Another bank bailout

realitykeeper

As I see it, the next economic crisis will primarily be caused by a loss of confidence in the fiat currencies. When that happens, the euro, dollar etc will be dumped by foreign holders of these currencies and the purchasing power of the euro, dollar, sterling and yen will plummet.

To get value from their money, people will start panic buying everything they can get, especially non perishables. The aim will be to spend all their money while it is still worth something. To do this, people will have to withdraw all their money from the banks and of course the banks wont have enough to pay out to all the depositors, so they will shut their doors and the cash machines will quickly empty.

If a financial crises like this were to happen and investors from around the world began to dump fiat currencies and equities for safe haven assets, how would the Irish economy cope? More specifically, if the Irish banks found themselves in need of another bailout (to pay the depositors) should the government use the taxpayer to rescue them again?

everdead.ie

realitykeeper wrote: »

As I see it, the next economic crisis will primarily be caused by a loss of confidence in the fiat currencies. When that happens, the euro, dollar etc will be dumped by foreign holders of these currencies and the purchasing power of the euro, dollar, sterling and yen will plummet.

To get value from their money, people will start panic buying everything they can get, especially non perishables. The aim will be to spend all their money while it is still worth something. To do this, people will have to withdraw all their money from the banks and of course the banks wont have enough to pay out to all the depositors, so they will shut their doors and the cash machines will quickly empty.

If a financial crises like this were to happen and investors from around the world began to dump fiat currencies and equities for safe haven assets, how would the Irish economy cope? More specifically, if the Irish banks found themselves in need of another bailout (to pay the depositors) should the government use the taxpayer to rescue them again?

The dollar is still the currency All the big countries have dollar reserves indeed in the mid 2000's they started diversifying this into Euro as well.

So I think its rather unlikely anything is going to happen for the foreseeable future....

Also people don't need to withdraw money to spend it they can use their debit cards much faster.

This actually keeps money in the system as you spend it goes in the other end from the business' you buy off.

Anyway all deposits of up to 100,000 euro are guaranteed by the government.

andrew

realitykeeper wrote: »

As I see it, the next economic crisis will primarily be caused by a loss of confidence in the fiat currencies. When that happens, the euro, dollar etc will be dumped by foreign holders of these currencies and the purchasing power of the euro, dollar, sterling and yen will plummet.

To get value from their money, people will start panic buying everything they can get, especially non perishables. The aim will be to spend all their money while it is still worth something. To do this, people will have to withdraw all their money from the banks and of course the banks wont have enough to pay out to all the depositors, so they will shut their doors and the cash machines will quickly empty.

If a financial crises like this were to happen and investors from around the world began to dump fiat currencies and equities for safe haven assets, how would the Irish economy cope? More specifically, if the Irish banks found themselves in need of another bailout (to pay the depositors) should the government use the taxpayer to rescue them again?

Well seeing as all currencies would be worthless at that point, I presume depositors would wanted to be paid in tins of baked beans or something. The Central Bank could convert it's printing presses into a canning factory and use that to supply people with the non-perishables they crave.

hfallada

andrew wrote: »

Well seeing as all currencies would be worthless at that point, I presume depositors would wanted to be paid in tins of baked beans or something. The Central Bank could convert it's printing presses into a canning factory and use that to supply people with the non-perishables they crave.

Well if you followed any Russians on instagram. They were posting the funniest pictures ever. They were going to the Supermarkets buying luxury Western Foods as they were so cheap. They were also buying Western Electronics to hedge against Russian Rouble falls.

Maybe we should start paying the public service in Ferrero Rocher and Ipads? That way they can hedge against to be worthless Fiat Currencies(although all major currencies are Fiat). But most people trust Governments and also realise having a money backed by a metal(gold) which serves zero purpose, other than being nice to look at and used a small amount in electronics. Is totally ridiculous.

alb

hfallada wrote: »

Maybe we should start paying the public service in Ferrero Rocher and Ipads? That way they can hedge against to be worthless Fiat Currencies(although all major currencies are Fiat). But most people trust Governments and also realise having a money backed by a metal(gold) which serves zero purpose, other than being nice to look at and used a small amount in electronics. Is totally ridiculous.

Trusting governments not to debase currency has historically let people down. You can laugh at the impracticality of gold, but gold has been perhaps the best store of value over the past centuries. A single gold coin bought a man clothes in Roman times, and still buys a good suit today.

