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Yesterday the Bank of England released the minutes from the early April meeting of the Monetary Policy Committee Meeting. Although the report indicated that the committee generally sees value in its Funding for Lending Scheme, it didn’t seem too anxious to expand it in the near future.
The problem facing the committee is that, so far, “has had no discernible impact on the availability of credit for small companies.” The Funding for Lending Scheme was originally instituted in August 2012, so it has had nearly eight full months to demonstrate that it is having a positive effect. So I am beginning to wonder about the deductive reasoning skills of the committee members. Take a look at the first sentences of Paragraph 17 of the minutes:
“Despite significant improvements in the price and availability of credit, there had been little sign so far of any significant pickup in net lending to businesses. That may have reflected the usual transmission lags, but it could also point to a more fundamental change in the structure of credit markets.”
Okay. That sounds reasonable. But look what immediately follows:
“Some contacts of the Bank’s Agents had reported a continuing lack of trust between banks and small businesses, and fears that applications for new lending facilities might result in the terms of existing facilities being reappraised.”
Let’s see if I understand this correctly. The reasons for the lack of significant results could be either the “transmission lags” or “A CONTINUING LACK OF TRUST BETWEEN BANKS AND SMALL BUSINESSES!” Which could it possibly be? Lack of efficiency or lack of trust? It takes greater minds than mine to figure out how “transmission lags” could be a factor after eight months. But it doesn’t take a rocket scientist to figure out that there is a lack of trust between the banks and the entire population of the UK.
I am the only one who understands that when people don’t trust you, they don’t do business with you? They don’t give you their money and they don’t particularly want yours, regardless of how cheap it is. Unless, of course, you are giving away with no strings attached. Even then, you’d have to wonder if that money has any value or if it came from QE, and I don’t mean Queen Elizabeth.
Perhaps one of the factors that confused the committee was that “lenders surveyed in the Bank’s Credit Conditions Survey had reported expectations of a pickup in the demand for bank credit in the next three months,” whilst “business surveys had pointed to a slight pickup in investment intentions, consistent with a possible building in the demand for finance.” That lends (pardon the pun) a healthy degree of credibility to the committee’s cognitive skills. I am also really impressed with the amount of confidence that the committee has put in the opinions of “lenders surveyed.” Are these not the same institutions in which the public has a lack of trust? Is so, then why do Mervyn King and the other committee members trust them.
I have discovered that it’s not economics that is difficult to understand. It is human reasoning.
To see the entire 11 page committee minutes report, click here.
