Gordon Brown, Federal Reserve Make New Year’s Resolutions

Gordon Brown and the US Federal Reserve are making their new year’s resolutions, and as well as joining a gym they’ll never go to, they’re promising to make sure that the crisis really will go away in ‘09, really.

Federal Reserve officials in the States, shifting around anxiously as they realise that an interest cut from 0.1% to 0.05% might not wow anyone, are now endorsing more measures to get banks loaning and people spending again. At a conference in San Francisco, they advocated “pulling out all the stops”, and creating a massive stimulus package based around government spending (thus creating more jobs and more people spending money) and tax cuts (thus freeing up more money to be spent by consumers). As Bloomberg reports, a Democratic aide said the package could be as much as $775bn dollars; New Jersey’s Democratic governer Joe Corzine has called, with others, for a $1tn package. Crazy when you think that just a couple of months ago, Ben Bernanke thought that $150bn would be enough.

On these shores meanwhile, Gordon Brown is also going all Roosevelt on our collective ass and promising his own package of government spending to get the economy moving and people back into work. He pledged yesterday that 100,000 jobs would be created, and said that he’d only spent £1bn of an £18bn stimulus pot so far. He mentioned that “digital infrastructure” would play a major role in job creation, just as David Cameron also shows how funky fresh he is by annoucing his plans for Britain as a haven for green tech. And RBS and co aren’t going to be getting any more money apparently.

This week will also see more Bank of England rate cuts, matching our Stateside chums, but Brown promised yesterday that savers won’t get left behind. He didn’t say how, but they won’t, alright? One way could be to increase ISA limits, allowing people to deposit more than £3,600 in tax free savings a year. The maths of this doesn’t look like it’s going to work out though, even to this abacus-indebted writer – with ISA rates being cut to as low as 1%, and large banks often paying out less than the bank rate, the deposit cap will have to be at least twice as high as it was to generate the same revenue as it was last year when ISAs would generally dish out well over 5%. And when the bank rate is cut further, the ISA rate is likely to drop even lower, meaning an even higher cap – a volatile measure that Darling is unlikely to pass.

So the moral seems to be: get a job building the Olympic Village, spunk your wage packet down the high street, and while you’re there, borrow some more cash for that house you’ve always wanted! Hmm. Looks like lots of us are going to be living pretty hand-to-mouth in ‘09.

Posted by Ben Beaumont-Thomas in Hot Money | January 5, 2009 12:59PM |