which Big Four UK bank will be 1st to go kaput?

It would be more than that, it would be an absolute disaster. We would be on the way to total currency collapse a la Zimbabwe in no time at all.

You seem to be of the view that a beautifully engineered financial system amounts to nothing more than a printing press.

The notes are already in place. The major branches of banks all over the country between them hold notes and coin well in excess of that in circulation in their vaults on behalf of the BoE. These are known as "off balance sheet" If for whatever reason the bank has to draw on these then they come on balance sheet and increase the bank's liabilities. When they are withdrawn by a depositor the this reduces bank liabilities.

Conversely if a bank has too much cash in its tills, it can return some to this repository, take it off balance sheet and increase its asset/reserve base.

Hence the £20 note you talk of represents an interest free loan by you to the BoE. This loan is available to pump back into the banking system to fund further cash withdrawals.

Money can basically only do one of two things. It can circulate or it can reside in pockets, purses, wallets and tills. If there is difficulty with its circulation then we arrive at the present situation. Somehow the system has to be unblocked.

What sort of idiot has savings on that scale in a 'cash on demand' account?

It will almost certainly be in a '30 day' account or safer.

Not long now then eh?

FoFP

Indeed. A symptom of a debt-deflation is that the money supply drops, partly through reduced velocity of moeny.

It will be, through debt repayment and liquidation and the collapse in the valuse of assets previously bid up with credit. The resources thus freed will be available for redeployment in the next cycle.

It's just gonna hurt a bit while we take our medicine...

FoFP

Nah...around here they houses *are* selling as long as the price is more sensible - somewhere around what they were 2-3 years ago. I'm fairly sure that the prices will bounce back up as soon as the liquidity problem is solved and people can get mortgages again.

It doesn't hurt me. There are advantages to being in a position where you have very little! I don't want to move so I don't care how much my house is worth, I have no loans or debts except mortgage, and I don't drive anymore. I only worry a bit how much the lender will put up the interest rates... It's the fuel prices (gas and electricity) that are doing me in...and this has little to do with that. In fact if Trump is correct and not fiddling with the market will lead to plummeting oil prices, maybe gas and electricity will go down a bit also...

By the time the liquidity problem is solved, people will have sworn off debt for life and won't *want* to borrow. Especially not on housing.

That's quite a few years off though...

FoFP

"can't really" or "absolutely cannot"?? In times of turmoil, rule- books can be torn up, and often are. The "government" would probably do what the BIS told it. Consider, what happens if the BIS drops the credit rating of, say, RBS, through the floor? Then its share price falls by 75%. By then there's a run. Of course the govt can allow it to go bust, take what remains into receivership, and take it from there.

People have a tendency to believe things can't get more tumultuous and unexpected than they've already got, or than the experts and politicians on the TV are predicting. They can!

They'd need a hell of a lot of paper to do that. Why do you think they'd give a damn about the millions of small guys?

It is quite possible that a Big Four bank is insolvent, or more accurately, will discover that it is. Would you have predicted that Lehmans would go insolvent? Fear of insolvency (other people's and their own) is precisely why banks have been scared to lend to each other. In any case, big-time illiquidity can bring a bank to its knees the moment everyone turns up at their local branch and says they want their money out. The whole thing is a pack of cards, built on confidence, just like, say, the market for diamonds. Confidence can decay slowly; it can also evaporate suddenly, and these present times suggest it will do the latter. Illiquidity can also lead to insolvency when no-one can be found to buy the company, they can't borrow money, and the only alternative to nationalisation is foreclosure. And think what the effects of foreclosure would be, even by a relatively small or medium-sized bank. A Big Four bank can certainly go bust - or be nationalised five minutes before it does so, which is basically what has happened with Bradford and Bingley.

John

You are both making it sound as though the present circumstances are described in textbooks, or are workable out from what's in the textbooks, whereas in fact they are unprecedented. How many trillions of dollars per day are traded on the derivatives markets? How does that compare with the size of the world economy? The disparity is bigger than between the share market and the real economy in 1929 - much bigger.

In the UK, the banks - those who control them - have enormous power. It was for the banks, for example, that higher so-called "education" was extended so widely. Not so that people could learn anything, but so that most of the 18-year-old population could get into debt and stay in it until their 50s at least. That's major social engineering, and the reason for it ("cui bono"?) has been obscured. Ditto the loony inflation of house prices, which are high (in the vast majority of the market, perhaps not on Kensington Palace Gardens) purely because of "demand" caused by banks' rapacious and voracious tendency to get as many people as possible into as big debt as possible. This is a process that will certainly end in tears.

I strongly doubt that by the end of the year there will still be a "Big Four".

John

They've just finished off the first phase of a new development round my way.

I might drop in to the showhome one night to wish them "Good Luck With That".

Click below

If deposits are safe, it is interesting that there now seems to be cross-party support to make them safe by passing new legislation and that the Irish government announcement to guarantee depositor support has elicited comment. I would repeat that the basis of the FSCS schems would do no more than guarantee support of relatively minor financial failure. Whether any scheme could guarantee depositors in all circumstaces is debatable, but, in its basic form, the FSCS £35,000 scheme is totally inadequate in the current scenario, is already bust, and security seems dependent on case-by-case decisions by the government. If anybody has evidence to the contrary, I'd be interested in hearing about it.

Toom

isn't it up to £50k now

ps...i've screwed the headers in order to pander to your neurosis

What appened with northern rock was unthinking panic, the vast majority of the people standing outside waiting to withdraw would not have had large deposits which could be at risk. We had never had a run on a bank in living memory, people went into panic mode. I dont think that will happen again, as the messge has filtered through that their money is *not* at risk.

Gaz

And I'm wondering if Mr Nagelson has been selling stocks in the RBS group he doesn't own yet...

Exactly Maria but in this country until we get a new tennant installed in No 10 the likes of the last female incumbent this country will never be GREAT again , same with the US until they get someone in the White House the likes of Ronnie Reagan the US will never be the same either . Grandpa Mccain is totally useless for the job and regards the other one I would never trust a colored as far has I could throw one end of story .

It will sell you can bet on that there are plenty of unknown people in this country holding money that they do not know what to do with and property as always been a good home for peoples cash. I am sitting in house at the moment that I paid 20 grand for thirty years ago and I was told only last week it was worth 90 .

No!

The present circumstances are nowhere described in text books. Every economic downturn has its own characteristic features never seen before and never to be seen again.

You will read explanations of it in textbooks in the not too remote future.

The content of text books was not plucked from the ether. It is the result of studies of financial systems and the ills that have befallen them as they have evolved over the years. Note the word "evolved"! Nobody ever sat down and invented them.

You might just as well ask how much is gambled on football, horses, roulette wheels and all the rest. None of it makes any difference to the workings of a financial system. Derivatives trading involves winnings and losses of equal value money leaving some accounts and going into others. It's been going on for decades. Derivative dealing cannot destroy the value of a sound company when eager investors will buy up all the shares a seller is prepared to offer below a target market price.

Market dealers take no part in the management of companies.

This is just nonsense.

It doesn't even bear the most superficial examination. For every credit there is a debit. For every liability an asset.

So long as the money churns around the economy banks will make money. The only way that banks can lose money is when there is any disruption or misdirection of this flow. Bad debtors will certainly misdirect this flow and so they don't do banks any good whatsoever.

Weren't you in Private Eye last week?