The Great Depression Online

Great Depression Online Archive Issue:

Panic at Northern Rock

Inside This Issue You Will Discover…

*** Panic at Northern Rock
*** A Bank Run in the United Kingdom
*** De facto Nationalization
*** And More

Panic at Northern Rock

Simon Jenkins, writing in the September 19, 2007 edition of The Guardian, offers the following…

“When a bank says don’t panic, the wise panic.  The first person to get his money out is always richer than the last.”

We’ll interrupt to say, this seems to us like good advice.  Back to Mr. Jenkins…

“But when the Bank of England, the chancellor of the exchequer and the prime minister all say don’t panic, what should you do?” 

Here Mr. Jenkins looks to Northern Rock depositors for an answer…

“The answer from Northern Rock depositors this week was to grab your loved ones and head for the Channel ports.  When those in authority persistently lie, nobody trusts them.  Nobody trusted the present government until they came up with the real money, £28bn of it.”

A Bank Run in the United Kingdom

Depositors at Northern Rock Bank in the United Kingdom began queuing up outside in mid September 2007, in what looked to be a good old fashion bank run reminiscent of the 1930’s.

This prompted the Chief Executive of Northern Rock, Adam J. Applegarth, to post the following message on their website:

“May I begin by offering our customers my sincere apologies for the anxiety and inconvenience that we have caused you.  I know how worried many of you must have been.

“The simple fact now is that the Chancellor has made it clear that all existing deposits in Northern Rock are fully backed by The Bank of England and are totally secure during the instability in the financial markets.

“These have been troubled times but Northern Rock will prevail.  We will not let you down.”

Apparently Northern Rock was suffering from a “liquidity” crisis and unable to meet their overnight loan obligations – in other words, they had maxed out their credit cards and could not make the minimum payment.

De facto Nationalization

But then – to save the day – The Bank of England stepped up to cover the existing deposits from being lost for ever.  If you didn’t know, The Bank of England is the central bank to the United Kingdom.  So they created money – out of thin air – to keep Northern Rock afloat. 

Yes, this is in the United Kingdom, not the United States.  But, remember, the global monetary system is closely connected.  And this is representative of the fact that world credit is no longer expanding; it’s contracting.  There will be more defaults to come on both sides of the Atlantic.

You can also note that The Bank of England’s de facto nationalization of Northern Rock is inflationary.  To save Northern Rock – and their depositors – the central bank had to create money and, thus, increase the money supply.

This inflation of the money supply, as we’ve been exploring, seems to be happening over and over again.  And the final result will be out of control inflation – or hyperinflation.


M.N. Gordon
Great Depression Online

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