A run on the bank

Wow, an old fashioned run on the bank is in progress right now in the UK. The bank of England has had to be called in to bail out Northern Rock. Investors are queuing up outside the branches to draw their money out.

If I had money in the Northern Rock I would sit back and relax. In fact I might consider opening an account there as it would be the safest place to put my money.

Because the truth is, the Bank of England would rather go to hell and back than let this bank fail. The entire edifice of capitalism rests on this situation. Anyone who has the slightest understanding of high finance knows that all of it is founded on confidence; take that away and you are left with a naked emperor.

If everyone were to go to the bank on Monday morning and ask for their savings back the entire financial system would collapse because the financial institutions don’t have the investors money. They have loaned it out many times over to whoever is prepared to pay the higher interest rate. This is why banking is so profitable; they lend money that they don’t have. The system survives because it lives on a promise, one that they hope will never be called in.

We’re living an illusion and I can see it is only going to take a little knock which no-one will see coming which will bring down the whole capitalist structure.

Don’t get me wrong, I’m not anti capitalist; it’s a system which has a lot going for it, but I’m a realist and I can see the flaws in the system.

Northern Rock won’t fail on its own, but if something else in the world precipitates another financial crisis alongside it… start buying bullion.

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