Cutting the deficit by increasing it would be disastrous. Just look at Greece

Tuesday 11 December 2012

Richard Mowbray complains that the Chancellor is not pursuing sufficient austerity (Letters, December 8).

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Aside from the obvious fact that the sort of austerity Mr Mowbray favours would leave Britain in a state like Greece, the reason the Chancellor is borrowing more is because tax revenue has been suppressed by austerity-induced recession.

Mr Mowbray suggests such solutions as cutting spending in a variety of areas including education. It is difficult to work out how a poorly educated population can enjoy a stronger economy in the future. He calls for cutting spending on green energy. When the world's greatest problem is its climate crisis, arguing that nothing should be done shows short-term thinking. Mr Mowbray believes spending cuts will allow for tax increases that will stimulate growth, yet any stimulus effect will have been offset by the equal loss in spending power by those affected by the various spending cuts he proposes. His plan would amount to an upwards redistribution of wealth. The rich spend a lower proportion of their income than everyone else, so again demand will be suppressed.A plan to "cut the deficit by increasing the deficit" might be novel were it not for the fact it is already being pursued to such disastrous effect in places such as Greece. Canada and Sweden reduced their debt yet both did so through export-led growth in a healthy global economy. This is not an option for Britain. Britain has its own currency and cannot fail to meet its obligations: as a last resort, it could just print money to finance the debt. This is in part what the Quantitative Easing (QE) programme did when it transferred a vast amount of Government debt to the Bank of England, which is itself part of the Government. A government that owes money to itself is not in debt crisis. The danger to a government with its own currency is not debt, but inflation. At present Britain's level of inflation is higher in the several years preceding recession, but in historical terms it is still not high and is not being caused by excessive credit.The QE programme was largely a wasted opportunity as it was based on the premise that lending will increase if banks have more money to lend, when in fact lending is based on how much borrowers wish to borrow which, in a time when people are trying to reduce their private debt, is not going to be much. A better version of this programme (such as green QE through a green new deal) could have been much more successful and reduced the dependence on banks to provide new credit. Iain Paterson,2F Killermont View, Glasgow.Waiting for my fish supper the other night, a young man asked me for 5p as he said he didn't have enough money for his supper. I handed him a coin, paid for my own and left. He bought his and followed me.I gave him, what I might call, an interest-free loan – though I doubt I'll ever see him again. Still, the "loan" meant he purchased his food and ate it and gained sustenance. It also meant the chip shop made another sale that night, the proceeds of which would go towards buying more potatoes or fish, paying wages and helping pay the bills. My small loan did all that. I see similarities to the economic predicament we are in; the banks are not lending money and small businesses are going out of business, or at any rate aren't reaching anything like their best trading frontier for want of cash. If one bank lends one small business something to get it going, then wages and bills will be paid, products or services made or provided, and business will improve. We are all in this recession together: banks, small businesses, large businesses, families and individuals. Helping one helps all, and it is about time the banks and other lenders saw it that way and agreed to lend more. After all, it's not their money, it's ours, isn't it? Remember my loan and how 5p multiplied.Robert L Fielding,361 Wellshot Road,Glasgow.

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Cutting the deficit by increasing it would be disastrous. Just look at Greece

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