Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Savings Guarantee Raised to £50,000 to Halt Run on UK Banks

Personal_Finance / Savings Accounts Oct 02, 2008 - 02:13 AM GMT

By: Nadeem_Walayat

Personal_Finance Best Financial Markets Analysis ArticleGordon Brown confirms that to all intents and purposes all UK savings are guaranteed to £50,000 per depositor per financial group. This is a reaction to the the Irish governments decision to guarantee all depositor savings at 100% for 2 years which has ignited a flood of scared monies seeking refuge within Irish banks that have operations within the UK. This has resulted in increasing calls from media commentators and politicians for the UK government to follow suit with a similar 100% blanket guarantee.


As reported in the Independent - The Liberal Democrat leader Nick Clegg last night said his party would support a blanket guarantee for all deposits in the British banking system. He said: "We will co-operate fully with the Government in passing depositor protection legislation next week. "But today a copper-bottomed guarantee that all people's money in British banks is safe must be the priority. Then, in the longer term, all parties must work together to find common solutions for a re-regulation of the City."

The Irish Times Reports - David Cameron also urged the Labour government to produce legislation as early as next week to protect people's savings and deposits, ensure quick payout's and allow everyone "the comfort and security of knowing that whatever happens, their money is safe".

However some commentators are making the mistake of comparing a small country such as Ireland which sits under the Euro umbrella which is on the periphery of the worlds financial system against the UK with its own currency and is one of the primary centres for international finance. The Irish liability for the 100% guarantee is estimated at some $560 billion. This is set against the total liability to the UK government for the £50,000 guarantee which is estimated at $1.8 trillion. However a 100% guarantee of ALL depositors would multiply the exposure. It is difficult to estimate the total liability but at a rough guide it would be in the region of $4.5 trillion as it would encompass all foreign depositors whether they are individuals, corporations, banks or even other governments. The magnitude of exposure of twice UK Gross Domestic Product would given a worse case scenario of total financial meltdown could really prove apocalyptic for the UK economy, we would be talking along the lines of the Weimar Republic when Germany was forced to print ever increasing amounts of money to cover the financing of the growing debt mountain which lead to hyper inflation and a collapse of the German economy into a prolonged depression and a public loss of confidence in democracy, eager for a fascist dictator to rescue them from the economic abyss.

The current UK government debt is officially put at some $1 trillion, a financial collapse of the financial system would see this explode to as much as $6 trillion as guide as to how much risk the country would be put under and therefore a risk of a collapse in sterling which would further intensify the crisis by several orders of magnitude. The situation would be far worse then the cost of rebuilding a collapsed financial system following the failure of most of the banks, therefore this explains government reluctance to date to explicitly raise the savings limit from £35,000 per depositor whilst repeatedly alluding to NO retail bank would be allowed to go bust and that no depositor has lost a penny to date, which is true, however in the face of total collapse of the banking system the government would put the countries financial survival first which is how it should be.

Therefore many commentators need to revisit their conclusions in arriving at the suggestion that the UK should follow the lead of a small country such as Ireland due to the potential consequences of a loss of confidence in sterling. Similarly those agreeing with bailouts should recognise that there is no free lunch and in the long-run the cost will be greater than the benefit of preventing bankrupt banks from going bankrupt. All countries that announce huge bailouts will experience subdued economic activity and higher inflation for many years proportionate to the level of bailouts as a % of GDP.

Countries Can Go Bankrupt Too!

Whilst we ponder the deepening financial crisis where individuals are going bankrupt, corporations are going bankrupt, and lately the biggest banks in the world are going bankrupt. Savers should not forget that countries can also go bankrupt as the Germany of the 1920's clearly illustrated that was saddled with huge debt burden following the end of World War 1 resulted in hyper-inflation and the systematic destruction of the value of savings as the German government printed money in response to Allied government demands for payment of War reparations, similarly governments now declaring ever larger bailouts and more importantly unlimited savings guarantees that if push comes to shuv would effectively bankrupt the said countries should their bluff ever be called. For the only way such guarantees could be financed would be by printing near unlimited amounts of money which would lead to hyper inflation and a collapse in the value of the currency and hence value of savings and the the whole economy. Therefore bailouts of the kinds that are being proposed are highly dangerous as they could lead to literally an out of control cascading currency collapse and loss of confidence in FIAT currencies which would result in a barter system economy, thus extreme economic deflation along the lines of the 1930's Great Depression.

