This credit crunch stuff

[junior]

I know im a bit thick,bt i realy dont get it.Every day i keep hearing about banks going out of buisness and stuff like that.

So where the f*** has all the money gone? Nobodys got a big lorry load and put it in the bin....so surely its all out there somewhere.

Why dont the people that actualy have the machines to make money just make a load more tommorow and give a bit to everyone?

 

[TSB]

Inflation. Money would become worthless, if there was too much of it in circulation: hence, prices would go up and up and suddenly everyone has twice the monthly salary, but a pint of milk costs a fiver!

Happened to lots of former soviet countries and they are only now recovering, 15-20 years later.

As for where the money has gone: to INDIVIDUALS (CEO's of oil companies and investment banks. for example), rather than financial companies....and therefore no trickle down affect in terms of borrowing for the rest of us

 

[Beach Hut]

Most of the money is debt that is in effect a mortgage that cannot be paid back as it was more than what the person owed.

Banks then sell these on to other banks and before you know it the domino effect kicks in when the shit hits the fan.

 

[junior]

But what im saying is there cant actualy be physicaly any less money in the world can there?? Because nobody just throws money in the bin.

 

[Beach Hut]

But what im saying is there cant actualy be physicaly any less money in the world can there?? Because nobody just throws money in the bin.

Good observation and infact there is even more in circulation as all Governments, republics etc are trying to improve liquidity.

There is less money if all your money needs to pay of debt however pumping more money into the system creates an issue with inflation which is very dangerous.

However I remember interest rates at 15% once so I doubt you will ever suffer that.

 

[TSB]

But what im saying is there cant actualy be physicaly any less money in the world can there?? Because nobody just throws money in the bin.

True, to a point....unless you invested in Pipex, which really was just throwing money in the bin...

 

[Beach Hut]

True, to a point....unless you invested in Pipex, which really was just throwing money in the bin...

Fool Pipex no longer exist

 

[TSB]

Fool Pipex no longer exist

How did you do out of it?

 

[Beach Hut]

How did you do out of it?

Still down in their new venture but hey ho

 

[TSB]

Still down in their new venture but hey ho

eh? what happened to your shares when they got bought out then? did they not get automatically cashed in? (don't really know how this works)

 

[Weezle]

But what im saying is there cant actualy be physicaly any less money in the world can there?? Because nobody just throws money in the bin.

Only 5% of the world's money is available in note form. The majoirty is nothing more than a figure on a computer screen.

Banks are by law allowed to lend up to 20 times the amount that they actually take in deposits because the theory is that not everybody will come into the bank wanting their money at the same time. When people do, banks get it trouble - as we have seen recently!

Banks then lend out this money and charge interest which in turn makes them more money.

The problem witht he credit crunch is that banks have been using creative accounting to lend more than 20x the amount they have by packaging up products such as mortgages and valuing them for more than they are worth so they can lend more.

 

[beorhthelm]

But what im saying is there cant actualy be physicaly any less money in the world can there?? Because nobody just throws money in the bin.

most of it never existed in the first place. as someone said, alot goes into to private hands (where the trickle down is supposed to start, they buy goods and services and so on), it goes on art, massive new sky scrapers in Dubai and Premier Football clubs. Alot goes into some tangible commodity like gold)

Banks are by law allowed to lend up to 20 times the amount that they actually take in deposits because the theory is that not everybody will come into the bank wanting their money at the same time. When people do, banks get it trouble - as we have seen recently!

i dont know where keeps coming from, but i dont believe this (unless you care to point me at info). HBOS has £250 billion on deposit, they did not lend out £5 trillion. some analysis i read this week stated one of the banks (HBOS or RBS) have a load ratio of 175% (so not even 2x deposits) which was considered high.