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When 50 billion is not enough!

With the Bank of England ploughing 50 billion pounds worth of funds into the banking system the credit crisis has taken another significant turn and the question is now, is it enough? Already City experts are predicting the eventual funds will reach £100 billion! The Government have made some unclear statements about if the Bonds swap for the banks mortgages will eventually be paid for by the tax payer! They have fallen short of making any promises and that might be an indicator that further measures can not be ruled out and in the end the tax payer will have to take some if not all of the financial burden.

The Royal Bank of Scotland have yet to announce if this added liquidity into the interbank system will deter their own salvation a "Rights Issue". If the Rights Issue goes ahead we can assume that 50 billion is not enough. At least for RBS!

Whatever the UK Government try's to do to stem the tide of this crisis it's very unlikely to be enough unless it forms part of a Pan European strategy and has equilibrium with measures taken in the USA. A global financial crisis demands global responses and these must be balanced and coordinated to achieve maximum affect and reach the desired result.

The next few months are going to see the emergence of the depth of the credit crunch and I fear there is more bad news to come. The eventual global solution may require the assistance of India and China as key participants as the economies in the west are becoming increasingly dependent on the East.

India has quickly become an extremely wealthy and powerful force in financial markets while China has become a very demanding economy in its own right as its population realises that the Western lifestyle is now within their grasp.

It's an odd world when the USA as the most powerful country in the world must now rely on the East to drag its self out of a recession that could quite easily be long lasting and even go into a depression. This is not the time to play politics however, as the world needs a stable economy and wealthy people in rich nations to enable the wealth to be distributed to countries less fortunate and with people in desperate need of aid. Kind of puts your mortgage worries into perspective!            

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Comments: (2)

A Finextra member
A Finextra member 23 April, 2008, 10:08Be the first to give this comment the thumbs up 0 likes

It's my understanding that the 'new' offer from the Bank of England is what the ECB has been doing for several years...

 Can anyone confirm that?

A Finextra member
A Finextra member 24 April, 2008, 03:41Be the first to give this comment the thumbs up 0 likes Latest estimate is that 100 billion may do the trick and that the BoE has not put a cap on this offer. This fits in with pronouncements from Charles Goodhart. With regards China and India assisting with any bailout or concerted international strategy, one would caution against this. remember, it was only a few years ago that the Chinese government had to bail out its own banking sector to the tune of US$100 billion, with US$20 billion currently set aside to recapitalise Agricultural Bank of China over the next 18 months. Whilst headline figures for both China and India look impressive, the small text does not, neither country is Basel II compliant, with China currently not able to comply with Basel I. As for transparency, our banks in the west are a paragon of virtue compared to both China and India - though this does not excuse them from losing a combined US$250 billion to-date, with more to come.