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Does anybody in the business community actually understand what is going on with the financial economy anymore?

I have always believed that I had a reasonable understanding of how the economy worked, i.e. taxation, banking, services and welfare, stocks and shares, productivity, profits. It all seemed to make sense and in terms of what I do every day it still does. What was once reassuring was that it also made sense when I looked at it as though it were all just part of one business albeit a large one.

But here is the nub of my confusion. Since the banks fell off the cliff, for reasons I can perfectly well understand, I just can’t make any sense of the solutions we are adopting. What is even more uncomfortable is that all the economic pundits seem to be in complete disagreement about whether it’s the right solution or not. I realise that politics is playing a big part in all this disagreement at the moment but I generally get the feeling that it’s all no more than a best guess at what to do.

By way of example I would say that it feels wrong that here we are theoretically with very little money and yet money appears to have no value because interest rates are kept low making savers poor. We are in the worst recession in living memory and most people are actually better off than they have ever been. The country has debts coming out of its ears but we seem to have all the money we need to look after our services and infrastructure with nothing more definite than a few possible and as yet undefined efficiency savings to make in the future.

My understanding at the moment is that it works something like this. The banks want low interest rates because that maximises their profits from lending money. It’s no surprise that if you can borrow money at 0.5% from the tax payer and lend it to business at 6.5%. Provided your smart enough to lend the money to people who can pay it back, then you can make a very nice 1300% profit on your investment and this profit is restoring the assets held by the banks. If that’s all there is to it well that part at least makes commercial sense if you’re a bank. Perhaps that’s what quantitative easing actually means, who knows?

I know I don’t understand what we are doing and I find that very uncomfortable because I do understand numbers and the ones we are reporting in a very matter of fact way on television every day are very big numbers indeed and it’s all our tax money they are talking about.