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Why Economic Recovery is Not Taking place

Wednesday, December 12, 2012 14:10

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(Before It's News)

There are two factors which prevents economic recovery in the developed world. One is about the banks and the other is about the media.

The banking crisis deepens. Three LIBOR traders have been arrested. HSBC has been fined US$1.9 billion for assisting in money laundering and Northern Rock Asset Management have had to repay £270 million to customers for “mistakes” made when their customers were repaying their loans. All over the United Kingdom banks are putting pressure upon tens of thousands of small business customers by withdrawing or reducing facilities while increasing their shark style lending to individuals. Central banks are increasing the pressure on banks by requiring them to hold greater sums as capital, which is no bad thing, but it adds to the pressures on the banks you adopt easy short term options to maintain their business models instead of facing the fact that their business models are economically damaging, hindering the world’s economic recovery and in many cases getting very close to criminal behaviour.

With the present banking crisis businesses cannot find and deploy capital to enable them to operate, unless they are very large businesses that operate as part of oligopolies. However the developed world has much more economic activity that is dependent upon small enterprises. Stifling those small enterprises is harmful to the economic prosperity of the western world. As a result we have seen the birth of what I call the “kitchen company” not because they sell kitchens but because they operate from the kitchen table.

Many people are trying to earn a living by establishing a very small enterprise which they run from home. With a telephone and a computer, and perhaps their tools and a van, they have to develop businesses without financial capital, relying only on their muscle and intellectual capital. In doing so they compete directly (and often unsuccessfully) with the oligopolies and often are the sub-contractors to oligopolies who use their mighty names and muscle to cream off a slice of ill merited gain from the end user and from the sub-contractor.

The second factor that is hindering economic growth is the media. The need to present a twenty four hour news service means that the media stretch themselves to find news. News is usually of the doomful and gloomful kind and so the media report, with all the annoyance of a dripping tap, economic news which simply shatters confidence in those who are thinking of undertaking a project or some form of economic activity. The media report risks gone wrong, not successes and help make the economic crisis worse by making people think that their money is better sitting in the bank for a rainy day (they don’t notice that it is raining) when in fact the worse place for your savings right now is sitting in a bank.

All banks have problems, and the bigger the bank the greater the problems that exist. I have great fears about the solvency of the major banks; they have been bailed out once but I am concerned that the extent of the problems they face is very much like the extent of the problems that governments face; there are much deeper holes in their finances than anyone thought.

Logically to assist economic recovery we need confidence, not confidence in the banks but confidence in the wit and hard work of the ordinary individual who is being forced to operate on his or her own.

Filed under: climate change Tagged: bank lending, bank problems, bank solvency, banks, business, economic recovery, economy, effect of media on business confidence, kitchen companies, media, small businesses, sme