who actually gets in, the result will be the same for all of us, massive cuts in public spending, holidays only for the very wealthy and the return of the NEETS (No employment, education or training) for an entire generation.

...and coincidently the result for the government will be the same (as I hear a Tory politican burns as well as a Labour one)

Here's some cheery news from the Beeb - the FTSE has reached 5000!

Hurrah!

Well will someone point out that although the markets are pro-active in normal conditions (because it's based on probability) - as soon as normal conditions change it's merely becomes a useless reactive tool (in every sense).

Did the market move down before or after the Northern Rock story broke?

Did the markets move before or after Bear Stearns or Lehmans broke?

Did the markets move before or after the failures of AIG, Fannie and Freddy?

Ah ha - there lies the problem. The FTSE can reach 500,000 for all I care as it's only going to take 1 piece of bad news to loose everything again.

...I am simply patiently waiting for that piece of news to come out. There are a number of areas 'viying for contention' - but there can only be 1 winner....

Robert Peston points out that consumers and business no longer want to borrow and are reducing thier indebtedness, which feels prudent at the present moment, if not wise. I would like to point out that we no longer trust the banks anymore. They move the goalposts to suit their own purposes. Who would take out an overdraft now when tomorrow the bank will hang over your solvent life like the proverbial sword of Damacles and tip you into insolvency. The Banks STILL don't get it. They have been capricious, avaricious, and manipulative for what? twenty years now with even counter staff on targets for bonus. That's why we were sold the expensive and useless product we did't want or need. To pay bonuses. If I could return to a cash economy totally I would. I very nearly have. And where is a sense of moral purpose, and justice. Although letting the banks fail would have crippled us all and tipped us into a finanacial armageddon, only their destruction will change anything. Why not give free rein to the market; the market will do for them Ha Ha.

I've just re-mortgaged my house to pay off my business loan, which was due accourding to our cash flow to be paid off in 8 months time and more likley by Christmas. The Business is sound and dispite having a rough 6 months earlier in the year, due to late payments from goverment departments, when I took no salarly has meet every payment and for the last 4 months has over paid by 100%.

Why did I re-mortgate, well I was called in, out of the blue last month and told that I had 3 options:
1) Pay off the entire loan with in 2 weeks.
2) Take on a Bank selected chairman on a Sal of 60k to over see the busness, with a minimum contract of 2 years.
3) Be closed down and have our director grantees called upon.

I took option 1 and will be leaving the bank as soon as I can.

My business is sound, turn over is 20% up on last year and 28% up on our bank approved business plan for this year, as we anticipated lower sales in the down turn. The only bad side in the business is the the Irish Goverment departments are NOT paying and the UK goverment departments are now taking 98 days on average to pay despite Gordans promise that small business will be paid in 28 days. I have two bad debts on my books totalling 1/2% of turn over.

"63. At 4:00pm on 09 Sep 2009, Wee-Scamp wrote:
If property prices are rising then Govt has failed.

The other measure of a worthwhile, socially useful economy is how many new companies we're not just creating but also funding properly..... I would say that number is extremely low."

It fun to go back and look at Gordans first 2 budgets when he promised us no more boom and bust.

He stated that the main (and possibily the only) factor that caused the Tory boom and busts were run-away property prices and under his watch prices would not be allowed to rise above earnings!

Wow I wish my earnings had followed property prices over the last 12 years, even given the last 18months of falls I would be quids in!

Comment 68 writingsonthewall

My last sentence was tongue in cheek. I am waiting for the W to form on the graph paper.

As for the return of the NEETS: did they ever go away?

If you are "too big to fail" it must be fun to sit on a fat salary, with bonues and pensions in excess of 6 figures; you are insured by the government, you make money by talking up the stock market, accounting standards are adjusted so that you can value assets at your discretion and you don't even have to lend money, even if the Chancellor implores you to help the economy. With your new found wisdom you can reasonably argue that it would be "imprudent" (good word that)to lend to companies and individuals, when not so long ago you were lending to anyone who walked in off the street who wanted a mortgage or corporate loan. If the economy does not follow, you can make money shorting the market as it falls via your "capital investment" department. If you can con enough policitians, journalists, fund managers and private investors into catching the train before it leaves the station, then make money. In other words, why should you bother to do anything much, when money will be yours courtesy of the taxpayer? What a wonderful position. It's so gratifying to realise that by the time the world wakes up to this Ponzi scheme, you will have retired to the Cayman Islands and can watch Britannia sink below the waves from a safe distance.

