So can someone please tell me where this £500 billion has come from?

[Callisto]

Because I don't understand. Has GB borrowed it from somewhere and if so where?

[CoteDAzur]

From your taxes. If that is not enough, they can always print the money.

[egypt]

i dont get it either. but then i don't get any of it really.

if everything is collapsing, where IS the money? or was it all just credit......as in credit crunch...

i'll shut the door on me way out

[egypt]

but they can't just print the money....they have to have the monies to print the money?

[SpandexIsMyEnemy]

our gold reserves??

if the taxes do indeed drop and there's not enough to cover it?

[Callisto]

But there is no money. The public debt is currently so vast that it takes around £50 billion every year just to service it (or more than the yearly defense budget, to put it in perspective). So unless GB has created the £500 billion out of thin air or borrowed it from another country (like Iceland borrowed $30 billion from Russia) I don't understand where it has come from.

[Callisto]

But he would have to sell the gold reserves first to actually raise the money, unless he is borrowing against them, in which case, who is he borrowing from?

[womblingalong]

From what I heard on R4 yesterday:

The govt will borrow from investors who won't lend to the banks at the moment, and then lend it to the banks for a fee, and with certain caps on salary and bonuses, negotiated individually with each bank or instititution when and if they apply for a govt loan.

I am sure someone who is a bit more au fait with the world of finance will come along and explain it better tho.

[LazyLinePainterJane]

Gordon is going to start selling his body. Did you see that Dispatches last night about lap dancing clubs? There's a way for him to make a few extra pennies quid.

[CoteDAzur]

All countries can print money when they need to. They would rather not, because the more money you print, the lower its value, and higher the inflation.

The times when central banks had to have the gold reserves to back up ever piece of paper money they printed are long gone.

[Callisto]

Thanks, Wombling. I'm amazed that the govt can guarantee £500 billion if they are relying on private investors to finance this. And if it is private money, why are taxpayers being told that they will benefit from dividends if it all goes well (or something like that). I still don't think that I understand properly.

Cote - surely if the govt began printing money, especially such a huge amount, sterling would become worthless on the money markets?

[womblingalong]

Well, as far as I understand it, and I am no expert, and may have got some of this wrong.

It is not just private investors, it will be the banks and other institutions who are reluctant to engage in inter-bank lending. They will lend to the Govt as they are a 'safer' bet than the other banks ATM. The Govt will in turn make loans in return for a fee to banks who need to borrow.

Where they have 'part nationalised' the banks is when they given individual banks money in return for assets or shares in bank assets. This is where the taxpayer will get their dividend from. The other part of the help package is the lending I tried to descibe in my last post.

[FeelingLucky]

I posted about inter-bank lending last night.

As far as I understand it, the money is a concept which will only become real if it all goes horribly wrong (in which case gvt will have to borrow from/be bailed out by IMF) or/and if it all goes right, then we the taxpayer are paid dividends in real money.

I'm not expert either, but this is my current understanding.
Hopefully an expert will come along to explain in non-jargon terms.

[ohdearwhatamess]

There will be big tax rises.

[Prufrock]

Can we just have some clarity on the people who have actually caused this mess? It's not bankers, but traders - there is a difference. Many, many people in the banking industry do a very useful and worthwhile job of investing (usually long term) in companies and people who actually produce things, and other people are involved in the also useful task of supporting and facilitating them to do this. This mess has been caused by the industry putting so many ridiculous levels of complicated trading and restructuring of the products in the middle, where the people making the most money were the ones who just bought and sold as much as they could each day, often without a proper understanding of what it was they were buying, but making a profit on every meaningless transaction and not realising that they were simply creating an asset bubble. But that isn't all bankers.

[cupsoftea]

They bale out the system but yet some people are refused life saving medical treatment on the basis that it would cost too much

[IncontinentiaButtox]

It's simple, they are borrowing money in our name, to give to the banks, who will then lend it back to us and charge us interest.

It's like a big infinity sign, and if you examine it too closely, you'll figure out that it's a big circular con job, but that's a modern credit-based economy for you.

[cupsoftea]

Perhaps they just rummaged down the back of the settee at number 10

[FeelingLucky]

I don;t want to play the blame game here, but if I could choose whether to live through a depression (10 x worse than recession with NO MONEY to spend and thousands unemployed) or bail out banks as a taxpayer by assuring them £500million in the hope that we as taxpayers would reap it all back eventually, I know which option I would choose.

[morningpaper]

To appear clever at all times, can I recommend CBBC newsround

[CountessDracula]

My first thought on all this was
what happens if it doesn't work?

That is £13k per taxpayer down the shitter

What then?

[singingtree]

Lol @ morningpaper. My mum swears by those resource pages for primary school teachers that you get in the Guardian's education supplement.

[mppaw]

It is all about confidence. What the Government is doing is trying to restore confidence in the Money Market so Banks start lending to each other again.
EG: Bank A will not lend to Bank B as its shares have fallen 40% and the CEO might be leaving etc, so if they lend them money they are worried they wont get it back...so the Govt is proposing to back these Banks so Bank A and B will start lending to each other.
Also, Banks are very wary about lending cash for longer periods, 1 week, 1 month, 1 year etc, this has created so much pressure on the overnight market (1 day lending)that the Govt is hoping to use a porportion of the £500b to help leviate this.

[FeelingLucky]

very clever, morningpaper.

Next question: what if institutions around the world run out of money to lend to government (the Japanese gvt have just injected £40million into their economy, surely they are competing with our government to borrow money from the same institutions?)?