The fleshily complacent little Deputy who failed to be promoted to Governor of the Bank of England – thank you George Osborne - the aptly named Paul Tucker, has floated the idea of negative interest rates on unused deposits.
The problem is that since they torpedoed the economies of many nations, including this one, the banks have kept their own money – well, our money actually – very close to their chests, in their chests, in fact.
The economy needs money slushing around it to keep it lubricated. The dry-up in credit from the squirreling banks for business development and mortgages has left the economy constipated.
So the Tucker wheeze is to consider imposing negative interest rates on deposits. This means that retained deposits would attract a penalty tax on the amount.
This is an admission that the government has been unable or unwilling to compel the banks to lend. The failure exists despite the fact of public ownership of two of the banks and the fact that the £375 BILLION of newly conjured money – quantitative easing – injected into the economy has not loosened the flow of credit but has quietly fattened the already wealthy. That was admitted by the Governor of the Bank of England.
His Deputy Governor has now come up with the idea of applying negative interest rates to commercial banks’ deposits in an effort to force them to increase lending.
Had it stopped there, it would have been widely acceptable and of merit.
But it quickly seemed as if it would impact on private citizens as well, with savings deposits to be penalised.
Were this to come about, ordinary people, fearful of authority and intimidated by legislation, would start spending money they want and need to save, where the banks would simply sit tight and see the attempt off.
In spite of the disgrace of 2008 and the fines since imposed for various malpractices, they have successfully sat tight to date. Why would they do anything else now? They would pay for better legal and actuarial brains than the government or the Bank of England has at its disposal and they would hang on to their deposits.
The government and Bank of England officials know this perfectly well but can contemplate a situation where people, whose savings have already depreciated in value because of lithe almost non-existent interest payable on them, are forced to inject personal savings into a limp economy – while the bankers get home free.
People scrambling to spend their savings before they have to pay for the privilege of having them – and what is saved has already been taxed – would most probably look to invest in the property market, driving prices even further beyond the reach of first time buyers.
What looked to the Bank like a potentially smart move actually cannot survive five minutes of focused interrogation.
The framing of a regulatory measure to introduce such a move would be quickly bogged down in the almost impossible job of defining inactive funds and discriminating between various forms of active funds.
George Osborne’s appointment of Mark Carney, currently Governor of the central bank of Canada, as the next Governor of the Bank of England has saved us from Tucker, who was Sir Mervyn King’s personal choice.
Carney has openly said – discreetly – that quantitative easing is no longer [this was the discreet bit, since it never has] showing positive results, he is not minded to use it to stimulate the economy.
The mutually miffed King and Tucker, in apparent defiance while they are still in charge, have each consequently said that they stand ready to pull the levers to release another flood of money [not] into the economy.
And this comes on top of the Bank of England having failed to deliver on its first responsibility – controlling inflation, which is markedly on the rise.