Finance v Industry

Finance versus industry

How business and finance works in the UK and its implications.

The UK is the home of the world’s largest financial centre (or the largest money laundering centre).Therefore you would expect that in these austerity times there should not be shortage of money..the Bank of England has had to print so much money by issuing bonds, and give it to private banks..at the same time telling the gullible public we do have enough money for much needed public services. How can this be..well let’s look closer at business and finance.

In the economy finance should serve the needs of business and people..that is for business startups...business expansion..to the consumer to finance goods and services. The problem with the UK economy is that productive parts of the economy have been abandoned.. because of high risk element of long term lending of finance to manufacturing.UK manufacturing languishes somewhere between 8-12% of gdp

On the other hand most of the money is lent to buy land and property..which are non productive assets..which inevitably leads to inflation...property speculations..hence the boom and bust cycle..which is the hallmark of the UK economy for the last 50 years. Former Prime Minister Gordon Brown proudly announced no more boom and bust cycle only to see another housing boom. So the business cycle in the UK is really a property and consumer debt cycle..which is a credit cycle..which is a banking cycle..as it is banks by virtue of their power to create money as debt which expands and contracts the UK economy.

The misallocation of finance to business can be best understood by a simple example. Imagine you are an inventor(something which I have done and failed to get my invention on the market).You invent a really use educational aid for children’s learning. You get your product patented (spend money)..you do your market research (spend money)..you get a prototype built (spend money)..you show it to prospective buyers..who approve of your product (you spend money)..you even secure some provisional orders when you can get it manufactured (spend money).

You sit down one weekend and work out the finance to get your product to market...Its going to cost $100,000..you have personal savings of $10,000..you manage to persuade friends and family to put $40,000 giving you a cash total of $50,000..leaving you with a shortfall of $50,000.You approach your bank with whom you banked with for over 30 years..you present your business plan..only to have it rejected by head office of your bank...by a computer which allocates points to your business proposal and rejects it because (1)you have no assets against which the bank can lend money (2)even if you have collateral your venture is seen too risky by the banks computerised decision making system.

You go home giving up your dream. A week later you approach the bank with different proposal. You tell the bank you are thinking of buying a house..the purchase price being $100,000..you can put down a deposit of $10,000 and the bank lends you the other £90,000 to buy your house. The bank firmly believes its money is secured against your house. The house may be real but the value is not..it can fluctuate and banks have consistently lost money on land property.

To summarise finance in the UK instead of being a facilitator in transactions has become dominant and exploitive against business by uploading fees and charges which bear no relation to everyday banking activity or risk. To remedy this situation we need to go back to traditional forms of banking and finance. The days when your local manager visited businesses..scrutinized accounts..checked the financial health of the business using standard financial yardsticks of measurements .

Kind Regards

Tiger Moto