In that light, the Irish decision is seen as a highly risky short-term attempt to bolster the collapsing Irish banking system, which would bankrupt Ireland should they have to actually pay out on their promise. However Ireland's action in part is highly selfish as the country is part of the EURO single currency mechanism and thus creates a huge problem for the other European countries that are witnessing a flight of capital, or mini-runs on their banks in favour of the the Irish banks with 100% guarantees, as all savings fall under the umbrella of the EURO single currency therefore money deposited with Irish banks is effectively collectively insured by all EURO countries in the form currency stability, which under normal conditions market forces would lead to a selling of the currency that is extending its liabilities which obviously is not happening in Irelands case due to the under-writing of Irelands currency by the whole of the EURO block. This will undoubtedly lead to actions amongst other EURO countries or by the European Commission in an attempt to reverse the Irish decision due to the impact on the whole of the European Banking System.

The Irish action is in many ways reminiscent of what followed the great crash during the 1930's as governments sought to protect themselves by taking actions that destroyed international capital flows and trade. Therefore this could set in motion a chain reaction amongst governments where the net outcome would be to hasten the already trend in motion towards an economic depression as the global credit freeze turns into a credit ice age, especially if the next step is taken where savers suddenly realise that countries could also go bankrupt given the risk under written!

Gordon Brown realising the ramifications of the Irish decision has been calling on the Irish Government to comply with European Union competition law by reversing its decision, however what is likely to happen is that cry's will go out across Europe to match the Irish guarantee which will meet much resistance from Germany that still bares deep scars from the consequences of hyper-inflation and therefore will be fully aware of the consequences of such action. It will be interesting to see what the outcome will be, for the more countries that follow Irelands example the more likely that the Euro will suffer in relative terms.

UK Banks with 100% Guarantees

The UK government does offer a 100% guarantee on several UK banks which includes National Savings and the Post Office as well as nationalised bank of Northern Rock which has become the toxic waste dump for nationalised mortgage backed securities such as those from Bradford and Bingley who's savers also have temporarily 100% guarantee.

  • National Savings
  • Post Office
  • Northern Rock
  • Bradford and Bingley - temporary
  • Irish banks for 2 years

And again savers should not forget that the first £50,000 is secured at 100% amongst all UK banks under the FSCS (the Financial Services Compensation Scheme).

United States $700 to $820 Bailout Plan

The amended and inflated bailout plan was passed by the Senate yesterday and also looks set to be passed by the House of Representatives today. The key problem with the plan is that a. It is not enough to do the job, and b. That the US Treasury will not be paying market prices, as the whole problem with the frozen mortgage backed securities market is that the banks are not pricing their mortgage securities at the market price as if they were then they would be bankrupt. Therefore despite whatever spin the politicians put on the bailout plan, the US tax payer will be looking at an instant loss of some 50% or more on the price paid. The only positive from the revised bill is the increase in FDIC depositor guarantee from $100,000 to $250,000.

Our friends at EWI have prepared a 10 page report which gives 28 answers to the governments role in the latest financial turmoil for FREE to our readership, Visit EWI to download the full report.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Attention Editors and Publishers! - You have permission to republish THIS article. Republished articles must include attribution to the author and links back to the http://www.marketoracle.co.uk . Please send an email to republish@marketoracle.co.uk, to include a link to the published article.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Chris
02 Oct 08, 22:56
Banks 100%

This will boost the Irish economy, we should do the same


Post Comment

Only logged in users are allowed to post comments. Register/ Log in