UK One Crash Away from Empty Bank Machines

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The prestigious organisation for the world's central bankers - the Bank of International Settlements (BIS) based in Basel, Switzerland - has issued an ominous warning about the state of the United Kingdom's finances. It says the country's finances were so drained by the epic bank rescues of 2008/2009 - when the then-Labour government pumped £1 trillion into the banking system to save it - that the country runs the very real risk of not being able to handle another major financial crisis.

It said: "Events coming out of Greece highlight the possibility that highly indebted governments may not be able to act as a buyer of last resort to save banks in a crisis. That is, in late 2008 and early 2009, governments provided the backstop when banks began to fail. But if the debts of the government itself become unmarketable, any future bailout of the banking system would have to rely on external help."

By "external help" it most likely means the International Monetary Fund (IMF) - the world's funder-of-last-resort for bankrupt countries.

The practical implications of such a crisis for ordinary citizens include empty cash machines and the freezing of electronic cash payment systems. Far from an unlikely scenario, the world came close to seeing this happen when the Lehman Brothers firm became bankrupt in 2008. This was only avoided by a wave of nationalisations and loans of up to US $10 trillion to the banking system by national governments. 

But with many national governments having blown their cash resources on the first wave of bail outs, it remains questionable they can handle another major financial crisis.

The BIS is worth listening to because they issued a series of warnings prior to the US housing bubble collapsing and also prior to the banking crisis of 2008. These warnings were ignored by the British Labour government under Gordon Brown and they were caught on the hop when the banking system went into rapid meltdown.