Just an idea I was mulling over at the weekend - The banks are currently short of capital and the Gov are borrowing on international markets to lend to the banks - would it be possible (a good idea at all?) for the Gov to issue consumer bonds (or an ssia type product) in order to re-capitalise the banks?
If something like this was offered at say a 10-15% rate of return I would expect that it would have a very high take up rate. This could, within the first year, attract in order of 1.4 billion into the banks - based on the assumption of 1million take up @120 per month. (There is still close to 1.75 million people working)
It would provide a “safe haven” for investors and consumers who are wary of the stock and property markets and at a better and guaranteed return at a time of increased risk and low returns.
The government can currently borrow at 5something%, so for the moment, the price you’re putting on it would be too high. How long that will last for is another question!
The money would have to come from somewhere. The most likely place for it to come from would be deposits currently in the banks - this would not be good for them! (Particularly not for the weaker ones).
On the other hand, it may be that pension companies and individuals could do with somewhere like that to stash their wedge, but this would probably take money away from the government’s bond issues.
A shortage of new money/credit across the system would seem to be the problem. Deflation seems to be the natural answer. Inflation is another answer. Neither are desirable. Which one is least damaging in the long term?
I was thinking of something similar this weekend too… but in some ways we already have this facility … PRIZE BONDS…
SHOULD CITIZENS BE BUYING PRIZE BONDS.
After all the money ends up being managed by NTMA anyways …
Although buying Irish prize bonds may best be parapharsed from Dirty Harry …
"Well the question you have to ask yourself is do you feel lucky punk, did I fire 5 shots or 6, well do you ? "