Under the 10-minute limit for speeches, one can really utter only a few soundbites, without giving any supporting arguments. I will save nine and a half minutes by saying that I agree with almost everything that Dr. Cable said, and that I am a regular reader and admirer of Mr. Bootle's articles in The Daily Telegraph. That saves a lot of argument.
To be entirely serious for a moment, I am probably one of the few people in the House—perhaps the only one today—who remembers the 1930s slump. My father was unemployed, and I remember my mother weeping in the kitchen, and all that. I agree with the hon. Member for Twickenham that we are facing a very grave situation indeed which, I am afraid, will be comparable, in due course, with the 1930s. So I do hope that the House of Commons will stop the amusing knockabout atmosphere in which these matters have largely been discussed up till now. They are too grave. Nobody enjoys parliamentary knockabout more than I do, but the country faces the gravest crisis since May 1940. The whole world capitalist system is in danger and there could be mass unemployment in this country in two or three years.
In 1932, 20 per cent. of our work force were unemployed. I have listened with interest and studied all through the past week the quotes from Germany, but it is worth remembering that Chancellor Brüning, who was the chancellor in the last years of the Weimar republic, was advancing views and pursuing policies almost identical to the speeches that we have just heard from the German Minister of Finance. Although it was quite unintentional on Chancellor Brüning's part, he had the effect that whereas the Nazis got 8 per cent. of the vote in 1928 and 20 per cent. in 1930, they were in power by 1933. Herr Brüning, as he had then become, very wisely fled to Harvard and spent the rest of his very long life lecturing on the merits of classical economics.
I am not suggesting that anything of that kind is likely to happen in Germany again, but it is interesting that Chancellor Merkel slapped down her Finance Minister within 48 hours by signing up to a fiscal stimulus of €200 billion for the 27 countries of Europe. My German friends—hon. Members may be surprised to know that I have quite a lot of them—tell me that she is waiting to produce a much bigger fiscal stimulus at the same time as President-elect Obama's Administration produce theirs. I predict that when President-elect Obama becomes the President, he will produce the biggest fiscal stimulus that the world has seen since Franklin Delano Roosevelt.
Of course, every country is different, and each country is influenced by its history. The German nightmare has always been the inflation of the 1920s, and our nightmare has always been—though perhaps much more among my generation than among younger Members—a return of unemployment. I remember when the Speaker in Ted Heath's day had to suspend the sitting of the House of Commons when unemployment went over 1 million. There would not be that reaction today, but in the early 1970s everybody in the House remembered what unemployment was like. People have forgotten it, and it will be much more difficult this time because the benefits system is so infinitely more generous. The enormous increases in expenditure that we will have to make in order to look after our unemployed will make the whole financial situation even more difficult.
I am just as good a monetarist as the next man. I am a Keynesian, and nobody wrote about monetarism with more authority than Keynes, but deflation is a very much more difficult problem to deal with than inflation. Everybody knows how to cure inflation, although it is extremely painful. To some extent, everybody had proceeded on the assumption that Keynes had buried deflation. Well, it has now risen from the grave and it is extremely difficult to cope with, because once one has reduced interest rates to a very low level, the monetary weapon ceases to be at all effective, as the governor of the European Central Bank pointed out yesterday, quoted in the F inancial Times.
In America people have been pouring money into the three-month Treasury note market, which as a result is already showing a minus zero return. At the same time, the long end of the bond market—the Government end—has gone up enormously. I, naturally, have all my life savings in the American dollar and in long-dated bonds. The dollar has gone up enormously and the bonds have jumped by 20 per cent. in the past month. I do not understand why all our pension funds are collapsing. All the fund managers had to do was to do that and they would all have had enormous increases, but the fact is that the people who run our affairs are quite fantastically incompetent.
I made five suggestions to the Prime Minister on the Floor of the House before his Chancellor produced the pre-Budget report. He said subsequently that he had accepted and adopted them all, but that I had not convinced those on my Front Bench. That is not a new experience for me. I did not succeed in convincing those on my Front Bench not to join the exchange rate mechanism; I failed to persuade them not to introduce the poll tax; and I failed to persuade them not to support the invasion of Iraq. So I shall try again and suggest that we should not rule out the possibility of fiscal stimulus at a time when we face the prospect of the biggest deflationary slump that anybody can remember and when the monetary weapon has been virtually neutralised.
That is one of the reasons why—I want to try to curry favour, as always, with my Front-Bench team—I am a great admirer of their plan for a national loan guarantee scheme. It will be £50 billion, and what I like so much about it is that it will be a magnificent fiscal stimulus. As was pointed out with reference to the south American experience, one can be quite sure that the banks will not take on any of the risk. It will all be taken on by the taxpayer, it will be paid for by extra borrowing and it will do an enormous amount of good, because the three great dangers are, first, the banks not continuing and having to be bailed out, secondly, that the banks will not lend to each other, and thirdly, that the banks will not lend to business. The national loan guarantee scheme will greatly encourage banks to lend to business, which is exactly what we want, and will perhaps mean that unemployment will therefore not soar quite as high as I fear.
Copy and paste this code on your website