[NOTE: I'm not The Devil, and I know I'm late to the party on this, but fuck it. You can't have too many reminders.]
OK. We had an "asset bubble." Lots of things were overpriced. That house you bought for £200,000 was actually only worth £150,000. Share in a company were priced at £3.30 but were actually only worth £2.50.
These things happen. Sometimes speculators drive the estimated value of things up higher than they should be. Whether tulips, south sea trading rights or housing this stuff has been going since year dot and will happen from time to time pretty much forever.
When senses return and the bubble bursts, a load of people are left with assets that are worth less than they paid for them. In today's case, the 'victims are the banks'. Northern Rock doled out billions on pounds to people who couldn't afford to repay it, on the basis of properties that weren't worth their valuation. In order to "save the world", resident genius G. Brown stepped in with colossal quantities of cash to help the bank stay afloat.
As more institutions realised they were in the same fucking hole, so they turned to us—via our representatives—for help. Which would be great, except for the small detail that we can't afford the losses either. Consequently, no-one dares to lend money to anyone else all of a sudden. And when your economy is largely based on credit (who buys a sofa for cash these days?) that spells trouble. Anyway, because we "can't let these institutions fail" we're the ones stuck with all this shit.
So now, the Government is encouraging the printing of money. £200 billion of it thus far. This is supposed to be used so that the banks will start giving credit to people and they can spend it on stuff and then we'll all be happy and somehow one day we'll be able to pay the £200 billion back.
Only here's the rub: interest rates are 0.5%. That means if I lend you a hundred quid, you only have to give me £105 back in a year's time (or something, who the fuck knows how it works—read the small print and get back to me). That's not much return on my investment. On the other hand, stock markets were sent artificially low by the banking crises. So my £100 is going straight into shares instead because I can make more money there because I'm not a moron. So while every economic indicator from GDP to retail sales to employment continues to tank, the stock markets head in the opposite direction.
This is why the money the government is printing isn't reaching the 'real economy'. Instead it is feeding a stock market rally. We're creating another fucking asset bubble. Meanwhile, businesses and people are going to the wall because they still can't get credit. Worse, eventually we're going to have to deal with this £200 billion that has been created somehow.
Are we going to tax it back from corporate institutions who have benefited from our largesse? Pfft. The only answer is to accept that everything is going to get more expensive. With that much easy money floating around in the economy, that's what inevitably will happen.
For proof, you only have to look at Germany's Weimar Republic or modern-day Zimbabwe to see what happens. When there's a lot of cash, prices shoot up because money itself becomes cheap. It's a problem with modern economies that have decoupled their monetary systems from something tangible like gold. As our money itself becomes worth less, so people demand more of it in exchange for their goods. This is inflation, and it is a bitch. Because if your £15,000 a year is barely enough to live on now, how will you feel when the price of everything shoots up 10% in the course of a year?
Now to me, a no-mark in the middle of nowhere, knowing fuck all about nothing, it is baffling how the rich, mighty, connected and intellectually powerful people who claim to run this country can't see this. But then there's a lot of things I don't understand about them. Frankly, we'd be better if they went off to do something more productive. Like fucking stoats. In Iceland. Without condoms.