'For me, that drop in the price of interbank lending - the fall in the rate charged by banks for borrowing from each other - tells an important story.

It implies that a good deal of all that money created by the Bank of England in its quantitative easing programme - perhaps too much - is staying within the banking system, rather than stimulating activity in the real economy.'

I dont see the sequitur in these two statements, sorry although I agree that QE is not stimulating demand. Interbank lending is now guaranteed by soverreign governments. QE is being sucked in to bank debt issuance, bank recapitalisation and probably new government debt bonds.

Regarding banks being averse to risk, I dont think this is the exclusive reason why they are not lending. They are rebuilding their capital base ready for the new Bank of Settlement/Basel/G20 capital and risk rules. They are building up reserves to protect themselves.They are worried about their fnding gap and paying back shorter term debt maturities in 2012/13. If they do lend to low risk projects it will be at high spreads. So, why would business be over keen to borrow if they could find other ways to proceed. The Bluechips turn to the capital markets directly. SMEs suffer s usual.

Dont agree with your parting shot either. Public debt should be reigned in without prevarication. I dont blindly accept Fitch and Moody's nor Standard and Poor, for that reason.Are they any better than OECD/IMF/G20/LSE or anyone else. Give me a reason why I should.

Companies don't borrow since they have evolved into non borrowing.
Those that have survived have determined that the world does not collapse if they do not pay bonuses or give annual pay rises.
Their staff are mighty upset. But what can they do in this economic climate?
So, parts of the real economy are actually "working". Margins dropping.
This is not good for the wider economy of course.
Certainly not good for the banks who want ever increasing expansion.

What would the banks do if they had no customers?
Would the government bail them out again?

Perhaps we are moving to an age of permanent government bailouts.
Perhaps we already have..

Is there any reason why governments cannot run continuous deficits on our behalf?
Obviously creditor nations like China will eventually cry foul.
But meanwhile folk get on with their lives.
Just get on..

Nice analysis but one point (in relation to Koo) I don't share. Japanese companies didn't start paying down debt simply because they were over-burdened with corporate debt per se - they became indebted because of the collapse in the value of commercial property asset bubble, where that property had become their main asset in the case of most companies. This has also happened in the UK. Commercial property prices have collapsed spectacularly, far more so than residential.

I'd be particularly interested in the BBC finances in this context by the way. Their pre-bubble expansions in Oxford Circus and Manchester could give them a balance sheet issue of the kind Koo described.

I am probably extremely naive but it is not the level of personal and household debt that recently has been so extraordinary but the level of corporate debt. Almost every company has borrowed up to the hilt. Who allowed them to do so? Answer - the banks. They (the banks) write off millions/billions of pounds of unbelievably high levels of BAD debts as easily as I serve out my cereals in the morning. Who is paying off these BAD debts? Not the banks but GOOD customers like me and many others.

I can't see QE being the answer and so I am not surprised things are not really getting better yet
When politicians talk of a double dip it is a load of hot air
When unemployment starts falling then I will believe
As for footsie investment managers are just scooping up the bargains but I think we shall see 4,000 before 6,000 so I am keeping my powder dry and would advise anyone buy at 4,000 and sell at 5,000 it ain't rocket science.

On a slightly more irreverant note, more evidence that the crisis is definitely over...

"BBC DISMANTLES ROBERT PESTON" - https://www.thedailymash.co.uk/news/business/bbc-dismantles-robert-peston-200909092043/

Given the miles of print committed to first the boom, then the bust and now the subsequent argument about recovery conducted by all those commentators who got it wrong last time around, perhaps this is as accurate an indicator as we'll find anywhere...

53. writingsonthewall wrote:
There's no point even discussing the Economy anymore as it should be apparent to everyone by now that we're all doomed.

- - - - - - - - - - - --

I'm guessing that despite that viewpoint you'll just keep on coming with the comments!

Post 31
"...
4. Redistribute wealth. Take a large chunk of wealth from the rich (net creditors) and give it to the poor (net debtors) so they can pay off their debts. Has a similar effect to options (2) and (3) but without most of the bad side-effects.
I'd go for option (4), but I can't see any UK government being brave enough..."

