In addition the government has guaranteed everyone s personal

Summary:   In addition the government has guaranteed everyone s personal deposits in banks up to £50 000 In practice as with Northern Rock and Bradford Bingley the government would almost certainly guarantee all deposits if a bank ran into difficulties Even private deposits in the failed Icelandic banks have been guaranteed by the UK government So where has all the money gone Your money is still there So don t worry about that Nevertheless money is being eroded in value by inflation £100 today can buy only about 95 of what it could last year and only about half as much as it could 20 years ago This is one reason why we need to be paid interest to save money But what about so called sub prime debt This was money lent to people unlikely to be able to pay it back The problem is that the loans were mainly to buy houses and houses have fallen in value Thus if people sold their house they would not get their money back It s the same with stocks and shares If you had bought £1 000 worth of shares a year ago they would be worth only around £670 today But houses and shares are not money They are assets whose value varies with market forces If demand rises and or supply falls their price will rise If demand falls and or supply rises their price will fall Don t forget that warning in small print prices can go down as well as up Thus your money as bank deposits may not have disappeared But some of your wealth may well have But declining wealth feeds back into money creation If banks are worried about bad debts they may not lend so much With a deepening credit crunch there would be less spending and less money would be deposited by shops and businesses There would be even less lending and the economy could fall into recession After all less spending leads to less production and less employment No wonder governments feel they have act No wonder vast sums are being pumped into the banking system   In addition the government has guaranteed everyone s personal deposits in banks up to £50 000 In practice as with Northern Rock and Bradford Bingley the government would almost certainly guarantee all deposits if a bank ran into difficulties Even private deposits in the failed Icelandic banks have been guaranteed by the UK government So where has all the money gone Your money is still there So don t worry about that Nevertheless money is being eroded in value by inflation £100 today can buy only about 95 of what it could last year and only about half as much as it could 20 years ago This is one reason why we need to be paid interest to save money But what about so called sub prime debt This was money lent to people unlikely to be able to pay it back The problem is that the loans were mainly to buy houses and houses have fallen in value Thus if people sold their house they would not get their money back It s the same with stocks and shares If you had bought £1 000 worth of shares a year ago they would be worth only around £670 today But houses and shares are not money They are assets whose value varies with market forces If demand rises and or supply falls their price will rise If demand falls and or supply rises their price will fall Don t forget that warning in small print prices can go down as well as up Thus your money as bank deposits may not have disappeared But some of your wealth may well have But declining wealth feeds back into money creation If banks are worried about bad debts they may not lend so much With a deepening credit crunch there would be less spending and less money would be deposited by shops and businesses There would be even less lending and the economy could fall into recession After all less spending leads to less production and less employment No wonder governments feel they have act No wonder vast sums are being pumped into the banking system

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