The Treasurer December 2009 - January 2010
A new age of austerity
As this marks the final issue of The Treasurer before the onset of a new decade, it’s tempting to look back over the last 10 years and the events that have shaped the era.
It’s worth bearing in mind that, as wiser commentators of history have pointed out, trends and developments resist being divided up into handy decade-sized chunks. But that said, the new era we are about to embark on looks like being heavily influenced, initially at least, by the extraordinary volatility of the past two to three years in the financial world. The boom era that abruptly ended in 2007 now looks like ancient history, offering a litany of mistakes that will linger as a horrible warning for years to come.
The more recent period of state intervention carries an even greater air of unreality. As the Sage of Westminster, Vince Cable, observed at the ACT’s annual dinner last month (see page 12), we now live in a world where the chancellor of the exchequer can announce a further £50bn injection of taxpayers’ money into the banks without provoking little more response than a couple of slightly raised eyebrows.
The recipients presumably realise that this additional shot of liquidity must start helping to oil the wheels of business sometime soon. The big names of the banking sector ight protest that they are doing much to support smaller companies, but reports of problems in accessing loans and the growing number of insolvencies suggest they are not doing enough.
And resentment of the banking sector, both within the business world and among the general public, will surely deepen into something uglier and more permanent if those big bonuses still being handed out are not accompanied by banks resuming their proper role as lenders of first resort a great deal more enthusiastically. They have managed to create a vacuum and, as recent issues of The Treasurer have reported, alternative sources of capital are developing in response to corporate needs.
Another major challenge – one that will have to be grasped before the new decade grows too old – is how the flowing tap of quantitative easing can be turned off without a fragile recovery withering away. If the phrase “It’s the economy, stupid!” was relevant to a US election in the 1990s, it will be even more applicable to the first British election of the Teenies.
With luck, the December 2019 issue of this publication will be able to look back on the decade and report that the pessimism marking its start was greatly exaggerated. But who would like to bet against it being dubbed the New Age of Austerity?