What we need now is to hold our nerve

Mar 10 2009 by Bill Midgley, The Journal

THE Bank of England’s latest fix to our economy – that is quantitative easing or, to some of us, the printing of money – is now under way.

We need, however, to accept that this is not a quick fix to our problems and one of the dangers of all the Government’s action in trying to stimulate economic growth is that any such action will take time to produce results.

What is now needed is some patience and probably a little holding of nerve, perhaps well beyond 2010, to see if the appropriate decisions have now been made.

Similarly the action taken by the Government in acquiring a further stake in our banking system will also take some time to indicate whether this is no more than short-term expediency or a very clever move on the part of Government.

To let one bank fail could well have created a disastrous knock-on effect to our whole banking system and I certainly support the action that has been taken in injecting the vast amount of capital that is needed to shore up our banks. In the future this decision may be seen as one which is particularly astute.

The Government has acquired its large amount of equity at a knockdown price, much to the frustration of many shareholders.

As and when the banks recover their position, and I take a positive view on this, those share prices are likely to rise quite rapidly; and even if not to the levels of recent years, then certainly at a price well above what the Government has paid.

There is a real opportunity therefore for a windfall profit for the Government in years to come, even ignoring the current high price which the Government is charging for its money and for its “insurance premium” for covering toxic debt.

But such a windfall is not likely to occur until well after the next General Election, so it may be the next government that benefits from the current action and whoever may be in charge at that time will have a short-term bonanza in terms of our repairs to public funding.

Such a thought may not be of much comfort to those who have lost out considerably on their banking investments, but in these times of recession and depression there is perhaps a little room for hope and light in what is perhaps not too long a tunnel. ‘Deal of the Century or Steal of the Century?’ may well be the debate in the next decade.

Bill Midgley is a North East business executive and former chairman of the British Chambers of Commerce.