Where is the Money?

  laurie53 08:16 28 Oct 2008

I‘m no economist, so forgive me if this is a daft question, but where has all the money actually gone?

The banks are in trouble because they lent money to people who can’t pay it back, so what have those people done with the money they received? Money doesn’t just disappear.

Presumably they spent it, so whoever sold them the stuff now has the money.

They themselves have either spent it, perhaps on salaries or raw materials, or put it in the bank!

Full Circle!

This is a global problem so the money should still be circulating, but it obviously isn’t, so where is it?

  interzone55 08:33 28 Oct 2008

The amount of physical money (coins, notes) in the system hasn't dropped, but the big problem is with so called "paper money" ie money that only exists in electronic transfers.

The big problem is that the assets people bought with loans have decreased in value.

Say you have a £1m mortgage, but your house is now only worth £850,000 - £150k has disappeared from the system already.

You also borrowed £2,500 for a nice holiday, a good chunk of that money is outside the country.

But the biggest problem is people who took out short term loans to buy "sure thing" shares that have now dropped in value...

  laurie53 08:41 28 Oct 2008

"The big problem is that the assets people bought with loans have decreased in value."

Can't see how it matters. Somebody else already has that money to spend.

"a good chunk of that money is outside the country."

Also doesn't matter. This is a global problem, so that money should still be circulating.

  interzone55 08:50 28 Oct 2008

But do you agree with the last point, which is the biggest problem...

  lofty29 09:09 28 Oct 2008

I think that you are making the mistake of believing that money is an entity, it only has a theoretical value based on trust, when that trust dimishes then the value diminishes. Look at the note in your pocket, it says I promise to pay the bearer the sum of £5, or words to that effect, what is £5. It is what that £5 will buy you, last year it would buy you $10, now it will only buy you $7.50. I am no economist but that is how I see it. The more money a government prints the less that money is worth, =inflation, especially if that "money" is not backed by trust and value, ie gold or oil.

  peter99co 10:34 28 Oct 2008

The only fresh-looking food items in the shop were a few loaves of bread, priced this week at Z$30,000 a loaf (about $1).

However, Zimbabweans are only permitted to withdraw Z$ 50,000 a day from the banks.

  peter99co 10:37 28 Oct 2008

Down the plughole?

click here

  sunnystaines 10:51 28 Oct 2008

a few years when the crunch blows over we are all in for big tax increases.

  Noldi 11:28 28 Oct 2008

Banks gamble with money and they have backed to many loosers Ok the odds where good when they won, now they must pay for it. When banks need more money to gamble with they borrow from another bank, In the end the banks dont trust each other to pay the money back.

Thats my understanding the banks got to greedy and went for the risky bets.


  Wilham 11:37 28 Oct 2008

The question you ask is not daft. alan14 may have a point but his post confuses the issue.

If I buy a £1M house and it burns to the ground the £1M is still in the hands of the seller or passed on by him. But £100 in a wallet consumed in the fire has disappeared from the system.

To answer you directly, a large part of the missing money has accumulated in funds held by individuals and associates in the world's tax havens. A few of these now have more financial pull than western governments. I call them plutoes.

The country that is now aware of this situation is Germany. Briefly, Switzerland has been the private/confidential banking centre for a century. Recent pressures by EU on this non-member have tightened rules on local use as a tax haven. Liechtenstein is picking up up the lost trade, and is now absorbing a chunk of evaded tax from Germany. Teutonic thoroughness will not let this rest. Watch this space. In the UK our IHT law initiates outward cash flow to safe havens,... as tax avoidance, not generally tax evasion. A solution I suggest is to tie in IHT application exclusively with land registry.

Global stability with finance depends on a balance between free market forces and governments' Keynesian control (Bank rate, taxes, subsidies..) Plutoes are only subject to the first.

The polititions are not really to blame. After WW2 most countries relied on foreign investment. A necessity was two-way freedom of cash flow. Today we can electronically move money globally with little interference. Up to now UK attempts to look into this have been (in my view) an utter waste of time.

The way forward? The USA and Germany are countries with laws that all their registered citizens submit financial statements every year. The first step is for every nation to do this,- the world would begin to see what happens to money. The solution will come only after it understands the problem.

Sorry if it's a rant. W

  oresome 11:52 28 Oct 2008

Thanks for that analysis Wilham.

I had a sneaky suspicion that some individuals would become very rich out of this mess.

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