Meanwhile, back in 2009 . . . what are the goverment's other

0 Comments | Sunday Herald, The, Jan 25, 2009 | by WESTMINSTER EDITOR JAMES CUSICK

IT will take "four to six weeks" for the government to work out the details of its last bank bailout scheme. According to the new Treasury minister, Lord Myners, the government could then be facing another crisis in early March if it miscalculates the premiums on the insurance scheme to cover the banks' toxic assets.

With the economy contracting at its fastest rate since 1980, the pound at a 23-year low against the dollar, unemployment heading past two million and predicted to pass three million before the end of the year, and no sector of the UK economy seemingly immune from the slump, the government options look to be narrowing.

However, apart from petitionary prayer, there are other key options that are being considered.

1 STABILISATION: Predictions by Myners that more bail-outs remain a possibility indicate one of the government's more immediate hopes is for any sign of stability rather than outright recovery, which will be far off.

The Bank of England has left itself little choice but to cut interest rates again. On February 5, a further cut of half a percentage point, at least, is likely. Inflation, already at an all- time low, will fall again. Inside the Treasury there remains fi rm hope that the fiscal stimulus packages will finally begin to take effect. But falling demand and a reluctance by banks to return to old, and discredited, levels of international lending, makes stabilisation still an item on an economic wish list.

2 REFORM OF THE GLOBAL FINANCIAL SYSTEM: This may be the golden key needed to open the door for a return of confi dence The G20 meeting in London in April, which Brown will chair, is the opportunity for him to demonstrate his now much-repeated mantra that the recession wasn't his fault, but was a global financial failure, and therefore a different kind of "boom and bust" than anything dealt with before.

3 OBAMA AS THE NEW ROOSEVELT:

It may be as high as a trillion dollars, though Congress in Washington DC is already getting cold feet about the scale of Barack Obama's version of the "new deal". But whatever the final numbers are, Downing Street and the Treasury will be hoping the trickle- down effect turns into a quantifiable rescue-laden tsunami that will boost UK recovery.

4 THE RETURN OF "OLD STYLE" CONSERVATIVE BANKING: Brown wants to see a return to basic banking, free of the sophisticated gung-ho practices that became part of the unregulated boom. But to deliver back-to-basics banks, Britain still needs its banks to survive.

Lord Myners has let it be known that "nationalisation" is not the answer.

Brown soon has to put our faith back in the banks and the banks' faith back in themselves. In what time frame can this begin to happen? Ask around, but no-one has an answer to this.

5 QUANTITATIVE EASING: Britain's best hope of recovery may yet lie in simply printing money to boost a potentially defl ationary economy in recession. If money markets remain frozen, property prices stagnant and the banks still unwilling to risk their capital quantitative easing - the professional economists' definition of switching on the printing presses - will be the government's final weapon. This is happening in the US already and it can't be far off from happening here. It has long-term implications, but then, as Keynes said, the long-term is for other generations when recovery is needed now.