There is one thing you can be sure of. When you need your bank the most, that's when it starts getting difficult. When you don't really need to borrow money, then it will try and force all kinds of schemes down your throat. But when times get tight, and you need a bit more help, that's when the bank starts asking you to pay back your overdraft.

The key seems to be this. You need to create a scenario where your bank needs you more than you need it.

It is not that the banks are necessarily wrong. They like to lend money to people who don't need it, because they are precisely the type of people who are most likely to be able to repay the debt.

So in truth, you can't blame the banks. But whether you can blame them or not, the fact is this approach has the effect of exaggerating booms and crashes.

And yesterday, we saw banks and the finance business at its most extreme.

On one hand, the Bank of Bungle, also known as Bradford and Bingley, has been saved by a consortium of banks and other shareholders who dare not see it fail.

On the other hand, the latest credit conditions survey from the Bank of England shows that banks are cutting back on their lending to individuals and business.

It is difficult to imagine a sorrier tale of woe. Bradford and Bingley, where do you begin? Time was when this was the building society of the men with bowler hats: respectable and safe. Then it became the bank that specialised in buy-to-let, or to put it another way, the bank that specialised in funding bubbles. Then it was the bank whose boss said it wouldn't need to raise more money. Then it changed its mind and announced an underwritten rights issue. Then, just days later it announced that write-downs were bigger than it had previously expected. Then it was the bank of the falling share price. In fact, its shares fell so low that they went below the rights-issue price. So it became the bank of a new plan to raise even more money. It reeled out a big US private equity investor - TPG, then let the two banks which had agreed to underwrite the rights issue off the hook, and reduced the amount it was requiring from shareholders, but at a lower share price.

Then, like Superman rushing from the nearest telephone box, red cloak flying in the wind, the finance world’s answer to Clark Kent, Clive Cowdery, offered more money for a higher share price, and a plan to use B&B as a stepping stone to building a new financial empire, buying up other companies on the cheap. It was a bold, but brilliant, plan. Mr Cowdery recognised that it is times like these when opportunity awaits. It was win win. Win for him, win for B&B.

And Bradford and Bingley became that bank that said no. One in the hand is worth two in the bush, it reasoned; the TPG funding was a done deal.

But then credit rating agency, Moody’s, came along and spoilt it all by saying something stupid like Your credit rating is down. Well, actually, the credit ratings relegation is not official yet, it is just one of those really badly kept secrets.

So that's a relief then, thought TPG to itself; the change of the credit ratings means we can legally drop our interest. So that's when the private equity group, who by the way are the very same people who were nicknamed Barbarians at the Gate, pulled out.

This has left a lot of eggs on faces. TGP has not won over any friends. B&B has given yet more reason why some think it should change its name to Bradford and Bungle. But at least it's the bank that isn't Northern Rock.

But thanks to Northern Rock, or rather an FSA that is terrified of seeing another Northern Rock, major shareholders of the bank have clubbed together to provide the bank with the necessaries.

So Legal & General, M&G, Standard Life and HBOS are, at the urgings of the FSA, to step into the breach left by TPG.

But that's strange, these are the same companies who were backing Cowdery's bid. These are the same companies who were sent away with a flea in their ear.

Still, this is one of those occasions where failure is not on the cards. We can't be having another Northern Rock, now can we?

So if you are a bank, and you need help, well, to err is to be human, and you are saved. It seems quite possible that, if you are a property company, and your main assets are the very same assets that underpin the banking system - that's land and property, then maybe you are safe too.

But if you are Mr or Mrs Ordinary, or your company is called Ordinary Trading Company, and you are in the business of producing something, as opposed to the business of shuffling money, it is a different story.

According to the Bank of England's latest Credit Conditions Survey, "In the three months to mid-June, lenders reported that they had further reduced the availability of credit to households and corporates. Lenders expected some additional reductions in credit availability over the next three months.”

Defaults are expected to rise too. But you see, when times are good, if you have got a slight liquidity problem, you can always borrow some more money.

This option has been removed.

"Lenders implemented the reduction in secured credit availability partly by tightening credit scoring criteria, and by decreasing maximum loan to value (LTV) ratios," said the Bank of England report. The report continued: "Lenders reported that their expectations for the housing market, the changing economic outlook and changes in their appetite for risk had contributed to the decline in credit availability. It was also reported that some of the reduction in credit availability was linked to continued tightness in wholesale funding conditions. Lenders expected these factors to contribute to the tightening in credit availability over the next three months."

