1. Lower interest rates: this discourages saving because one gets little reward for delaying one’s gratification (in economic parlance, time-preferences are undervalued), while at the same time encouraging borrowing, thus further reducing the supply of credit relative to demand;
2. Allow inflation to escalate: this also discourages saving because the nominal reward for saving (the amount one’s money goes up) is eroded by the fall in the value of money (what your savings are actually worth), and for the same reason encourages borrowing: at present, the Bank of England base rate is lower than inflation which means that savings are worth less with time (in economic parlance, interest rates are negative);
3. Increase public borrowing: This takes money out of the credit markets: money that is being saved and would be invested in profitable businesses is now diverted into Government bonds and then invested in businesses that are not creditworthy (if they were, they would not need a Government bail-out).
1. Lower interest rates
2. Allow inflation to escalate
3. Increase public borrowing
Remember than the next time somebody tells you that Brown is having a good crisis.