Total war declared on economy, in Beeston

Posted by Theo Blackwell at Wed, 21/01/2009 - 12:32pm in

Mandate was on hand to witness last night's extraordinary speech by Bank of England Governor Mervyn King to the East Midlands CBI in Nottingham.

While the eyes of the world were firmly fixed on the inauguration of Barack Obama, America's first African-American President, economic history was being quietly made on Beeston, Nottinghamshire, with the announcement of a range of "unconventional measures" to keep the economy afloat and an astonishing attack on the banks.

Under the plans outlined in the speech, the Bank will create money to buy assets and corporate bonds, with the aim of increasing the supply of money in the economy and the availability of credit.  It represented an eloquent admission, even more so than 'Blue Monday's' Treasury statement, that measures to shore up the banks in October have fallen short of the mark.  It was also a signal that 'quantitative easing' is on its way.

The context to this, and the delicate dance between the FSA, HM Treasury and Bank of England over the blame game is analysed on Robert Peston's BBC blog today.

King, speaking to a hushed business community audience, pulled no punches against the profilagacy of the banks.  In a memorable passage he said that measures to assist the banking system wre not designed "to protect the banks as such.  They are designed to protect the economy from the banks."

The full political ramifications of this speech will be worked out in further government announcements over the next few weeks, as will the sectors most vital to the economy receiving assistance.  The tools the government will use may be extreme, as Peston argues:  "it is big stuff. It represents the public sector, us as taxpayers, lending directly to companies".

I suspect that further context to these actions will be driven by similarly radical measures to be taken by Obama in the U.S., which is much harder hit - as the Financial Times argues today in its editorial "in total war, full mobilisation is the only way."

Tagged with: recession, Barack Obama, Mervyn King, Bank of England