Issue 531 cover

The big squeeze

1 April 2011 / Issue 531

How to invest in austerity Britain

PLUS:

  • Will Portugal bring down the eurozone?
  • Only people power can curb bankers
  • The Buddhist economist proud to be called a crank

Excerpt

‘Evergreen’ will turn brown

Real incomes in Britain have fallen for the first time in 30 years. Expect a cascade of demands from columnists and bloggers around the country that the government do something. But what? The only way for this sorry state of affairs to change is for nominal wages to rise a lot or for inflation to fall a lot. But it is hard to see how the state can make either happen in the short term. George Osborne has to carry on with his Plan A of deficit cutting – he may even have to step things up, so it is hard to see wages jumping anytime soon.

And inflation? We’re stuck with it. I suspect those arguing for a fast rise in rates as some kind of symbol of intent don’t get just how fragile our housing market, and by extension our banking system, still is. Earlier this week I wrote about the state of the US banks. They’ve recently been allowed to start paying dividends again. But as MoneyWeek regular James Ferguson points out, they probably shouldn’t have been – they’re still hovering on the edge of solvency. How does he know? Because he can see them “evergreening”…

• Read the full editor’s letter here: ‘Evergreen’ will turn brown

Follow Merryn on Twitter