We have created a monster … banks with access to public funds
Iain Macwhirter
THE ECONOMY: an apology.

"Readers of the nation's press over the last six months might have been forgiven for believing that there was an economic recession. Headlines like: Doom Britain, It's Worse Than The Great Depression and Mothers Start Selling Children For Food might have led casual readers to conclude that Britain was in a very severe financial crisis. We would like to make it clear that there was not a jot or tittle of truth in these reports and that the British economy is bouncing back, house prices are booming and happy days are here again. On behalf of all newspapers and politicians, we would like to apologise for any confusion. Mr Robert Peston of the BBC has agreed to a 40% salary reduction, which he will donate to charity."

It is the most dramatic turnaround in economic history: from bust to boom in a matter of weeks. The pound is up, oil prices are up, consumer confidence is up, bank lending is up and house prices rose 2.6% in May. That last figure is the most astonishing, since hardly any houses are actually being sold right now, and the vast majority of mortgages require a 25% deposit. But who am I to argue with the green shoots consensus? Killjoys might point out that unemployment is still growing fast, that most of our manufacturing industry is collapsing, and that personal and public debt levels remain at intolerable levels. You could point out that the Baltic Dry Shipping index - a measure of world trade - has collapsed again. But the word has gone out that the recession has "bottomed out" and anyone who departs from it is seen as talking down the economy.

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So, what has happened exactly to achieve this remarkable turnaround? Well, it's just a guess, but £1.3 trillion in public money may have had something to do with it. That's how much the government has put at the disposal of the banking system in loans, equity, swaps and asset protection schemes. All this cash has to go somewhere, and it is going, first to bank profits and then indirectly to middle-class home-owners. Anyone with a relatively large mortgage has just had a colossal windfall, with their monthly repayments slashed in many cases by more than half. So long as interest rates are kept artificially low the relatively well-off are being insulated from economic uncertainty. They are also feeling better off because the stock market has increased by nearly a third in the last six months. This feeds into pensions and other investments. Banks can start selling mortgage bonds again; they lend more, people buy houses, retail sales rise, taxes recover and we're all off to the races again.

The word is out that the recession has “bottomed outâ€