We must at some point meet Malthusian limits to growth - expansion cannot, on a planet with by definition limited resources, continue for ever - unless we can do more and more with less and less, and when it comes to food there are lower limits to the calorific intake required to sustain life.

Arnold Ward, Weybridge, Surrey, UK

'This time the banks can claim that this is not a problem of their making. Unlike many previous crises, it did not arise within Britain'.

What? So the Yanks are to blame for Brown's inflationary policies and for British banks' irresponsible lending practices. A nice get out clause, but no-one is fooled Mr Smith.

Paul, Coventry,

Dear David

Adding to my comments of this morning I would like to focus on one dynamic which is in my view important but not usually thought of as really part of economics. I heard a slightly elderely (about 65) BBC economics commentator making the comment that one of the serious problems in banking and City was an extreme emphasis on youth and therefore inexperience, even though they probably had a drawful of degrees but lacked experience. In all the banks I have been into the age looks to be about 25, the manager perhaps 40. I think experience in all these matters is underestimated. To me it seemed mad to be lending without requiring worthwhile deposits and to be permitting loans of all kinds to be unrelated to each other and unrelated to other borrowing so that out of control debt arose. Further to allow this situation against a backdrop of hyper inflation in property prices, when if they thought of the backdrop history of the cyclical nature of boom and bust in the Uk .

Chris Stuart, Carentan, France

Dear David

I remember that for very many years you suggested that there was a very real risk of a major downturn. Having narrowly escaped bankrupcy in 1989-2002 I entirely agreed with you, and could not believe how far the boom had run.. I sold my house in April 2007 thinking that that was the height of the boom, thus becomingf one of those mythical people rarely heard of who sold at the top.

Chris Stuart, Carentan, France

Credit where credit is due. Although I don't agree with all that is said, this is a well reasoned piece. And at last someone in the mainstream media is joining the dots about the flood of money going from the stock market after the dot com bust to the housing market and in the last year into commodities.

You said in the last paragraph...

"Making money out of people’s desperate shortages of food is obscene, a bit like wartime profiteering. It’s enough to turn the prime minister back into a socialist. "

To a priced out first time buyer you might like to swap the word 'food' with 'houses' and see how that reads. And let's then hope Brown doesn't also want to prop up falling commodity prices when it happens.

harry e, London,

"But I cannot pinpoint a single interest-rate decision since then that would have been different had the old target (RPI excluding mortgage-interest payments) remained in place."

Well with RPIX at 3.7% (1.2% over target) in February we would have an interest rate rise to accompany MDC's letter seeking pardon from the Treasury.

Robert Williams, Halifax, England

Hi David

Great article as always, but I have to dispute the IEA statistics that you cite. What the IEA fails to take into account is that about 10 million barrels a day comes from liquid natural gas (butane, propane etc) that should not be considered. The US Energy Information Agency, which is a part of the Department of Energy, gives the correct numbers, and according to them the world crude oil production has essentially been constant since 2004.

http://www.eia.doe.gov/ipm/t11d.xls

johan, Falkirk, Stirlingshire

Irrational market sentiment may temporarily depress house prices, but houses remain in short supply. If you assume that a house lasts an average of 100 years then we need to build 1% of our housing stock a year just to stand still. That would take no account of our growing population or shrinking household size. We have not hit the 1% figure once in the last twenty years and have averaged less than half that figure. The medium term pressures on house prices are up, and not likely to diminish. Every time the government talks about making it easier to build houses they actually tighten planning restrictions. Demand is growing and supply is shrinking. That is hardly going to bring prices down.

Quentin Langley, Woking, UK

The differential between the CPI and RPI is close to a historical high (albeit tightening now that house prices are falling), in this sense, it is hard to say that interest rate decisions would have been the same when the differential has been consistently widening over the last few years?

Mr Jogia, London,

I think you're all missing the point. The economic problems go far deeper than banking and unemployment. We, the English speaking world have gone through a cultural change of buying what we can't afford. If you have a house that costs you £1000 a month to live in and you're being paid £900, you have to borrow and to borrow you need asset price inflation - houses. Wage growth to RPI is negative, so every month you can buy less, unless you can borrow. At the end of the day, even if banks manage to re-caplitalise are they going to lend to the extend they have in the past when the government is going to enforce draconian regulation when this calms down? I don't see a way out, you can prolonge it but it's going to get us in the end. Lack of union power to justify proper salary rises have also hurt the man ifn the street. Working in the city I can tell you that at least 60% of the people I know cannot afford to live on their salary alone and those salaries are in the top 2% of the country's

Jim Henderson, London, UK

David

Please read "hot commodities" by Jim Rogers, then spend a weekend thinking about how much you have misunderstood the commodities market.

