Want a loan, guv.

When politicians talk about help to small and medium firms they mean it. But banks are more hard headed and look at balance sheets before they lend. 

It’s as it should be. After all they’re using the public’s savings to provide loans so there has to be some realistic hope of a return on the money lent.  

After all it was moving away from the Mr Mannering approach to banking and embracing the spiv culture of anything goes, that got banking and in turn the economy, into its present mess.

Yesterday’s announcement by George Osborne that he is going to by-pass the cautious Bank of England and its conservative Governor Sir Mervyn King is a measure that the Chancellor is getting more desperate to see some growth in the economy. After all it doesn’t take an economic genius to see that the economy is going down the plughole fast.

Osborne intends is to get the Treasury to provide billions of pounds of credit direct to British firms, starting with small and medium-sized businesses.

The way it will work is that the Treasury will buy bonds from the companies in order to boost the supply of credit. The technical term is “credit easing.”

On moving ahead with such a scheme the Chancellor is admitting the weak state of the banking sector and the worry that the crisis in the Euro zone will have a serious impact not only on the UK’s financial sector but on the real economy which is heading towards a prolonged period of very low growth, if growth at all.

Many will see the scheme as again adding to debt. A debt “crisis” that the Chancellor is so adamant he’s not going to increase.  So how does he square that particular circle.  It’s not really a loan says Treasury because they are obtaining assets. 

Nice try Treasury, but you haven’t explained how you’ll recover the loans if firms are unable to repay. Isn’t precisely this that happened to cause the banking crisis in the first instance, investing in worthless “assets.”

This latest initiative from Osborne is a recognition on his part that the deal named project Merlin between government and banks designed to increase lending to business has failed.

More direct lending, for lending it is, might bring about some growth. But for real movement government ought to stimulate demand in the economy by embracing a real capital and infrastructure growth programme.

It is against this background that the Welsh government submit their draft budget before the Assembly this afternoon. More about their priorities in tomorrow’s blog. Curb your excitement.