Bank run

pecunianonolet

Fear is the biggest evil of the financial markets. The problems are far, far greater. Literally every country in the world is spending more and is in debt. A sensible amount of debt is good and even encouraged but the US goes from one shutdown to the next. Usually kicked off by some disputes but in the end everyone agrees to put the debt threshold up once again. 

Anyhow, before we start we need to understand the properties of money. Money has to be fungible, durable, portable, recognisable and stable. Now we need to look how money is used. It is a unit of account, store of value and standard of deferred payment. 

Money is something determined by market participants and should have value and be exchangeable. It can be a currency, like notes and coins issued by a government. Another type of money is fiat currency, which is fully backed by the economic power and good faith of the government that issues it. Last we have money substitutes, basically anything that can be exchanged for money at any time like a cheque.

If we have no more trust in either the government or what we deem as money means it starts losing value. The number printed on a piece of paper or engraved on a piece of metal (notes & coins) has no more value to us. The materials used to produce them are available in abundance so the real value is close to nil and therefore notes and coins are easy to produce (Seigniorage). Hence, you want it backed up with something deemed of having real value and being scarce. That's why governments store gold and the US led the way by it's gold standard abolished by Nixon in 1971. Many events before, next to the obvious reason of having to finance Vietnam war, led to the end of it. Keyword: Bretton Woods Agreement

So to come back to the starting point, it's debt and trust that the debt can and will be repaid. If this trust erodes and suddenly everyone wants to get hold of their money we have a bank run. Deposit money (giro money) is only an electronic number displayed giving you an entitlement of access to what we deem as money (notes and coins) but in reality only a fraction of it is in real existence and in circulation. 

Last but not least, money can exist in any form, e.g. rare mussels, rare stones or many other things used in the past. As long as the above principles apply. 

vmaxnick

Albermarle said:

vmaxnick said:

Be gentle.

3 banks in the US have now failed failed and Credit Suisse are in serious trouble. I have some money split between an ISA and just sitting in the Building society waiting for me to decide what to do with it. My gut is telling me, buy land, even if it's just a stable and some fields, just get the money into property. Mervyn King once said (Paraphrasing) 'Don't start a run on the bank, but get your money out when it starts.' What's thoughts have you, financial guru's?

By the time you have gone through the often long process of buying land, this 'crisis' will be long past .

Very true. Probably best to just diversify a little, at least within institutions.

vmaxnick

dunstonh said:

3 banks in the US have now failed failed and Credit Suisse are in serious trouble.

Credit Suisse have been in trouble for a long time.  That isnt news.   The banks in the US were specialist.  

 My gut is telling me, buy land, even if it's just a stable and some fields, 

Land is expensive at the moment (I am a landowner). It will probably fall in price as it tends to cycle in a wavy line in real terms.  The vast majority of land doesn't add value in real terms.

 'Don't start a run on the bank, but get your money out when it starts.' What's thoughts have you, financial guru's?

I am not sure why you are linking current events to retail banking.  The actions taken after 2008 split retail banking arms away from the riskier banking activities.

, but the £ is not the reserve currency and if this is the banking appocalypse 'experts' are predicting,

clearly not experts.

will the FSCS underwriting be safe?

It is covered by the lender of last resort.

Thank you. Reassuring advice

eskbanker

vmaxnick said:

wmb194 said:

How old are you? [...]

...I was around in 2008,1998, 88, 78 and 68...

Although you didn't answer the question, if you were around in 1968 (in the sense of remembering the financial climate rather than simply being alive) then you'll presumably be your decumulation phase and calibrating your investment risk accordingly - this wouldn't normally be a time of life to be purchasing illiquid assets?

HappyHarry

metrobus said:

I hope there is a run on a UK bank .
Just to teach the greedy bar stewards a lesson.

They are acting as a cartel at the moment with pathetic rates of interest and taking the people who finance them for mugs.
Didn’t one recently declare a £57 billion profit, whilst paying a pittance to savers?

Crikey! Bit harsh wishing that isn't it?

allegro120

vmaxnick said:

Be gentle.

3 banks in the US have now failed failed and Credit Suisse are in serious trouble. I have some money split between an ISA and just sitting in the Building society waiting for me to decide what to do with it. My gut is telling me, buy land, even if it's just a stable and some fields, just get the money into property. Mervyn King once said (Paraphrasing) 'Don't start a run on the bank, but get your money out when it starts.' What's thoughts have you, financial guru's?

I don't know your circumstances (e.g. your age, plans for future, the amount of money you have etc.), but I wouldn't buy a land unless I want to build on it and live there or you want to start property business. Money sitting in banks and BSs are safe. Headline news about some US banks failures doesn't necessarily mean you have to do something about it.

wmb194

vmaxnick said:

wmb194 said:

How old are you? The world didn't end in 2008 so why do you think it will this time? The banks that have failed all seem to have pretty niche problems e.g., odd risk management, over exposure to particular types of companies, a particular blind spot in US banking regulations for certain kinds and size of banks that apparently doesn't apply in Europe. 

Credit Suisse is a European bank. According to finacial news, Sunak is in communication with Biden over the bank failures and forecasts so allthough probably not a cause for panic, cautious consideration might be wise.

I was around in 2008,1998, 88, 78 and 68 so I suppose I should know better, but 2008 didn't come hot on the heels of a world pandemic where Governments borrowed outrageously, printed money prolifically and resided over the closest we've come to seeing the embodyment of Thucydides Trap with Eastern countries seriously considering creating their own reserve currency.

But, I suppose if the Western world and all it's institutions do fall, I suppose someone will come and boot me off my field with stables.

I'll get a dog.

So you should know not to panic and not be a doomer.

sevenhills

Metro bank is down 20%+ in the past four weeks, Barclays down 10% in the past week, Lloyds 8% down this week.
FTSE down 7% this week.
How does the FTSE compare to other countries?

plumb1_2

You can grow food on your land, you can’t buy food when your bank cards don’t work.

InvesterJones

plumb1_2 said:

You can grow food on your land, you can’t buy food when your bank cards don’t work.

Don't be silly. You can grow some food on land, if you're lucky, but only for some of the year.