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Thursday, 25 November 2010

Time to abandon the banks

Tyler puts our national risk level at 8 with an estimated total debt level of $9tn. This figure's worth looking at. I think it's too low.

There are still some £500 trillion of derivatives floating around the financial centres of the world, which I once, incorrectly, described as 'worthless'. They do in fact have some residual worth; if you collapse the pyramid right back to the starting point, the Bank has estimated that the UK's net holding of truly worthless derivatives is 'only' $10 trillion. 

There are only three ways of dealing with worthless derivatives. You can pay them off, write them off or inflate them away. Since there is no money left to even pay off a fraction of the debt, and the scale of inflation required to deflate it is in Weimar proportions, it leaves only one option - write them off. The banks will all collapse, of course, but they're collapsing anyway as the markets refuse to continue the fiction of their solvency. 

So it's time to abandon the banks, ensuring as a matter of national security that a robust retail banking system is in place - beyond the control of the banks. 


Jackart said...

Oh for god's sake!

As if the "unfunded" pensions wasn't silly enough, only Norway funds their pensions everyone eles pays as they go for good, practical reasons; you're just totting up "derivatives" too? Sure derivatives if used unwisely can bring institutions down, but the vast majority are used to reduce risk - hedging currency exposure for example.

About the only thing it's reasonable to add to the national balance sheet is the PFI liabilities.

Anonymous said...

Don't put him off! I find Raedwald's complete lack of understanding of anything financial deeply amusing, it makes for unintentionally hilarious posts like this one.

Raedwald said...

Thank you, Mr Brown. Long may I keep the Nokia from being flung in rage!

Budgie said...

What a wonderfully logical argument Jackart makes: that all he can dream up to condemn funded pensions is that it is merely "silly".

Unless you are a government skiver, Jackart, you can give me your funded pension; and see whether that is "silly".

The point about a funded pension is that it is a pot of wealth built up over time, outside the government's profligate mitts, and not dependent on taking money off existing taxpayers.

It is the difference between saving up for something you want (a living without working), and buying something on the never never.

No wonder statists don't like it - it gives people independence from the state.