Boom and bust is like this. It is an age old pattern. When Gordon Brown promised to end boom and bust, the key surely rested with putting into place a system to stop the availability of credit from exaggerating economic conditions. If he had managed that, then he would indeed be remembered as a great chancellor. If he and Mr Darling can somehow stop the rot, then they will deserve praise.

If Gordon can pull off that trick, it is not Cowdery who is Superman, it is Mr Brown. It seems more likely, however, that he is just like the rest of us.

©2008 Investment and Business News. All Rights Reserved.

Underlying fundamentals are strong. That's the reason given for why the current economic crisis will be short-lived. That's why the Halifax and Nationwide insist there will be no property crash. That's why Gordon Brown and Co think the economy is basically in good shape. It is just the credit crunch. Once credit is restored, everything will be fine.

But for people working hard on an average sort of income, things have been getting tougher for some time. Unemployment might be low, but we didn't seem to be feeling any better off.

A year ago, Ernst and Young shone a lot of light on the picture. Back then, it found that the average family had just over 22 per cent of its gross income left over, as opposed to over 28 per cent in 2003. The report was published before the credit crunch, and did not get the attention it deserved.

But that was then. It's a year on, and now our discretionary disposable income, that's after things such as petrol, council tax, utility bills, rent/mortgage, is at its lowest level in five years. The average household now has just £772.79 left over, as opposed to £909.84 in 2003/04.

We all know why, council tax, utility bills, and of course food and petrol, have all been soaring.

“All consumers are painfully aware of the huge hikes in petrol and utility bills but we’ve also seen some fairly hefty price increases in pension contributions and debt repayments,” said Jason Gordon, the director of retail at Ernst & Young

He added: “If we go one step further and factor in food price inflation, which official figures have placed at 8.7 per cent in the last year, it’s clear that household budgets are under enormous strain. Add in the impact of falling house prices on the consumer’s propensity to spend, and the consumer economy is undoubtedly on a knife-edge.”

Earlier this week, Bank of England MPC member Charles Bean warned that living standards are expected to fall for another year.

So that's pretty bad. The economy may have been booming for five years, but we have not been getting any better off. Presumably then, the boom was funded by borrowing.

But, if we have less money left over to spend on living, as opposed to surviving, how can there be inflationary pressures?

That is why, in the longer-term, deflation is a danger. Once oil and food price hikes have worked through the system, we could be left with a nasty shortfall in demand, leading to price falls.

And that, in the longer-term, is surely the bigger danger.

©2008 Investment and Business News. All Rights Reserved.

As you probably know, central bankers have a tendency to talk in code. And yesterday it was the European Central Bank's turn.

As expected, and predicted here yesterday, the ECB upped the rate of interest. This will not endear its President Jean-Claude Trichet to certain European politicians, Mr Sarkozy, for example, but then the ECB's top man has made it clear he is worried about inflation.

He had even warned it could "explode," if the ECB did not take action.

Well, yesterday he took that action, and the Eurozone rate of interest is now 4.25 per cent, just ¾ per cent shy of the British rate.

But the key this time was in what Mr Trichet did not say. For Mr Trichet did not utter the words ”in a state of heightened alertness.” And that was enough to leave commentators saying the ECB has had enough, its run of increasing rates is over.

Jennifer McKeown, at Capital Economics said: "the marked slowdown in economic activity that is already underway should ensure that wages growth remains well-contained and headline inflation starts to ease back later this year. As a result, not only do we think that today's hike will be a one-off, but we see interest rates falling to around 3.0 per cent by the end of 2009. This profile is still far weaker than that priced in by the markets, suggesting scope for bond yields and the euro to fall back further."

But on the other hand, perhaps the single biggest reason why inflation is not expected to develop into an upward spiral in the UK and US does not apply to the Eurozone.

Trade union reform in the early 1980s has led to a labour market here and across the pond that is flexible, and far less likely to enforce inflationary wage rises. It is far from certain this argument applies to the Eurozone.

©2008 Investment and Business News. All Rights Reserved.