Morning:
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The fact that the Government is prepared to consider printing more money to tackle the economic crisis, as we report today, is some indication of how far conventional measures have failed to relieve the credit crunch.
Today's announcement of job losses at Marks & Spencer compounds the misery on the high street, as well as offering further proof that the Government's December fiscal stimulus package — and especially the cut in VAT — does not appear to be working.
The announcement that M&S intends to shed 1,000 shop-floor jobs and hundreds more in support departments suggests just how serious the situation is for many traders. Certainly M&S has its own problems, including expensive food and a confusing number of clothes ranges, but the underlying problems affect the entire sector.
Hence the willingness of the Chancellor, Alistair Darling, to consider measures that would have been unthinkable only recently. Given the failure of cuts in the Bank of England's base rate to date, it may have few other options. If the Bank increases the amount of money in circulation in this way — quantitative easing, as it is known — that will have to be done in close co-operation with the Treasury. That is Mr Darling's view today. It would also allow the Government to purchase securities, from government debt to stocks and shares, and even though that approach has not yet been canvassed by the Treasury, it is already favoured by the US Federal Reserve for America.
There are significant objections to this approach. It could undermine the independence of the Bank. The policy also has troubling historical precedents and would have far-reaching consequences. Yet as our City columnist Neil Collins points out in this paper today, the plain fact is that the other levers that the Chancellor and the Bank have already pulled have had worryingly little impact on liquidity. The Bank may well cut interest rates again tomorrow, but with the base rate already at its lowest for more than 50 years, at just two per cent, it would then have very few shots left in the locker.
Restoring consumer confidence and getting banks to lend again will take more than a cut in the base rate. Printing more money is a high-risk strategy, but one that ministers should explore — with extreme caution.
Poor track record
The New Year has got off to a bad start for rail travellers on the West Coast main line. More than 100,000 passengers were told not to use the line after overhead power cables collapsed across the tracks for the third day running. There is now every prospect that Virgin Trains, one of the two main operators, will simply scrap its new service timetable and go back to the old one. As a result, there will be a loss of 1,100 train services a week.
Virgin blames Network Rail, which runs the tracks, for insisting on implementing a new timetable after an extensive rebuilding of the line rather than allowing the new system time to settle in. Emergency talks between the operators and Network Rail have not resolved the problem. What seems quite likely however, is that Network Rail — taxpayer-funded — will have to pay millions in compensation.
Passengers will not care who is to blame; they do, however, feel justifiably enraged at the shambles of yesterday and today. If Virgin scraps its timetable, it should also scrap its fare increases.
And celebrating
The Science Museum. It has introduced late-night, adults-only evenings in which grown-ups can play with scientific educational gadgets. Museums deserve praise for their proactive approach to increasing visitor numbers by opening in the evenings, when people are actually free to go. And it has worked wonderfully well.
Reader views (2)
Printing money has had disastrous results as history tells us - hyperinflation. This is the end game of all this folly. The problem is not that banks won't lend; it is that we have too many debts already. Be prepared and buy Gold if you can as the shelves are being emptied daily of the stuff.
- Pluto, Wickford, 07/01/2009 14:14
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Saying that the West Coast problems are subject to a row between Network Rail and Virgin highlights a problem with our rail network politicians and left-leaning idealists forget when they call for re-nationalisation. The state which they want to renationalise the railways is the state that created the present chaos, replacing the internationally embarrassing state-run British Rail. Our rail network is not really privatised, but state run with private help. I agree with the principle of the rail network being nationalised and operated by the state. The question is, which state? Perhaps there could be a referendum. I recommend a Scandinavian country or Germany.
- John Reynolds, London, UK, 07/01/2009 12:11
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