So, I who have never bought anything I could not save up and pay cash for and have worked like a dog to build my business up which employs 30 people at high salaries (paying lots of taxes) and generates 90% of our income from exports would suffer to bail out the feckless! That's a real encouragement to anyone who wants to make a go of it here NOT. It's not bravery but complete stupidity to penalise those who have been successful.

You asked "Why are companies not borrowing?"

My answer because in our case NAt West are not interested in lending to a business that has previously had the business acumen not to require loans or an overdraft. The only reason we require an overdraft is to bankroll guaranteed funds from a govt/EU funded scheme for skills devt. for which we would provide training. Despite this providing our own business development, employment for instructors/ venue operators and a potentially skilled workforce we are met with a negative approach from our bank. All they want are past audited accounts (they already have our bank statement which has always been in credit so why?) They cannot comprehend this is a new project not based on historical accounts.

If ever you wanted an example of what is wrong today with business and banking opportunities this is it.

Any company worth their salt does not need to borrow.

This is so stupid, its almost not worth the effort, but I digress.

It doesn matter how much you give these banks, they don't want to lend.

I have a 4 year old company, thats been with the bank that uses the third reich eagle as its symbol (84rc14y5). we've never overdrawn the account.

could we get a £750 cashflow overdraft for 6 months.. coulde we hell...!

oH WERE HELPING SMALL COMPANIES. Are you ...k!!!

hodgeey wrote:
“Any company worth their salt does not need to borrow”

And where do you get that little gem of wisdom from, it’s like saying anyone worth their salt should not need to borrow money to buy a house

How do manufacturing companies fund new equipment or purchase parts to build things?

Retail companies are having to place their orders for Christmas stock now, how do they pay these invoices which will be due before the stock is sold.

How do new companies pay for staff and assets before they start trading – most new companies do not expect to make a profit until their third year.

I think you would be very hard pushed to find a single company in the UK which has not required some kind of lending, funding or overdraft in its lifetime.

Post 84: "Any company worth their salt does not need to borrow."

I must admit I have always wondered about this myself; while obviously there must be some occasions when borrowing is necessary, surely it is much better to have your customers' payments going into your own bank account rather than the bank's. At what point did living within one's corporate means become just so "yesterday"?

Apart from anything else, almost everything manufactured or imported (or whatever) finishes up in the hands of a "consumer" (i.e. all of us) and thus we are paying over the odds because those who make the things we buy are having to pay back interest to the banks. Something certainly looks wonky on this business model. I bet Sir Terry Leahy doesn't have to fret too much about his corporate borrowing. I wonder if loading a business with debt was a concept thought up by, yes; you've guessed - economists.

It's wonderful not being an economist; one is free to ask difficult questions in anticipation of answers that look like squids trying to hide in clouds of their own ink.

I am a small business and I've had my overdraft removed completely despite having confirmed orders for our service product.My cashflow situation is horrendous and I am constantly in fear of losing everything and not being able to pay my staff if my customers pay late one month. I often wonder whats the point but I have responsibilities to my staff team of 35 to keep trying. I am sure there are hundreds if not thousands of businesses in the same situation. What do we do???

Surely the drop in the interbank lending rate just means a lack of demand (oversupply) for interbank loans, when demand increases the rate will rise (or is the interbank rate immune from the laws of supply and demand ?)

#84 said : "Any company worth their salt does not need to borrow".
That's such a daft statement, obviously coming from someone who has never run a business, that it wouldn't surprise me if you were a "small business advisor" for a bank. Caledonian Comment

#86,87

I speak from experience. I worked hard, saved hard, bought a house, started a business. No mortgage, no loan.

Not rocket science.

Robert, surely you can add up ? Maybe you can do subtraction ? Perhaps you can calculate interest on a loan ?

You say things are looking up ??? er in what financial way are things looking up ? Can you read a profit/loss statement ???

We still have huge private debt.
We had an increasing public debt.
The UK currency is very weak and is likely to go into free fall.
Inflation in increasing through our weak currency, you only have to see the prices for spare parts and the way fuel has stayed high yet oil prices have fallen compared to last year.