You state "Making money out of people’s desperate shortages of food is obscene, a bit like wartime profiteering. " This is pure capitalism. If the chinese start drinking coffee, which they will (the Japanese only started in the 1970's), the price will go up. Why am I immoral if I see this and make money in the process?

What is immoral is the tax payer bail out to northern rock, and the proposed new collateral arrangements of the BOE. If I lose my shirt on commodities, which I wont, there will be no state hand-out.

gerard martin, London,

Nigel Lawson's change was to switch mortgage tax relief from a per person to a per property basis, ending the system where two sharing could get two sets of relief. Mortgage tax relief was scaled back under Lamont and Clarke but not abolished until 2000 under Brown.

Alan Trahn doesn't have a clue. The August 2005 cut had nothing to do with house prices, as a cursory reading of the minutes reveals. The issue was whether the weakness of the economy in the first half of the year would translate into lower inflation, or whether the economy would pick up. The five who voted for a cut thought the weakness would persist, the other four did not.

As for $40 oil, the equivalent of $50-60 now given the dollar's weakness, I wrote last year that as long as the global economy continued its run of very strong growth we were more likely to see $100-plus. Whether it falls depends on global demand, which fell very sharply in the early 1980s, flattened in the early 1990s and fell in the early 2000s

David Smith, London,

Either you dont understand whats happening or you dont want to articulate it for your readers. In 1997 european banks had an assets to equity ratio of 20x. By 2007 it was 37x and they had off balance sheet conduits that were also 20-40x levered. Globally by 2008 there was about $6trn of non interbank funded assets in the banking system. All funded by conduits, sivs, hedge funds or repos. The leverage at the conduits enabled banks to issue debt at 25bps over but now with no levered buyer of bank debt it will cost 1% and that cannot be changed. So with $6trn of assets created at the wrong spreads for todays higher funding costs you tell me who buys them and how we free up the system. No one has that level of buying power. The answer is obvious - politicians offer money to appear to act and hope that the banks can hang on for several years to gradually reduce leverage. Debt to GDP will reduce and consumption will plummit. Brown is trying to put out a fire with a banana.

Chris, London, UK

Hi David,

A good article once again BUT surely it was Nigel Lawson who abolished mortgage interst relief in the late 80s. He also gave people six months grace period after scrapping it, which stoked the late 80s boom even further.

Richard, Clapham

richard, london,

Wrong again!

There were a number of rate cuts which were even opposed by Mervyn King because of inflationary pressures, August 2005 being one of the most noteworthy. Since the switch to CPI, the MPC has cut rates regardless of rising inflation whenever house price inflation has dropped below 9%!

"Demand pressures, certainly for oil, should ease with the slowing of the global economy."

You've said that for years. In fact you predicted that by now we should have oil at $40 a barrel!!

Your track record in getting fundamental economic concepts wrong is staggering!

Alan Trahn, London, UK

We are indeed entering uncharted territory,and with GB and AD replacing Kirk and Spock I'd be concerned.They didn't seem to know what they were doing in charted territory.
One thing is for certain,the inflation value should reflect the true cost of inflation including house prices.It didn't and that is the main reason that the UK economy is in such a mess.The crazy thing is ,some people thought they were rich when in fact they were poor.They spent imaginary money secured against the imaginary value of their houses.The banks lent the money and now they won't even lend to each other because the value of these houses is falling.How can the BOE say that they have kept the lid on inflation?They're cutting rates when true inflation is going into orbit.

stephen hulton, eure, france

As you point out, employment is a lagging indicator and so unlikely to be useful in forecasting.
Check global oil production figures and you will find that recessions in the West do not have a signigficant impact on consumption. Energy requirements in China and India are gowing rapidly and competing for the same resourses. All oil fields have a peak of production followed by decline; in the UK North Sea oil peaked several years ago. New oil field discovereris have been exceeded by production for decades. Peak oil is here now.
With oil prices high and moving higher there will be opportunities to use new technology to extract oil that was previously uneconomic.

Stephen, Cambridge,