Interest rates and savings

I can't help thinking that everybody is trying to solve the wrong problem.

We have an economy with several structural issues. Most of these arise out of an asset price bubble that has now definitely burst. Let's summarise the two main problems.

• The savings ratio is way too low to support investment. Households have incurred huge levels of debt.
  
• Banks see high risk, and are disinclined to lend.

Okay. You don't think it's worth saving money. What's the answer? I'm going to reduce the interest rate. Look! You didn't think it was worth saving money when you could get 7 percent in the bank! Now the interest rate is one solitary per cent! It's worth it! Isn't it....?

Try the next one. Dear Mr Banker, you do not want to lend money to Mr Not Very Gainfully Employed, a self-certifying self-employed man with previous bad debt, on a house that is worth 15% less than it was last year and will probably be worth another 15% less this time next year.

I tell you what. Instead of charging him 7%, why don't you give him a 2% tracker mortgage. There! Doesn't that make it all worth your while?

This economy actually needs high interest rates to solve the structural problems. Instead of which, we have low interest rates driven by the politically perceived need to restate the bull market 'com'era, dov'era'. And low interest rates which, by the way, keep driving sterling down. (As a Brit living half the time in France, I've certainly noticed it.)

I can't help thinking we'll see interest rates up again - and I suspect, when it happens, it will be very sudden.