How to explain the credit crunch to a five-year-old

1.  The government promised Mummy and Daddy they would be happy if they spent their lives working to make someone else rich.

2.  Mummy and Daddy did what they were told, but ended up with jack shit.

3.  The rich people told Mummy and Daddy to borrow lots and lots of money, so that they could buy a house, a car and all the lovely shiny things they had been promised.

4.  The rich people got even richer by selling Mummy and Daddy’s loans to each other and pretending that the value went up each time.

5.  Finally somebody realised that the whole thing was just made up, so all the money vanished again. This is called the credit crunch.

6.  The credit crunch was caused by too much borrowing.

7.  To solve it, we need to borrow more.

8.  So that we can borrow more, we are giving billions of pounds to the banks, so that the banks can lend it back to us.

9.  The banks used our first lot of billions to pay themselves bonuses, so now we have to give them more. They promise that this time they really will lend it back to us.

10. By the way, nobody really has the billions of pounds that we’re giving to the banks. It’s kind of made up too.

11. To pretend that it’s real, the government is issuing lots of new government bonds – another kind of borrowing. A lot of these bonds are owned by the banks. So really the money being used to bail out the banks is being borrowed from the banks.

12. If the banks will let Mummy and Daddy borrow some of this money, they’ll be able to buy lots and lots of things and stimulate the economy.

13. I know we said in our little talk about the environment that using up resources is bad, but in this case it’s good.

14. And we’ll all live happily ever after.

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