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US please tell every bank depositor that all their savings in US banks regardless of the amount, are insured by the FDIC. Not doing this is creating silent runs on banks. Especially from big customers who can go outside USA. Moreover it is making people move away from banks as depositors to banks as custodians and shifting from deposits to bonds. That´s what I did with all my liquid funds and it only hurts the system. If USA guarantees depositors then people will stop running from bank to bank or leave their funds as deposits and banks will not go bust. More important they will go on lending. And then they will focus on rebuilding the asset side of their balance sheet (which is for all of us, our liabilities).

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Thomas Lidforss on October 7, 2008  · 

Martin, Good point in your post but I kind of wonder about your title. US has had for many years $100k per bank (or rather one account holder in one bank). In Sweden it is 250k SEK (about $38k), an amount they are now talking about doubling to 500k SEK but according to media in Stockholm, Germany still has only 20K (about 200k SEK) Euro per bank and account. Don’t know if that is correct but not very good. In USA, Obama is promising to raise the present limit of $100k by 2-3 times. Denmark has more than twice the Swedish limit so recently a number of Swedes living in Southern Sweden have moved their moeny to Danish banks in Copenhagen.

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Kathlyn on October 8, 2008  · 

I’m someone who is learning a lot about economics and the financial industry as this crisis unfolds.

I always get a lot out of reading your blog, so maybe you can explain: With which collateral do Ireland and Germany back up these guarantees?

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Martin Varsavsky on October 8, 2008  · 

@ Kathlyn:

Governments have this unusual right to print money, or to give unlimited credit. The only downside to that right is inflation but when the threat is global recession inflation as a threat fades away and people believe that more credit does not equal inflation. Which is reasonable.

Antoin O Lachtnain on October 9, 2008  · 

The Irish government has done more than insuring depositors. It has also guaranteed all the banks’ loans from other banks. I will leave it as an exercise to the reader to consider whether this was a good idea.

The Irish government doesn’t really have the right to print money in its own right. Ireland is in the euro. What Martin says is still right, but it has a subtle European twist.

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