Banking crisis? Time to mention the war.
How will we justify to the next generation the money poured in to rescuing the financial system? Compare it with World War Two: the cost was high but the alternative unimaginable.
The cost to the UK alone is now heading towards £1 trillion – more than the annual private-sector contribution to gross domestic product.
Some is mere loans to banks, some is financing the quantitative easing policy, and some is the purchase of shares in banks. Of that, the loans will probably be repaid, but bonds bought in the Bank of England’s QE programme are likely to be resold at a loss, and most of the money spent on shares has almost certainly been lost for ever.
A government that once spent millions carefully now splashes out billions willy-nilly. And on top of those sums is the money spent on fiscal stimulus plans such as the £12bn Vat cut. There are also all the recession costs such as extra benefits and lower tax receipts. The there are intangibles such as the lower standard of living of people without jobs or retirees on lower pensions.
We will be paying for this financial crash for the rest of our lives, handing over the debt to our children for them to finish repaying.
The comparison with the Second World War is apt however. Besides the direct death toll the post-war generation inherited a large debt together with rationing and austerity. It dictated life styles for a generation at least – and arguably produced the social sea-change of the 1960s.
The American loans to reconstruct Britain after the war were repaid only in 2006 – though, in fairness, they had not been an overbearing element of UK finances for the second half of their 60-year term. Today’s debt will follow a similar pattern; it will dominate public finances for most of the next decade as loans are repaid and banks privatised, we’ll still be aware of it in the 2020s but after that it will fade into insignificance.
It’s not the end of the world – even for those who will lose their jobs and never work again. There was no doubt much fun to be had in the 1950s too. But while no bombs fell from the sky and no relatives went missing in action, Britain has just been through an event as economically important as World War II – but without the wartime spirit.
