Osborne's announcement today that his officials are working on ways to introduce 'credit easing' has certainly created a lot of buzz.
He said in his speech that it was similar to the national loan guarantee scheme that the Conservatives had cooked up in opposition. But he also said it was another example of 'monetary activism' - a policy stance favoured by himself and Mr Cameron.
In other countries, notably the U.S., credit easing has meant the central bank changing the mix of assets it holds to include riskier, private sector assets as well as top-rated govt securities. The idea is that by buying private assets, like corporate bonds, directly, banks are freed up to lend more (and perhaps more riskily) directly to businesses.
If this credit easing were to happen at the same time as the central bank expanded its balance sheet (quantitative easing) the idea is the transmission could be more direct to the real economy, rather than relying on the portfolio effect of central bank demand for government securities encouraging financial institutions onto riskier assets.
By contrast the national loan guarantee scheme seemed to be an amped up version of Labour's Enterprise Finance Guarantee Scheme (which itself replaced the Small Firms Loan Guarantee Scheme). Here the government provides partial guarantees on loans made by commercial banks in return for fee. The coalition opted to extend the scheme in 2010 rather than bringing in the national loan guarantee scheme.
So which is it? Lot's of speculation already doing the rounds.
I think Osborne means the central bank getting involved in buying a wider range of assets. He was apparently glad-eyed about Adam Posen's speech on alternative ways of doing QE a couple of weeks ago. The credit easing here could go in tandem with creating a securitising entity - like the 'Bennie' Posen proposed.
Plenty of questions about how credit easing might work:
- How well placed is the govt to assess risk of private assets?
- Does the risk of private assets turning bad create a fiscal liability that HMG must reflect?
- How quickly can an entity securitising loans to SMEs be created?
- Is the additional risk any kind of threat to the govts fiscal credibility?
Frenzied build-up to the Autumn statement begins now...