Governments Guaranteeing Money
I am a simple soul - but I can't understand how the Government can guarantee peoples money in their bank accounts.
What is confusing me is where would the government get the money from to pay back the people, if there was no money left in the banks. Does the government not keep it's money in banks then ??
Confused :0(
Bushwhacker Mon 06/10/08 12:15
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The government gets its money from taxpayers. If everyone lost their jobs the government would be broke. So its just a money changing exercise, robbing Peter to pay Paul.
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Question Author
Yeah - I appreciate that the government gets it's money from the taxpayers - but surely they don't just spend it as soon as they receive it, they must bank it somewhere ??
What I am not getting my small brain around is :
If all the banks had lost all the money in all their accounts (and I would imagine this would include all the governments money that was in the banks too) then the government would have no money to pay out to everybody.
They would just have to hike the tax rate right up in order to raise the money to pay out to everyone as per their guarantee - so effectively we would be paying our own money back to ourselves !!!
Not much comfort in that is there ?? - ROGUES !!
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How can they be rogues?
If the government doesn't back the banks now, everyone will withdraw their money and put it into Irish banks, or other banks within the EU where the government are providing that protection.
This current problem is restricted to the UK - it is global.
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Government doesn't put its money in a bank - it owns a bank - Bank of England. If it wants more money, it could just print some more - but that's not the simple solution it might just appear to be.
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Also, it is not the Government which guarantees deposits, but the Financial Services Compensation Scheme, which is funded by the financial services industry.
Although the Government stumps up the cash to distribute to savers who have lost deposits if a bank fails, they recoup this money through FSCS levies, which will be considerably higher for banks from next year onwards, as it was the FSCS which covered the lion's share of Bradford and Bingley's deposits, and it will be attempting to recover this money from the financial services industry over the coming years.
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Teh guarantee is there to give confidence. If one bank collapsed and no buyer could be found the FSCS with govt support may be able to compensate savers as per the guarantee. But if all/most banks went bust then there just wouldn't be anywhere near enough to pay the guarantees. Fortunately it's still very unlikely.
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In reality the "guarentee" is worthless, if it ever comes to banks collapsing wholesale and mass withdrawals the governement would have to declare a state of emergency with martial law, the last thing on anyones mind will be compensation, it's back to natural selection!
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where do you think all the money goes from tax from peoples wages shopping petrol newspapers everyday spending goes?
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Re miscief's point....the government's tax revenue is broadly already spoken for- it goes to pay for schools, hospitals, local authority spending, road building, overseas aid, defence, state pensions and other benefits. There's not a huge amount spare for compensation, and certainly not enough to compensate savers if the whole banking system collapses.
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Question Author
Thanks to everyone for their input. I now see just how pivotal it is that the banking system is shored up - from the main consensus it seems the knock-on effect of it's collapse could lead to a total breakdown in society.
I think factor30 has come closest to my thoughts on the situation. I still find it ridiculous that ultimately the tax payer will have to take the brunt of the pain in their own pocket because the money people have messed things up. But, having said that - if that is what has to happen in order that jobs are not lost , businesses stay afloat etc. then I guess that an increase in tax is a realtively small price to pay.
Thanks again everybody.
BW
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