The Bank of England today refused to be drawn down the U.S. route of swingeing rate cuts as it held them steady at 5pc.

New Irish Premier Brian Cowen with President Mary McAleese

The hiatus was fuelled by the inflation clause in the Bank’s remit from the Treasury in the face of unremitting pressures on world and national prices.

Other voices were insisting that the credit crunch will be with us for two more years leading to widespread mortgage “rationing” by banks and lenders.

However, a consensus is building that a “Great Depression” is not in the offing as the resilience of the banking sector — with plentiful central bank support in america, Britain and Europe — is proving greater than many expected. Some commentators are even forecasting a “soft landing” for Western economies.

However, a two-year credit crunch will decimate the housing sector on both sides of the Atlantic. Particularly hard hit will be be the Club Med countries and Ireland, which is undergoing a particularly harsh decline in its house markets.

New Premier, Brian Cowen, has a hard road to travel, as the principal driving force of the Celtic Tiger economy comes to a standstill.

Jonathan Pierce at Credit Suisse — itself in the wars over structured debt obligations — thinks that Barclays is facing a near £10 billion ($20bn) of losses if it follows Royal Bank of Scotland in adopting a conservative estimate of its mortgage assets.

RBS declared £5.9 billion ($12bn) last week and has opted for a £10 billion request for cash from its shareholders.

Barclays will, we understand, keep its losses confidential.

It looks like blue-chip Barclays will be the next major bank to announce a rights issue, or look for outside investors, possibly from the sovereign wealth funds of the Middle East or Far east.

I’ve written a post in Syntagma on how 9/11 caused the credit crunch and most of the problems now facing the world.

These problems include, rocketing food prices, chronic wars in the Middle East, the credit crunch, high oil and commodity prices, and the slow motion global recession.

On the credit crunch. Economist Joseph Stigler’s book The Three Trillion Dollar War argues persuasively that Alan Greenspan’s policy of holding interest rates below optimal levels, for longer than anyone deemed necessary, was aimed at masking the enormous cost of the Iraq war on the American economy.

Together will rising house prices, the loose policy opened the way to a splurge of mortgage lending to the U.S. trailer-park poor, the sub-prime end of the market, and the rather guilty repackaging of it into faux Triple-A assets, which were sold on around the world. From those actions, we now have the words “Great Depression” hanging over us again.

On commodity prices, led by oil, now standing at close to $120 a barrel and its knock-on effect in all other markets, especially food, the same argument applies.

“In an inflationary environment, merchants tend to hoard their stocks in warehouses, betting on higher prices down the line. It’s a one-way bet right now, so a lot of the world’s grain output is locked away, pushing up prices at an even greater rate and shoving millions into hunger.”

Read the whole of the article.

The Bank of England has announced a scheme to inject £50 billion ($100bn) into British banks as a means of easing the liquidity drought and stimulating mortgage lending.

In theory the package is unlimited since the banks are thought to need to raise £750 billion (($1.5tr) this year, but £50 billion is the estimate in the short term. This is billed as the biggest ever such package anywhere in the world.

The Bank will exchange its 9-month Treasury Bills, which are as good as cash, for the tainted debt obligations that many banks now hold. It will do so at around a 70/100 swap, what the markets call a “haircut”.

The haircut itself is variable according to movements in the markets, so taxpayers will be well insulated from large losses through defaults.

Instead of the normal auctions of Government Bonds on specific dates, this money will be available at any time, and will be confidential.

The only way outside observers will know if the scheme is working is by watching the LIBOR rate, which represents the rate at which banks will lend to each other in the money markets.

If it goes down from its present 5.9pc or so, the scheme will be having an effect on liquidity. If it goes up, which is unlikely, it’s back to the drawing board for the Bank and the Treasury.