David McWilliams: Nobody’s lending. Nobody’s borrowing. Here’s what to do

We are in a classic ‘liquidity trap’, and lowering interest rates won’t get us out of it

The State and the ECB are behaving as if the pass-through from interest rates to the economy, via the banking system, still works. It doesn’t. Photograph: Hannelore Foerster/Bloomberg

The State and the ECB are behaving as if the pass-through from interest rates to the economy, via the banking system, still works. It doesn’t. Photograph: Hannelore Foerster/Bloomberg

Another lockdown will destroy the economy unless we change direction. It’s really that simple, and it is because the banking system no longer works as a distributor of capital in the country.

Our Government and ECB have approached the crisis in the same way: cutting interest rates to zero to coax businesses to borrow and to encourage banks to lend. As a result, banks are the critical intermediary between the Central Bank, the State and the economy.

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