Ukippers Elsewhere

Tim Congdon, our man in the party who knows all about monetary economics is quoted today.

"This is a potentially very dangerous situation," said Professor Tim Congdon from the London School of Economics.

"Banking system capital is being wiped out. The risk is that this could lead to a contraction of credit and set off a self-reinforcing downward spiral, leading to the sort of debt-deflation we saw in the 1930s.

"It is already clear that money growth has ground to a halt over the past three months. We must prevent it from actually contracting. If the Fed and European Central Bank don't cut interest rates soon, it is going to be a problem," he said.

This is following on very much from the Milton Friedman school of thought about what caused the Great Depression.

It wasn't the collapse of Wall Street in 1929 at all. It was what the authorities did afterwards, did to try and solve that Crash, that caused the Depression. They let, indeed insisted that, the money supply shrink. A diminishing money supply necessarily leads to a contraction of economic activity. That's actually what a recession or depression is, a contraction of economic activity.

Tim Congdon's on record elsewhere recently as saying that the inflation of this year is a blip. With food and oil prices now falling again we don't need to worry about it: but we do need to worry about the money supply contracting and the possible slump that would result.

Thus we need to cut interest rates and cut them now.

The Fed, the American central bank, almost certainly understands this. Ben Bernanke, its head, is a scholar of the Great Depression and one with very similar views to Tim Congdon's. It's the European Central Bank we need to worry about. They seem not to have got the message....Friedmanite ideas have never really done very well in Continental Europe now, have they? Indeed, their last few moves on euro interest rates were upwards weren't they?

Really not what is needed.