The point of precious metals as money or as backing for money is not that they are pretty or that they have industrial uses, it's that they are scarce, durable, hard to counterfeit, fungible, relatively portable and relatively divisible - properties that money needs to have.

andrew

alb wrote: »

Trusting governments not to debase currency has historically let people down.

Which is why we no longer trust governments with money, and give that job to independent central banks.

alb

andrew wrote: »

Which is why we no longer trust governments with money, and give that job to independent central banks.

Ah foolproof, like having regulators for banks. what could go wrong eh? I prefer decentralised money.

hfallada

alb wrote: »

Ah foolproof, like having regulators for banks. what could go wrong eh? I prefer decentralised money.

Nothing really. We deregulated the banking system too much in the 1980s-2000s. Which caused a financial crisis. Which caused unemployment to spike to the mid teens. But this also happened with the oil crisis in the 1970s. But unemployment in the US is nearly at pre 2007 levels.

A majority of people were unaffected by the great recession. There was no mass poverty and homeless experienced by the great depression. Fiat Currencies are here to stay, because they work.

Monetary policy is far more important to an economy than fiscal policy. Having a currency backed by gold would prevent QE and basically leave us with an economy of 16th Century country.

andrew

alb wrote: »

Ah foolproof, like having regulators for banks. what could go wrong eh? I prefer decentralised money.

Not really like having regulators for banks at all, really. It's far, far easier to prevent inflation than it is to regulate banks. All you have to do is not 'print' insane amounts of money, which is something an independent central bank has never done, as far as I know.

realitykeeper

everdead.ie wrote: »

The dollar is still the currency All the big countries have dollar reserves indeed in the mid 2000's they started diversifying this into Euro as well.

Yes. One of the things that will happen when the dollar and euro begin to fall is these reserves in other countries will quickly return to the US and EU as people dump them.

everdead.ie wrote: »

Also people don't need to withdraw money to spend it they can use their debit cards much faster.

Perhaps if this system is allowed to continue working amid the panic.

everdead.ie wrote: »

This actually keeps money in the system as you spend it goes in the other end from the business' you buy off.

When people spend the businesses get the money but when the value of the money is falling sharply then the amount of new inventory it can buy to replace the old stock will be a lot less. So businesses will increase what they charge very significantly giving rise to much higher inflation.

everdead.ie wrote: »

Anyway all deposits of up to 100,000 euro are guaranteed by the government.

That is what the Cypriots thought too but it was the Cypriot government that was taking their money. The alternative would have been a direct bank bail in which amounts to the same thing.

Cookie_Monster

realitykeeper wrote: »

As I see it, the next economic crisis will primarily be caused by a loss of confidence in the fiat currencies. When that happens, the euro, dollar etc will be dumped by foreign holders of these currencies and the purchasing power of the euro, dollar, sterling and yen will plummet.

Never mind when this will happen, why would it happen?

MarkAnthony

Why not just buy a fiat?

realitykeeper

Cookie_Monster wrote: »

Never mind when this will happen, why would it happen?

Because that is what happens to fiat currencies. The Zimbabwe dollar was one example. Eventually the Zimbabweans were printing 100 trillion dollar notes and even those were worthless.

Cookie_Monster

realitykeeper wrote: »

Because that is what happens to fiat currencies. The Zimbabwe dollar was one example. Eventually the Zimbabweans were printing 100 trillion dollar notes and even those were worthless.

so you think the US or EU are going to go down the same road as Zimbabwe? What possible justifications can you have for that, other than sound-bite statements?

realitykeeper

Cookie_Monster wrote: »

so you think the US or EU are going to go down the same road as Zimbabwe? What possible justifications can you have for that, other than sound-bite statements?

Yes I am comparing the US and EU with Zimbabwe. The laws of mathematics are universal and cannot be contained indefinitely by sentiment. Sentiment is the only reason the major fiat currencies have not yet collapsed.

Cookie_Monster

realitykeeper wrote: »

Yes I am comparing the US and EU with Zimbabwe. The laws of mathematics are universal and cannot be contained indefinitely by sentiment. Sentiment is the only reason the major fiat currencies have not yet collapsed.

so another soundbite than without any kind of justification. Keep up the good work!

Icepick

realitykeeper wrote: »

As I see it, the next economic crisis will primarily be caused by a loss of confidence in the fiat currencies.

Well either this or the zombie apocalypse. If I had to choose between the too, I put all my fiat currency on the zombie apocalypse.

