2009: Confessions of a Shopaholic
The Bank of England have held the base rate, as expected. They also decided not to throw more money onto the Quantitative Easing fire. A good result for anyone with debt, but not a great piece of news for savers with cash deposits – save for the fact that more people are becoming better educated about the global economy and finances… if it looks too good to be true (interest rates of 7.25% offered on Italian Bonds) then it probably is… in short the higher “interest” offered is effectively a priced risk for not getting back all or any of the capital placed “on deposit”. A simplistic explanation, but covers the main points.
Italy has been spending too much and borrowing to pay for it. Due to the way their debts are structured, they need to make a payment to their lenders shortly – but can only do so by borrowing more. This is most definitely a case of robbing Peter to pay Paul. If the Italians cannot secure new finance, they will be “bankrupt” which will mean anyone that has provided funds to Italy will have to take it on the chin. We’re all connected as Banks lend to Banks who lend to us as a way of diversifying their own risk. Sadly none of the countries, seem capable of doing basic financial planning for themselves. The leadership of most European nations is nothing short of inept, which in their defence, is due to short-term political vote winning… this month is going to be a landmark month for Europe and the Euro. However, the whole of Europe (including the UK) needs to do some self-reflection, recognising that the entire system is skewed towards consumption and credit, as outlined in “Confessions of a Shopaholic“.
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