The public don't want quantitative easing

The public don't want bank deposits to be bailed out if that means credit is to be replaced with cash

If we make the assumption that should the banking system be tested by a widespread redemption of bank accounts, the Government will bail them out, why don't people withdraw? If they fear the Government will default on their commitment there is every reason to take the money out. So the "public"... if we can think of them as one entity, must assume that the Government will not default.

So why then as a silent bank run and deflation sets in does the public not test the banking system?

A silent bank run indicates a lack of trust in the banking system. So why then do the public not withdraw their funds? Because they do not want to be confirmed in the suspicion that to make their deposits good the Government would need to print vast quantities of money.

The public also fear the Government refusing to bail out the banks which would also lead to consequences unwanted by the general public.

So the public, not wanting either a default (leading to potential break-down of the currency system) or a bail-out of the banking system prefer to do nothing. We never find out if the State would print the necessary cash and the public prefer us all to be ignorant.

http://preview.tinyurl.com/bmjpdq

I just cant see why the government didnt pay out the savers and let the bank go bust, leaving the shareholders with nothing and the creditors who loaned them money with nothing either, as is the risk with owning shares or lending money.

I dont want to believe the PM of this country is screwing us, it looks that way to me but surely...

Why do you think he wants to be PM?

The state only exists to steal and bully. it's all it does. Why would the head of the state not be a thieiving bully?

We find a similar situation in the bond markets. Without a sell-off in the bond markets we cannot know whether the Government is prepared to buy up the debt with freshly-printed money.

To sell bonds and then find that Monetisation happens is to lose but if they refuse it would have been wise to sell the bonds. Since the market as a whole would prefer not to know that the Government is not prepared to monetise the debt they prefer not to test the fact. They go on imagining that monetisation is a possibility or that the debt is valuable for some other reason.

It is Mexican standoff: neither party wants the situation to reach a conclusion. We would prefer to pretend to ourselves that repayment is likely. From Wikipedia: "Mexican standoff is a strategic deadlock or impasse, in which no party can act in a way that ensures victory." (as at 7th Feb'09)

We don't want either a bail-out or default so instead we continue...


7th February 2009