Jim2007

realitykeeper wrote: »

Yes I am comparing the US and EU with Zimbabwe. The laws of mathematics are universal and cannot be contained indefinitely by sentiment. Sentiment is the only reason the major fiat currencies have not yet collapsed.

Neither math nor sentiment has anything to do with it. It's basic economics 101, but clearly it's beyond you - still your good for a laugh every now and again

realitykeeper

Jim2007 wrote: »

It's basic economics 101

You are correct about that, wrong about everything else.

Merrion

Currency is not an asset, it is a transferable debt obligation. The value of (for example) the Euro is derived from the fact that our taxes are only payable in Euro. If you did not have to pay your taxes in Euro then it would have no value.

You cannot pay your taxes in gold therefore gold is an asset. If you could not convert gold into currency (and pay your taxes and avoid prison) it would not have intrinsic value.

Tins of baked beans have an immediate value, but if you accumulate a huge wealth of baked beans and others are hungry then - absent a state based monopoly on the use of force (for which you must pay taxes) this accumulation would be stolen from you by heavily armed men.

realitykeeper

Merrion wrote: »

Currency is not an asset, it is a transferable debt obligation. The value of (for example) the Euro is derived from the fact that our taxes are only payable in Euro. If you did not have to pay your taxes in Euro then it would have no value.

You cannot pay your taxes in gold therefore gold is an asset. If you could not convert gold into currency (and pay your taxes and avoid prison) it would not have intrinsic value.

Tins of baked beans have an immediate value, but if you accumulate a huge wealth of baked beans and others are hungry then - absent a state based monopoly on the use of force (for which you must pay taxes) this accumulation would be stolen from you by heavily armed men.

All true. Gold is also vulnerable to government theft because it has intrinsic value on the international markets.

During the great depression, the US government made the holding of gold illegal and imprisoned anyone who failed to sell it to them at their price. A lot of those who got caught were trying to get it across the border to sell at the real international price.

andrew

Merrion wrote: »

Currency is not an asset, it is a transferable debt obligation.

Asset:
"An item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies."

Currency is an asset. Even it is a transferable debt obligation in some sense, it is also still an asset.

You cannot pay your taxes in gold therefore gold is an asset

So if the government started accepting gold as payment for taxes, would gold suddenly stop becoming an asset?

Merrion

andrew wrote: »

So if the government started accepting gold as payment for taxes, would gold suddenly stop becoming an asset?

Yes - it would then be classed as a currency (and traded on FOREX not a commodities exchange).

It once was a currency (traded over a larger area than the Euro) and its status as an asset of value is largely a vestigial societal memory of that fact.

Saipanne

What utter nonsense.

realitykeeper

Saipanne wrote: »

What utter nonsense.

Sorry Saipanne, Merrion is correct.

Saipanne

realitykeeper wrote: »

Sorry Saipanne, Merrion is correct.

No need to apologise, misnomer.

Icepick

Gold was a terrible currency and brought about currency and economic crises as well, not to mention the atrocities associated with its extraction.

Merrion

Saipanne wrote: »

What utter nonsense.

realitykeeper wrote: »

Sorry Saipanne, Merrion is correct.

The truth is probably about half way in between. The above is my opinion based on what I have been taught and experience, but subject to the biases inherent in both. However I don't know of any intrinsic worth of gold excepting that it has agreed value - it's not actually very good for anything practical.

I would say that the concept of "the banks" as an independent entity is a bit problematic. Broadly speaking what happened is that savers (investors, capital owners) were bailed out by borrowers (individuals and businesses). Since the savings % is broadly aligned with age the best way of looking at this is that the banks weren't bailed out - older people (>40) were bailed out by young people.

As an old person this works for me - my prior youthful stupidity is being underwritten by other people's youthful energy and vigour. If you are a young person the best way you can reverse this is to vote...

Cookie_Monster

Merrion wrote: »

However I don't know of any intrinsic worth of gold excepting that it has agreed value - it's not actually very good for anything practical.

plenty of uses in computing and head dissipation among other things
http://geology.com/minerals/gold/uses-of-gold.shtml

andrew

Merrion wrote: »

Yes - it would then be classed as a currency (and traded on FOREX not a commodities exchange).

It once was a currency (traded over a larger area than the Euro) and its status as an asset of value is largely a vestigial societal memory of that fact.

You know that currencies are an asset though, right? So it'd still be an asset.

And the exchange it'd be traded on would be dependent on the kind of gold standard you had. You wouldn't necessarily stop trading gold as a commodity since gold would still have value outside of it's value in whatever currency it's pegged to, as well as a use value.