The knowledge that any company or individual should have at the forefront of their mind is:
1) We are still living on debt.
2) We are going to HAVE to start repaying that debt very soon.
3) Other economies will soon increase their interest rates to stop their economies from over heating.
4) Interest rates will have to rise because of 3)
5) Taxes will increase - I heard that to just stand still taxes will have to increase by 20% based on current spending.
6) Government spending will have to decrease if 5) is not implemented.
7) Unemployment is rising.
8) Our government will not support our manufacturing industry.

I find it very amusing how the media have played into the government white wash of "things are alright", if the lie is big enough and spouted enough maybe it will come true ? If you had any investigative journalist bones in you you wouldnt have even bothered writing this article.

The truth is the fundamentals have not changed, the behaviour that got us into this mess has not changed - read "rinse and repeat" for our wonderful governments idea on how to fix the economy. All we have seen is a delay in the inevitable, perhaps I wonder - will we see the same articles on how "no one saw it coming" in a year or twos time,,, wake up the debt is still there and will be there for 10+ years.

#88 wiggwhit,

Talk to your staff, explain the situation, open the books to them to show that you are being honest. At the end of the day you can pay them fortnightly instead of monthly, offer them equity(shares) in your business, share your problems (they can already see the stress that you are under) ask for a wages holiday if needs be. I f you have treated them fairly in the past then you can be sure that your key workers will value both you and their jobs, have the confidence to ask for the favour, be sure to repay it whan good times return.

If however you have been exploiting your staff so badly that the the dole queue looks like an attractive option then you are on your own mate.

Morning Robert,
was the title of your blog a rhetorical question? (don't answer that).
As our resident BBC banking expert, perhaps you could explain why fines levied on banks (Barclays in this case) for non-complience with FSA rules are paid for by the shareholders and not the Directors of these banks?
Once again we seem to have a situation where directors of Public companies can do as they please with no sanctions possible from the FSA.
Isn't that what got us into this mess in the first place?
I laughed today at Mr Darlings comment that we should be prepared for tax rises to pay for the Governments largesse. (Talk about stating the bloomin' obvious).

It seems to me like we all need to learn to live primarily on "accounts receivable" rather than debt. Is this such a bad thing? Presumably it means that companies and the economy might grow more slowly. But hasn't the recent trend of relentless, debt-fuelled economic growth been predicated on the single, simple assumption of infinite amounts of cheap energy?

Since we've now all but reached the end of mankind's era of cheap energy, perhaps it's rational for individuals, companies and the state to operate sustainably, ie to live within their means.

Robert,

I have to agree with nametheguilty post 3.
Between 2000 and 2003 house prices doubled.
Buying your first house should be the largest commitment of earnings in an individuals/couples life. Shortly after buying your first house you are (typically) more indebted than you will ever be.
So being indebted in 2003 compared with 2000 made you twice as poor minus CPI/wage inflation during the intervening years.
It cannot be denied that CPI is a lie. How can you inflate the biggest single purchase you'll ever make in your life (with respect to wages) by 100% inside 3 years and class inflation as being between 1 and 2%.
Please consider this, and perhaps an investigative report on the subject.
If you wonder why people are so indebted they cannot afford to stoke the fire of the economy from this recession, I suggest look at this as the cause.

eddixon,

Is your dog the cartoon variety on show in the movie UP?
A very valuable sage if infact your dog could have told you what Alan Greenspanner said.

Mind you, I do get your point. Not much of a sear really is he. I reckon it'll rain in the future. Oh No, i've done it now, I have gifted myself the oversight of great wisdom and the vision of all future events ... I feel another one coming ..... Errr .... There will be a bus arrive at that Bus stop at some time to come. The clouds will part and the Sun will shine through between next week and three weeks and a year from next Thursday.

#90

I've run a very successful business for nearly 40 years, and have never borrowed a penny.

With house prices rising if interest rates don't go up today then you know this is all going to end in tears because the banks have won.

Surely the point is UK households were indebted to a previously unheard of level based on the blind faith that houseprices and therefore personal wealth were soaring inexorably upwards so we can all afford it cant we? If people and companies are currently being a little more prudent, delaying key purchases and reducing debt levels surely thats merely a natural and inevitable correction to an overheated economy based on speculation and risk? Have we learnt nothing since the South Sea Bubble of 1720?