To be fair my earlier post didn't cover everything the Chancellor said.
He also mentioned the possibility of the government using its balance sheet (made credible by him) to act a guarantor behind SME lending, thereby encouraging banks to lend more. There are already schemes in place with a similar theme - the Enterprise Finance Guarantee and the Export Enterprise Finance Guarantee.
These schemes are being used but demand for them is hardly overwhelming.When the scheme was first introduced it was to support facilities of up to £1.3 billion from Jan 2009 to March 2010. BIS figures show in the end the scheme was used to support loan offers of less than £950 million of which around £780 million was actually drawn. Over the next year to March 2011, with facilities of up to £700 million able to be supported, loans of £490 were offered with £460 million actually drawn.It's a little unclear what more the government may do further here.
Will they extend the scope of the EFG to cover larger businesses or larger loans? Will they increase the guarantee from 75%? Will they lower the fee charged for using it? If they did any or all of these things there would be a cost. And if the Chancellor considers this a macroeconomically meaningful intervention it would have to be done on a very large scale - so it might be a considerable cost. And being on the hook for what could be a very large potential liability would presumably be something that people who judge the credit-worthiness of the UK might look at quite closely.
The government could buy packages of SME loans - securities that offered a stream of payments based on a portfolio of individual loans made by banks. Banks would then have cash that they might be inclined to lend out to SMEs who are currently struggling to get a loan. There is some element of uncertainty about that though - because the banks may have reasons - such as shoring up their own capital - for not doing this.
For this to happen there would have to be a suitably qualified securitising agent - perhaps a market participant but in the current conditions maybe a government entity would be required to perform this role. It will be important that the securitising is done robustly and that credit worthiness of the package of loans is accurately assessed.
But assuming the government can rapidly assemble the entity and it can do a quick and thorough job - someone still has to buy these assets.
If that someone is NOT going to be the Bank of England, then does that mean it's up to the government? If the government's buying a whole lot of assets, will it have to borrow a whole lot more ££ to do so? What does that mean for its fiscal plans?
So a lot more questions than answers still on credit easing.