April 23, 2008

Is £50 billion enough to save the economy?

What would seem to be the largest amount cash that the Bank of England have ever put into the banking system, it is in order for the UK banks to be able to lend more money out to the UK consumers, but will this amount be enough to save the UK economy?

At present the current lending is about £100 billion per year, but because the banks do not actually have this sort of cash to lend in the first place, they have around £40 billion, so the rest is borrowed from other sources. But these sources have dried up and therefore this is what has caused the banking crisis.

The feeling is that the government is doing this to help out the banks, but this is definitely not so, the only reason why they are pouring this sort of money into the banking sector is to save the housing market from collapse. If this happened it would cost the government much more than just cash.

Source [Independent]