07 October 2008
What can you do to prepare for the coming liquidity crisis?
As the world's stock markets tumbled yesterday, and faced with a rising international financial crisis, Germany announced that she plans to create a financial shield around all her institutions. She also made it plain that this was about Germany, so everyone else had better look to their own devices and not expect Berlin to ride to their rescue. What this means in the case of a general financial meltdown is that Germany will probably only honour those euro banknotes that were issued by her - so check the serial numbers of any euros that you hold just to be on the safe side. You can understand the Germany position, as in spite of British journalistic carping, Berlin isn't responsible for the mess that the Latin types have got themselves into as they rode the Anglo-American roller-coaster, so why should she foot the bill to repair the damage?
That aside, if the prudent Germans are worried, the rest of us should consider their own futures, and having lived through the Mexican peso meltdown in 1994-95 I want to tell you about some of the things that you can do today to prepare for any coming crash. If they worked for me in Mexico all those years ago then they should work for you in Britain today.
The first thing that will happen is that you may not be able to get your money out of the bank, so go and get it out right now. Do not accept large denomination notes and insist on fivers and tenners. You might also want to have about a hundred quid in coins as change tends to get used up fairly quickly and shopkeepers then start trying to fob you off with something that you don't particularly want by way of change. Yes, I know that the government guarantees deposits up to £30,000, but this crisis is going to be about liquidity. If your bank's branch doesn't have the readies available, then you can't get your money out, can you? So go and get a wad to stuff under your bed now.
Secondly, make a list of all the groceries that you need to live on for a month and go along to your supermarket and buy the lot using your credit card. The point here is not that food will become scarce because it won't. Trust me when I say that because it just happens to be the truth because any government know what happens when people start getting hungry. The problem is that if the financial crisis deepens then those supermarkets may stop taking credit cards and if the banks are not allowing withdrawals that means that you will have to dip into your currency reserve. You can save yourself a lot of bother by buying next month's groceries now. Besides, if the crisis passes, what have you lost? You just eat the food anyway and pay off your credit card in the usual way.
Thirdly, and assuming that you actually have funds in your current account - say your wages get paid into it - then use cheques to pay for whatever you can. That is especially true for your council tax and utility bills. If the buggers won't take a cheque then let 'em whistle for their fucking brass.
The Mexican crisis involved a currency meltdown and for months the country used a rough and ready barter system for many small transactions and dollars for the rest. I can remember getting my car fixed for a a couple of bottles of decent tequila and the mechanic gave me some cigarettes as change. However, Sterling is unlikely to go down the toilet in quite the same way because what you are facing is a credit crisis. Nevertheless, if you are worried about the currency's health, you might want to buy a few Swiss francs on the principle that if they cease to have any value then we really are back to the dark ages.
Above all else you need to relax. This really is a storm in a middle class teacup, so assuming that you are not in debt up to your dick then this will pass you by. Get cash out of the bank now and stock up on groceries. Then sit back and watch the show.