Dumb economic question

[fivemack]

It seems that the current Something To Do about the credit crunch is to provide Government backing of private bank deposits without limit - Ireland, Greece, and now Germany, and a punditry belief that once Germany has gone the insurance will be extended across the EU.

How does this help, when the immediate consequence of the credit crunch that keeps coming up is an inability of banks to issue short-term business loans, with a secondary concern about businesses losing float kept in their accounts with failing banks and being obliged to close.

It doesn't make the banks any more solvent, it just makes their insolvency less visible, and means that in the event of the bank running out of money I get repaid out of the National Debt, which I then presumably get to repay out of raised taxes over the next half-century.

Comments

[arnhem.livejournal.com]

Looking at history, I think that governments will be far more likely to bail themselves out of that situation by revaluing the currency than via National Debt (and who are they going to borrow from anyway?).

So you might get exactly the number of pounds back that you ought to, but they won't necessarily have the value that you expected them to.