£1.8 trillion has been lost from the world’s financial institutions as a result of the “credit crunch”, the Bank of England has estimated.
This amazing amount of money would equate to 600 billion pints of beer in a typical Edinburgh pub.
The figure is made even more astounding by the combined £5 trillion spent by governments across the world to bail out struggling banks. The Government recently spent £37 billion into Royal Bank of Scotland, HBOS and Lloyds TSB.
The figures are in the Bank’s Financial Stability Report which is sent to every bank director in Britain. It is more than double the previous estimate of losses. It does, however, say that the figures could be reduced by around 30% if the market is given time to stabilise.
Following the amazing figures, the Bank of England has called for reform in the banking sector to try and halt the worst economic decline since the First World War.
Bank of England governor Mervyn King has claimed “a little more boredom” in the banking sector would be beneficial for the economy.
The Government are set to break their “Golden Rule” in light of the credit crunch. The “Golden Rule” declares that the Government can only borrow to invest in an economic cycle and that debt must be no more than 40% of national income. These rules worked for the last cycle but not for the latest one, which began in 2006/07.
Gordon Brown said that it was necessary for the Government to increase borrowing to kickstart the economy: “The responsible course of government is to invest at this time to speed up the economic activity. As economic activity rises, as tax revenues recover, then you would want borrowing to be a lower share of your national income. But the responsible course at the moment is to use the investments that are necessary, and to continue them, and to help people through very difficult times. I think that’s a very fundamental part of what we are doing.