Where did all this money come from to shore the banks up?

[MASTERforge]

Hi,

 

One thing that has puzzled me this week is the billions that will be used to shore the banks and financial institutions up. Where has it all come from? I can only guess that the Bank of England will flood the UK with a massive amount of virtual money i.e. in paper and electronic form and not backed up by gold reserves.

 

If they do this, then they could in theory inject any amount they want. But surely this is going to lead to hyper inflation making our currencies worthless?

 

From what I understand, we have been living off IOU's, loans from banks who take loans from bigger banks and this goes in circles. All taking bigger and bigger risks for better returns. What held it together was the faith in the IOU that the bearer of the debt was capable of paying it back. They got too greedy selling mortgages to people in the US and someone realised that they couldn't possibly make payments. So started to pull back the lending.

 

It went like dominoes, when that faith went people realised it was going to run through the financial system so panic selling happened.

 

Now there is no faith in the banking system that relied so heavily on it.

 

I can just about understand why the money has dissapered but I am stumped as to where the money is coming from for the bailout and what effect it will have.

 

For those "one world gov't/bank" believers out there, Gordon Brown has been saying only this week that we need a Global authority which would regulate all financial systems worldwide.

 

I studied business and economics at university. Its fascinating to follow the developments but I realise how complex the financial markets are and how tied together they have become.

 

Perhaps the problem is and always has been that those in the financial sector are self regulating. They create the rules of the game.

 

Any opinions or thoughts always welcomed.

[idquest]

the Bank of England will flood the UK with a massive amount of virtual money i.e. in paper and electronic form and not backed up by gold reserves.

If they do this, then they could in theory inject any amount they want. But surely this is going to lead to hyper inflation making our currencies worthless?

 

You already gave the answer yourself. They are gonna print it.

 

Just one month ago the USA planned their next budget with a 500 billion deficit. A revised estimate for next fiscal year is 2,000 billion.

 

The right question would be: who is going to finance it. So far the foreigners were willing to do that. We'll see if they are up to that now.

[billb]

It would only make the currency worthless if England was the only country doing it but it looks like many other countries will have to do this as well.

[froggie]

So i guess you guys didn't see the Zeitgeist addendum movie

 

The first 5 minutes orso of the movie seem a bit strange, it may be okay to skip that part, but ater that the explanations are pretty good. Though not a lot of solutions are given, yet. That would be an okay thing, too.

 

http://video.google.com/videoplay?docid=70...qTnDg&hl=en

[Oolong Rabbit]

Hi,

 

One thing that has puzzled me this week is the billions that will be used to shore the banks and financial institutions up. Where has it all come from? I can only guess that the Bank of England will flood the UK with a massive amount of virtual money i.e. in paper and electronic form and not backed up by gold reserves.

 

 

A banker will log onto his computer, key in a number followed by a bunch of 0's and press enter.

[de_paradise]

They borrow from the next generation, ie. the national debt. If you havent noticed, this is what Bush has been doing all along, this time is no different except its not buying missiles and bullets- he's buying worthless debt.

 

The brits-europeans are not flooding the country with money, they are buying stakes in the banks and becoming gurantors for loans. They become shareholders in real businesses.

[.broken.]

One thing that has puzzled me this week is the billions that will be used to shore the banks and financial institutions up. Where has it all come from? I can only guess that the Bank of England will flood the UK with a massive amount of virtual money i.e. in paper and electronic form and not backed up by gold reserves.

 

The Gold Standard, where paper money and coins could be exchanged for their worth in gold, is no longer upheld by any government in the world. It's now the fiat currency that makes the world of economics go round. This means that money is essentially, by order of government, accepted as a means of payment - although its worth is entirely conceptual. At least when we had the Gold Standard money actually had precise material value, and now it is simply subject to the expected supply and demand of various industries. Essentially the entire economic system is based up expectation - or, if you will, hope and fear.

 

They borrow from the next generation, ie. the national debt. If you havent noticed, this is what Bush has been doing all along, this time is no different except its not buying missiles and bullets- he's buying worthless debt.

 

The brits-europeans are not flooding the country with money, they are buying stakes in the banks and becoming gurantors for loans. They become shareholders in real businesses.

 

Well said, and very true. My lack of understanding lies as to who the nation owes its debt to? From memory, a very vague one at that, I believe it's other countries and banks that a nation borrows money from. If this is the case, the history of who owes what and to whom must be exceedingly vast!! It simply means all nations have got each other by the balls. Strange.

 

Yours humbly,

James

[MASTERforge]

Aren't the west in massive debt to the Chinese, and other expanding countries? From what I remember we have trillions owed in debt to them.

 

If we each have each other by the balls is this a good thing? Would you go to war and wipe out someone who owed you money?

 

It makes no sense to call the debt in when you can live of the interest for decades and keep them in perpetual debt.

 

All interesting stuff and it will be very interesting to see how it pans out.

[Tactile]

I read an interesting article in the local newspaper today on the situation. One point of it was that the cheap production possibilities of China have decreased inflation in the western countries (because we ship all our stuff from there) and therefore the banks have lent money at low interest rates & people have borrowed it. Also the amount of reasonable investment targets have been low in comparison to the amount of money being lent out so the investors have been investing in poor targets hoping that someone else will invest with even worse prospects and this has turned economy into a giant pyramid scheme. And now it's crumbling as we can all see.

 

Also in the article was noted that China has no notable debt and that they have around 1700bn dollars (can it be that much?!) to use and that they are able to make some sweet company purchases in the near future..

[MASTERforge]

The Zeitgeist addendum movie is pretty good. Some of it is over simplified and heavily biased but its pretty much the best out there for giving clarity and an open perspective.

 

Making me wonder who and how did it get out?

 

Its the flipside of economics and should be mandatorily taught at university but i cant see that happening!

[hyok]

Since governments are now taking over the toxic paper (derivatives) and even taking stakes in these institutions, it is basically guaranteed they will be creating more money to do so because there is no other way for them to do it.

 

Expect sharp inflation in the coming months and years. A wise move would be to begin storing food (rice, beans(protein), canned goods, things you enjoy eating) while prices are at these levels.

[Unconditioned]

A banker will log onto his computer, key in a number followed by a bunch of 0's and press enter.

 

That made me smile. I work in the financial industry as a business analyst and manage projects... you sound like a senior executive in the making, maybe a CEO! If only it were that simple

[Oolong Rabbit]

That made me smile. I work in the financial industry as a business analyst and manage projects... you sound like a senior executive in the making, maybe a CEO! If only it were that simple

 

That was admitedly a bit of an over-simplification. My point is that the money will created out of thin air as debt, the money will be digital and can be "manufactured" instaneously. No need to "run the printing presses" anymore. As for the executive comment haha, you wouldn't say that if you knew me. In general these people tend to think along accepted convential lines, and thrive on their inflated, self-aggrandizing egos. My thinking is a bt too radical. That having been said, I was able to pick the top in tech stocks, and the bottom in gold and predict the US$ reaching parity with the Can $. The people I work with thought my forecasts were crazy 6-7 years ago. Now they think I am so kind of financial wizard.

 

Brgds!