Sadly there is no easy answer to that question BTNG/akenaton. A lot of people still think we can spend our way out of a recession, we can't.

It was a Labour Prime Minister, James Callaghan, who officially incorporated monetarist thinking into UK government economic policy making, when he recognised that more public borrowing in an inflationary era would make matters worse.

Of course in one sense you can only overcome a recession by more spending. A recession is insufficient demand chasing too many goods and services , leading to job losses, falling prices and cuts in output. The issue is not whether we need more demand or not, but how you bring that about.

The priority is to encourage more private sector demand, because it is private sector demand which is falling sharply. You do that by cutting interest rates substantially.   Lower interest rates feed through immediately to borrowers whose rates are linked to MLR, and later will benefit others as money markets start to function better.

Until there is more confidence there will be insufficient private sector demand. The gap will be too large for an over borrowed public sector to be able to fill, even if the government took the risk of expanding public borrowing even more than they are already doing.


I am probably making myself a target here, but the coalition government is in power, we need to accept this fact and pull together and get ourselves out of this mess. Alternatively, we can blame, Labour, Bankers, Thatcher, Cameron or someone else.
If anyone has a better idea or a solution, please tell us.

I will probably require my tin hat again.