You are getting on a bit so maybe it is good to reduce your debt if you are fearful. However, history has shown that the tail end of a downturn is a great time to borrow to invest.
Just stay away from the fear based stuff like gold - it is about to take a hammering.
As b_b is fond of saying, the RBA cannot run out of money. If they choose to lend to any bank at any terms in any amount, they can.
As to the idea of a deposit run, it seems implausible. Say there are only two banks CBA and NAB, and the following three scenarios in a crisis:
1) 200B of CBA's deposits are withdrawn by nervous nellies and deposited in NAB, and 200B of NABs deposits are withdrawn and deposited in CBA. No liquidity crisis.
2) 200B of CBA's deposits and 200B of NAB's deposits are withdrawn as cheques and put into a sock drawer. CBA and NAB have 400B of contingent liabilities floating around "out there" in sock drawers, but they still have the cash! No liquidity crisis.
3) 400B of CBA's deposits are withdrawn and deposited in NAB. Now NAB has 400B extra liabilities and 400B in non-interest bearing "cash". Big problem for NAB. So either they lend the 400B to CBA, or buy some of CBA's assets, or a combination of both. No liquidity crisis.
So, I am still fairly sure that the wholesale and deposit guarantees were not a liquidity measure or to prevent a "deposit run". Bank runs are from the days when banks issued their own bills.
It was more likely a stability measure to prevent the sudden exit of foreign capital, collapsing the exchange rate, and causing chaos in credit markets as the long end of the curve is repriced to the new market price of risk.
Or not.
Speak when you are angry and you will make the best speech you will ever regret. Ambrose Bierce
As b_b is fond of saying, the RBA cannot run out of money. If they choose to lend to any bank at any terms in any amount, they can.
As to the idea of a deposit run, it seems implausible. Say there are only two banks CBA and NAB, and the following three scenarios in a crisis:
1) 200B of CBA's deposits are withdrawn by nervous nellies and deposited in NAB, and 200B of NABs deposits are withdrawn and deposited in CBA. No liquidity crisis.
2) 200B of CBA's deposits and 200B of NAB's deposits are withdrawn as cheques and put into a sock drawer. CBA and NAB have 400B of contingent liabilities floating around "out there" in sock drawers, but they still have the cash! No liquidity crisis.
3) 400B of CBA's deposits are withdrawn and deposited in NAB. Now NAB has 400B extra liabilities and 400B in non-interest bearing "cash". Big problem for NAB. So either they lend the 400B to CBA, or buy some of CBA's assets, or a combination of both. No liquidity crisis.
So, I am still fairly sure that the wholesale and deposit guarantees were not a liquidity measure or to prevent a "deposit run". Bank runs are from the days when banks issued their own bills.
It was more likely a stability measure to prevent the sudden exit of foreign capital, collapsing the exchange rate, and causing chaos in credit markets as the long end of the curve is repriced to the new market price of risk.
Or not.
The deposit guarantees were to prevent a bank run. Banks can't create money except during the loan process.
Take risks - if you win you will become wealthy, if you lose you will become wise
The deposit guarantees were to prevent a bank run.
If a bear made that statement, b_b would ride in on his white stallion and disabuse you of the notion that a "bank run" can even happen in the modern monetary system. But, because it's you, free pass.
Read my three scenarios above again and tell me which of them you think the deposit guarantees were designed to prevent.
Quote:
Banks can't create money except during the loan process.
The RBA can create as much money as it likes. And the RBA is a bank, and it loans to member banks.
Speak when you are angry and you will make the best speech you will ever regret. Ambrose Bierce
The deposit guarantees were to prevent a bank run.
I personally pulled about $180K out of me bank accounts 'n had it stashed around tha house in tha run up to 'n during tha GFC - Before Krudly Dudly got tha hint 'n introduced his bank guarantee. (George Bush II had a lot ta do wif him comin' ta his senses - As best as I could made of it - Yunno, a personal phone call ta Stupid [as in Krudly Dudly] late one nite as best I could make of it.)
Anyway, I took about three months ta think it all over/ask meself just how much I trusted tha f***er's guarantee before moving it back inta his potentially shitty banks.
'N some time after doing so I turned up $5K I had stashed in a vacuum cleaner I couldn't even recall stashing there - LOL
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