Easing off the accelerator

This could be the week of sticky pedals as Toyota and the Bank of England face the truth about what happens when you take your foot off the gas. Has the UK economy reached its cruising speed? And it is now all down hill to an economic recovery?

The question now in everyone's minds is how safe is it to ease off, is the timing right and what happens if it starts to unravel? Will the economy continue to accelerate or will the brakes cut in?

Easing our way out of a crisis?

Funny how some situations often have a buzz phrase attached. "Book him, Dano", from Hawaii 5-0; or "You're nicked", from The Sweeney; or "Loadsamoney", courtesy of Harry Enfield. Which brings us neatly to financial crises which have generated their own vocabulary. The pound in your pocket; subprime loans; crisis? what crisis; and now, step forward quantitative easing ... a buzz phrase you will be hearing more of in the future.

It's jargon for printing our way out of the current credit crunch. Like the Weimar Republic and Mr Mugabe why not just print more money and all will be well. Watch out, too, for the concept of the "bad bank" ... something being seriously considered. Basically a state bank would be set up where all those so-called toxic loans could be parked out of harm's way ... and then covered by the taxpayer.

Skirts ruffled for the old lady of Threadneedle Street

Sometimes it can seem really hard to get it right. Abraham Lincoln probably came closest when he argued that you can’t please all of the people all of the time. The Bank of England must feel exactly that way at the moment.

Has it judged the crisis correctly or reacted too late?

In the interim, perhaps the most important question is “How good is the analysis and who is in charge, the Bank or the Government?” Last week’s 1.5% cut in the interest rate took us back to 1955. It also took our interest rates below the eurozone for the first time. So panic or shrewd policy? The jury remains divided.

How the tulip mania burst the economic bubble (or do we scent chaos in the market?)

Scottish journalist Charles Mackay wrote a book called Extraordinary Popular Delusions and the Madness of Crowds in which he attempted to find some rationale behind the herd instinct which seems to bedevil markets. Sound familiar? Well, Charles Mackay published his findings way back in 1841 and although more recently some of his conclusions have been debunked, his basic ideas still attract support.

Mackay was writing about what many argue was the first “economic bubble” ... Tulip Mania ... which engulfed the Dutch economy in the 1630s. It centred around an exotic bulb brought from the Ottoman Empire which became a “must have” purchase in the fashionable salons of Europe, almost regardless of price. The inevitable happened; the price rose to the point at which the market collapsed.