Eurozone up the spout

[Hatter The Mad]

So, if the whole world is in a mess, where has all the money gone ?

Surely, it must be somewhere - does China have it all?

I was pondering this today. The banks created money that didn't really have a backing to it, and then the governments bailed out those banks to fill in the gaps.

Where is that money now? Well, it is mostly with us. It was used to finance our lifestyles over the last decade. It's still (in theory) in the houses we have bought, the mortgages we own or the car leases we have, etc.

I came to the realisation that the bank bailout was actually about bailing out us.

 

[dowie]

Noobie economics questions:

1) Who exactly do we owe all this money to?

The govt owes the money

Lots of people/entities - pension funds, private individuals, foreign goverments

2) If the entire world is in debt can't we just write it all off and go down the pub?

The entire world isn't in debt. Lots of governments in the west simply run a defect - it makes sense tbh.. as long as it is controlled - unlike Greece for example where they were borrowing money to pay civil servants to administer benefits to large chunks of the rest of the population which is able to retire in their 50s etc... then wonder why the tax revenue generated from people working in the private sector isn't enough to cover the pay of all the civil servants, benefits for large chunks of the population and pay off the loans they've already taken out in previous years to cover all the stuff they couldn't sustainably afford.

 

[dowie]

So, if the whole world is in a mess, where has all the money gone ?

Surely, it must be somewhere - does China have it all?

You're confused China doesn't have it - China holds lots of US treasuries (IOUs) - the money has gone the other way - the US govt received money from China in return for giving them a bunch of IOUs and spent it. Its been spent on whatever the US govt spends it on - benefit payments, wars in the middle east, medicare etc...

China exports lots of stuff to the US, China receives lots of US dollars due to exports, China invests in US govt debt.... In return they pay China interest on the debt and pay back the balance of the loan at maturity (thus generally borrow more money again to pay off the previous loans).

 

[Hatter The Mad]

You're confused China doesn't have it - China holds lots of US treasuries (IOUs)

About 9% of US debt is owned by China

 

[Astaroth]

Blame the so called progressive left they just won't accept the EU is a failure.

 

[ironman]

The US's credit rating has just been cut......here we go

http://www.bloomberg.com/news/2011-...r-first-time-on-deficit-reduction-accord.html

 

[sammo62]

Blame the so called progressive left they just won't accept the EU is a failure.

Maybe we could blame the people who thought loans given to poor people in America were top notch investments and put all our money into it?

 

[Dave M]

I came to the realisation that the bank bailout was actually about bailing out us.

No, it wasn't.

 

[Klo]

The US's credit rating has just been cut......here we go

http://www.bloomberg.com/news/2011-...r-first-time-on-deficit-reduction-accord.html

Should be interesting...

 

[Number_25]

Weird to see the Dow Jones index going up.

 

[Hatter The Mad]

No, it wasn't.

Explain why it wasn't. Where did that money go then? The banks created the money and lent it to us. The backing assets went pop, the governments bailed out the banks. We still hold the money. It is still in our houses, our lines of credit, and consumed over the last decade.

 

[hola_adios]

Explain why it wasn't. Where did that money go then? The banks created the money and lent it to us. The backing assets went pop, the governments bailed out the banks. We still hold the money. It is still in our houses, our lines of credit, and consumed over the last decade.

No it is not, all that wealth just vanished, I know it is a absurd system. but is the best we can come up with at the moment though.

 

[Hatter The Mad]

No it is not, all that wealth just vanished, I know it is a absurd system. but is the best we can come up with at the moment though.

Not all the wealth vanished - that's why the banks didn't collapse.

 

[FoxEye]

No it is not, all that wealth just vanished, I know it is a absurd system. but is the best we can come up with at the moment though.

It's completely absurd.

People who had jobs, lose them.
People who want things can't buy them.
People who make things stop making them.

The phsyical capability to make things is still there (buildings, equipment, raw materials).
The desire for the products is still there (but beyond everyone's reach)
The labour force is still there, doing nothing (because no one can afford to employ them).

So we stop producing, stop working, and stop consuming, because we're told there's no money to keep the system going.

Seems like we've engineered a system with the capacity to destroy our civilisation when there's no real, tangible, physical disaster (like an earthquake) in sight.

 

[hola_adios]

It's completely absurd.

People who had jobs, lose them.
People who want things can't buy them.
People who make things stop making them.

The phsyical capability to make things is still there (buildings, equipment, raw materials).
The desire for the products is still there (but beyond everyone's reach)
The labour force is still there, doing nothing (because no one can afford to employ them).

So we stop producing, stop working, and stop consuming, because we're told there's no money to keep the system going.

Seems like we've engineered a system with the capacity to destroy our civilisation when there's no real, tangible, physical disaster (like an earthquake) in sight.

Up to a point, yes any system can collapse. This is just what came out from the last crisis in the 70s, now we have to come up with something else (if we can).

 

[hola_adios]

Not all the wealth vanished - that's why the banks didn't collapse.

In all effect, all what was put into the banking/finance system has disappeared. What hasn't, has not gone back to society (yet).

 

[Hatter The Mad]

In all effect, all what was put into the banking/finance system has disappeared. What hasn't, has not gone back to society (yet).

I disagree - it has stayed with us, because it was lent to us. The banks are not clawing back the majority of loans made over the last decade, are they?

The banks they created this new money on the back of assets (which turned out to be overvalued). They lent this new money to us. The assets went poof, and the governments put cash into the banks to replace said asset holes.

We were bailed out indirectly.

 

[Dr. Pain]

No, it wasn't.

It was essentially.

It was to protect a run on the banks, and collapses which would see peoples savings wiped out leaving them with nothing.

Obviously the whole thing is much more complicated than that, but even taken as a side effect, the bailout helped protect the publics savings.

 

[hola_adios]

I disagree - it has stayed with us, because it was lent to us. The banks are not clawing back the majority of loans made over the last decade, are they?

The banks they created this new money on the back of assets (which turned out to be overvalued). They lent this new money to us. The assets went poof, and the governments put cash into the banks to replace said asset holes.

We were bailed out indirectly.

It hasn't stayed anywhere, most of that wealth were estimates on debt which was going to be paid. Once people, banks and companies default/go bankrupt, those dollars/euros/pounds ... etc, just banished.

What really still amuses me is how most people have the perception that this global crisis was mainly caused by the middle class asking for mortgages of getting too much into debt.

 

[Judgeneo]

This article explains the situation pretty well:

http://www.independent.ie/national-...our-world-will-never-be-the-same-2841921.html


The last paragraph is pretty damning, I certainly hope its not as bad as this ( nor do I think it quite will be) as I'm of to Corfu on Monday night

Wake up: the eurozone is very close to collapse. It will come as no surprise if some Italian and Spanish banks are forced to close their doors in the course of the next few weeks. Indeed, holidaymakers on the continent should be advised to take care: hold only the minimum of the local currency, and treat with special suspicion euro notes coded Y, S and M (signifying they were printed in Greece, Italy and Portugal respectively). Take plenty of dollars with you, which shopkeepers will certainly accept if there is a run on the banks, or if euros suddenly cease to be legal currency. The precautions may not prove necessary, but there is no point in taking risks.