Debt Time Bomb Set To Explode In Uk

[Wait & See]

then no one would ever consume

So what. Who ever said being wasteful and self-centred was anything to be proud of anyway.

[scott666]

So you want to see an Argentinian type panic, with the Banks putting up the shutters refusing to pay them the money ?

Well when you put it like that.......

It would be interesting to watch tho'. Might make the powers that be re-asses their economic priorities a little. Savers are like sitting ducks when the government needs to raise cash to fund their public sector based system, look at the damage GB did to pension funds when he taxed the dividends. Of course the long term damage from that decision has yet to play out, typical nu-Lab smash and grab, leaving future generations to deal with the problem.

Interesting assessment of the situation Far Out Bear (#1), have to say I'm not exactly sure how the scenario would play out.....It's possible I've watched 'It's A Wonderful Life' a few too many times

[benj]

I think all us savers should go to their bank and withdraw all their cash on a certain day (cash in notes only) take the money and stick it under the mattress for a few days. Like taking the entire bottom layer away from the house of cards in one go and an instant reversion to and beyond the mean.

You know, it's funny - I was musing on the practicalities of this the other day.

Say you could find and co-ordinate about 3,000 people who were willing to participate in such a "flash mobbing" of the banking system. And say the average amount of money that they could stand to withdraw without too much loss of interest was about £1,000. The total amount of money extracted from the system would be £3,000,000. With the UK money multiplier at around 33, that would mean pulling away the capital base for £100M of lending.

No-one is even going to notice that.

Now if (and it's a big if) you could get 30,000 people to withdraw £20,000 each, then the impact rises to £2bn. It might be noticeable, but out of a £1,400bn mountain of credit, it might not.

Not sure how the banks (and The Bank) would react to it either - they'd probably do some deals behind the scenes to shore up the system on the assumption that the money would be redeposited sooner rather than later.

The biggest spanner in the works is that savings accounts, and in particular ISAs, have terms and conditions that are especially designed to make people reticent to withdraw their money unless they really need it. Even with no penalties, you'll still be losing interest - and for what? There's a good chance it won't work at all... particularly if enough people think it won't work, and thus chicken out at the last minute. So there's a game theory aspect to it as well.

Makes you realise just how powerless we are.

[bobthe~]

Mr Bear,

I am afraid 2 is taking a little time for me to decipher, can I try and explain what I think you have said back to you to see if I understood it? Please correct me if I am wrong

#2 Interest is a category of human action and is necessary for action. It is not an arbitrary creation of an evil banking monster. The time preference (tomorrows goods, all things being equal, are valued less than the same goods today) is the source of the phenomenon of interest.

Presumably, "all things being equal" means no inflation /deflation, no supply surplus/shortage? So what you are saying is if you put money in the bank and it gained interest, while prices stayed the same, then current goods effectively cost less in the future.

The proof is that if future goods were not discounted, then it would be impossible to purchase land for a finite money price.

This bit I don't understand. I am not disagreeing, I just don't see the logical step from future prices are discounted to a square inch of land would otherwise be an infinite price. Or do you mean finite in another sense such as more money than there is in the world? I still don't understand this

Also, if goods today were not valued more than those goods later (all other things being equal) then no one would ever consume, they would always save everything -

I don't think that is the right way round, but wanted to check.

You can have 3 scenarios.

Something is cheaper in the future,

Something is more expensive in the future

Something always stays the same

Are you saying that

If someone thinks something would be cheaper tomorrow they would buy now?

If someone thinks something will cost more later, they would be put off buying?

I am assuming that if someone knew that something would cost exactly the same in the future, then some other decision process comes into play and so that is not really relevant to the point you are making.

I would have thought that all else being equal, these would go the other way round.

and, clearly, people do consume and enjoy today.

Also, in the real world all other things are not equal, so I think it is a bit cheeky to switch from a theoretical argument, where all other variables are assumed to be constant to one of observation, where obviously they aren't. People don't necessarily consume/stop consuming because something is going to be more expensive in the future. They do it for all sorts of reasons, few of them rational, some of them to do with food and water.