Alf Young: We are missing any coherent sense of leadership from the custodians of fiscal and monetary policy

Then he tells ITN viewers they “shouldn’t be alarmed”! David Cameron urges us all to pay off our credit card debt. Then has a humiliating rethink. By yesterday’s Today programme, George Osborne is telling BBC listeners he doesn’t believe in lecturing the British people. “I think people have to make their own [spending] decisions,” he declares.

Right in the middle of the Chancellor’s interview, he is asked about breaking news that Moody’s, one of the global agencies that used to think securitised bundles of toxic sub-prime mortgage loans deserved its top AAA rating, had just downgraded 12 UK financial institutions, including two – Royal Bank of Scotland and Lloyds TSB, owners of Bank of Scotland – that are now state-owned to the tune of 82 per cent and 40 per cent respectively. In addition, Osborne must have seen that morning’s Financial Times, quoting sources in his own department, suggesting RBS could soon be in need of another state bailout.

“I’m confident [our banks] are well capitalised and liquid,” was the Chancellor’s defence. And it’s only fair to note that Moody’s, in moving RBS down two notches and Lloyds one, insisted “the downgrades do not reflect a deterioration in the financial strength of the banking system or that of the government”. It is all about the UK government’s ambition that, in due course, in the wake of the Vickers Commission, UK banks should no longer be seen as too big to fail.

Pity about the timing. Vickers is unlikely to be implemented before the end of this decade and there’s plenty happening right now across the eurozone that could sorely test that political resolve. The spectre of a sovereign default won’t go away. Some continental banks, notably Dexia, are already in intensive care. The exposure of UK banks to debt in Greece, Portugal, Ireland, Italy and Spain isn’t as great as those of French, German or American banks. But it remains a substantial risk.

So, with the European Banking Authority already rerunning the flawed stress tests it carried out on 91 European banks in July, there is a prospect that fresh capital injections will be demanded for those closest to the borderline.

That’s where the speculation about another bailout for RBS comes in. In July it’s capital ratio came in at the low end, at 6.3 per cent, against a threshold ratio of 5 per cent. Were that threshold to be raised to 7 per cent or 8 per cent, RBS would need a fresh capital injection, largely from taxpayers. Crisis, what crisis?

Meanwhile, the Chancellor has “set the Treasury to work” on ways to inject more money into the real economy, billions more, especially to the small business sector. He calls it credit easing. The money could be used to buy up existing company debt, in the shape of corporate bonds. Or the state could purchase packages of existing loans to smaller businesses (possible opening there for sharp City minds, with a track record in packaging up bundles of sub-prime mortgages?) or some could simply underwrite lending from reluctant banks.

While that work goes on King and his colleagues on the Bank of England’s monetary policy committee have taken markets by surprise by announcing a new round of so-called quantitative easing, a month earlier than anticipated, another £75 billion of new money on top of the £200bn already out there which, in the governor’s own words, will eventually “seep around” the system and underpin flagging growth.

But the new round of QE will be used to buy up more government gilts. King doesn’t think it’s his job, as a central banker, to become an arm of industrial policy. Back in January 2009, when the original asset purchase scheme was launched, he did write to the then chancellor, Alistair Darling, promising that the Bank would “focus initially on purchases of corporate bonds, commercial paper, and paper issued under the CGS (the government’s since-discontinued credit guarantee scheme)”. In a further letter to Darling the following month, the governor suggested that up to £50bn of the first £150bn allocated to the scheme “should be used to purchase private sector assets”.

The Bank never delivered on these promises. While the original scheme of QE was eventually extended to £200bn, only £1.6bn of that went on buying up corporate assets. King’s latest letter to George Osborne suggests the structure of the original deal struck with Darling still stands. But if it does, the Treasury wouldn’t have to be putting in all this new work to alleviate what Osborne calls the “continued impairment in the flow of credit to some parts of the real economy, notably small and medium sized businesses”.

George Osborne claims that, while Alistair Darling was “at war” with Mervyn King, he sees his job as acting in concert with the Bank. But that leaves Threadneedle Street to its purist ways while the Treasury takes until well into next year to deliver any kind of meaningful credit easing directly to small and medium sized businesses. Meanwhile, if things do go badly wrong in the eurozone, both Chancellor and governor could soon be confronting UK banks even more reluctant to lend and, in cases like RBS, looking for fresh help to bolster their balance sheets.

Crisis, what crisis indeed. What’s missing here is any coherent sense of leadership from the custodians of fiscal and monetary policy in what may be, in King’s own estimation, the biggest financial crisis the world has ever seen. George Osborne doesn’t even believe in quantitative easing. In March 2009 he called it “a leap in the dark” and “an admission of failure”. Anyone who tells you it’s going to work, he went on, “doesn’t know what they’re talking about”. It represents, he claimed, “the last resort of desperate governments”.

In his notable 2005 address to Stanford students, the late Steve Jobs of Apple urged his audience: “Don’t let the noise of others’ opinions drown out your own inner voice.” Judging by the words and deeds, over the past few days, of those charged with delivering the UK from the current travails afflicting the global economy, that troika can’t find a convincing shared inner voice. What they leave us all with is a babble of opinion, retracted opinion and, in King’s case, what has been described as the triumph of purity over pragmatism.

Multiply that lack of cohesive leadership 20-fold when we get to next month’s G20 summit in Cannes and the babbling could become deafening. The current crisis is large when set against any historical scale. But it is, at its core, a crisis of confidence. Have we heard anything from David Cameron, George Osborne or Mervyn King this week that inspires any confidence that they are on the way to finding that inner voice and charting a credible way forward? I’ve listened very carefully and I can’t detect it. Like the rest of us, they seem more like mere rabbits caught in the headlights of something we can’t control.