Economy 'heading for meltdown'
PUBLISHED: 14:02 07 October 2008 | UPDATED: 22:25 15 June 2010
A PARLIAMENTARY spokesman and former US investment banker has said Britain is going into 'meltdown' and needs government intervention similar to that in the US.
A PARLIAMENTARY spokesman and former US investment banker has said Britain is going into 'meltdown' and needs government intervention similar to that in the US.Jon Underwood, of Tiverton and Honiton Liberal Democrats, who lives in Axmouth, believes even banks that appear safe are collapsing and immediate action is needed to reduce the crisis.He said he predicted the credit crunch almost three years ago and has slammed Gordon Brown for not taking steps to avert it - despite repeated warnings.Referring to the US bailout plan, passed on Friday, Mr Underwood said: "It's avoided meltdown for the time being and was definitely something that had to be done. It's not that different to what's needed here. The FTSE is down 6 per cent. I think it's meltdown - and could get a lot worse."In his former role, where he forecast the economy and used the findings to make investments, Mr Underwood felt an economic downturn was on the cards - and criticised the government's previous lack of action. "This crisis has been coming for three to four years," he said. "Labour just wouldn't admit they had made errors of policy - and they didn't dare clamp down on credit because it's enormously unpopular. It's like telling a friend they're an alcoholic - the temptation is to put it off forever, but the longer you wait the worse it gets. That's the nature of debt addiction, too."For too long it has been too attractive to borrow and has not been worth saving - and our government bears a lot of the blame for that."But he added central banks in Asia and the US also shouldered blame:"They ensured banks were awash with cash and the only way they could make a decent return was by taking obviously silly risks - like lending it to people who were never going to pay it back."And the way City bonuses are awarded on an annual basis mean there is every incentive for some traders to take these risks short term - because, by the time the crisis breaks, they will have collected several years of million pound bonuses."He said he did not want to spread 'doom and gloom' but expected the immediate crisis to last at least two years - and on a scale not seen since the Great Depression. "We are in completely unchartered territory. There have been economic implosions in Argentina, Brazil and Russia in my career. But this is worse - not because it is happening to us, but to the major, developed economies where most demand comes from."It's going to be worse than any crisis we have faced in the recent past. We had a severe recession before - but not the collapse of the banks."And he believes the affects of the crisis will be felt for years to come."There will be ramifications of far tighter credit and the government will be less able to spend. Lack of credit will eventually affect all of us, whether we think of ourselves as borrowers or not."While those already in debt are directly affected, he believes businesses will face difficulties as they have high costs, less income and are unable to borrow money. With consumers unable to borrow, he expects demands for goods and services to fall, which will lead to redundancies and higher unemployment. In turn this will cause further falls in demand.Fearing it too late to control the availability of credit, he feels it is now necessary for banks to protect deposits."If people don't have faith in banks, the whole country shuts down," he said.Despite the bleak forecast, he said there were steps people could take to get through the crisis."I would urge people to support local businesses and farmers to help them make it through this brutal rebalancing period. At the very least buy British - we have to get our trade deficit down. "I would say to people struggling to pay their debts not to panic - help is at hand. Speak to the Citizens Advice Bureau or lender. Remember, banks don't want to repossess your home or send the bailiffs round as it costs them as well."Urge your elected representatives to slash the bureaucracy, which our economy can't bear at this time. And be prepared for a long, slow recovery.