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What An American Bank Run Would Look Like
Technically the title of this post is wrong: the truth is that nobody could possibly know or predict what a bank run would looks like in details suffice to say that it would have terminal and devastating results on the global economy. One needs only remember what happened when the Reserve Fund broke the buck and the $3 billion money market industry was at risk of unwinding (for those who do not, Paul Kanjorski does a good summary here). What we do, however, wish to demonstrate is the tenuous balance between physical money - yes, just like precious metals, there is actual "physical money", better known as currency in circulation - and more abstract, confidence-based, "electronic money." Now when it comes to talking about systemic instability, pundits often enjoy bringing up the case of the $600+ trillion (recently discussed here in a different capacity) in synthetic derivatives, whose implosion would "wipe out the world." While that may indeed be the case (the memory of the CDS-precipitated AIG implosion is still all too fresh), since nobody really can comprehend the side effects of the collapse of global derivative system, which by some estimates is over $1 quadrillion when combining exchange and OTC based derivatives, it is largely based on pure conjecture. And, as we demonstrate below, one doesn't even need to do get that high up in the pyramid of credit money. The truth is that should there be an American bank run, what would happen is the conversion of all electronic dollars into physical dollars, as retail Americans rush to empty their checking and savings accounts, exit their money markets, while institutional America converts all "shadow" liabilities into hard dollar assets (Zero Hedge has a specific methodology of defining what liabilities make up the shadow banking system). The truth is that should there be a D-Day in the American banking system and there is a global scramble for physical paper (ignore gold) the conversion ratio for binary dollars into hard ones could be as high as 30 to 1. Which begs the question: should one apply a 90% discount when evaluating their electronic dollar exposure? That, and many other questions too...
Physical dollars
When looking at actual "hard" dollars, there is just one place: the Fed's weekly H.6 statement which shows what the total amount of currency in circulation at any given moment is. The H.6 is the statement that breaks down the two forms of monetary stock tracked by the Fed: M1 and M2. Currency is at the very top. As a reminder, currency, together with Fed bank reserves are the only two actual forms of money "printed" into circulation. Yes, there is much polemic over the nature of bank reserves, but they, together with currency in circulation are the only two actual liabilities on the Fed's balance sheet, backed by such assets as Treasurys, Mortgage Backed Securities and, questionably, gold (questionably, because as Ron Paul has been crusading, the existence of gold on the Fed's asset side is taken on faith, and is based on promises by the Fed that it in fact exists, but nobody is allowed to actually see it).
So how many actual physical dollars are there? Well according to the H.6, as of June 27, there was $967.3 billion in currency currently circulating within the US economy, while the H.4.1 tells us that as of July 6 there was $1.66 trillion in bank reserves with the Fed, which if need be can be promptly released as currency to the wider public on demand (granted the dynamics of this release are completely unclear).This adds up to just over $2.6 trillion in "physical currency" (which also happens to be the "record" asset side of the Fed's balance sheet).
So that's what the the 'supply' side of money looks like in a dollar bank run. What about the demand. In other words, who will have the non-contractual "right" to pursue these $2.6 trillion in cold, hard cash?
Let's start with the M1, which is where the first tranche of electronic dollars is situated.
M1, in addition to currency in circulation, also contains demand and checkable deposits. The most recent number for these two is $982.9 billion. So far so good: if only demand and checkable deposits were pulled, the currency in circulation would be sufficient, although there would be a small impairment of just about 1.5%.
Next up, we go to the M2, which in addition to the M1 components, also contains such abstract concept as Savings Deposits, Small-Denomination Time Deposits and Retail Money Funds. The dollar values associated with these assorted claims on cash are $5,662.8 billion, $827.9 billion, and $698.7 billion respectively, or a total of just under $7.2 trillion. Add to this the roughly $1 trillion in non-cash M1 and you get $8.2 trillion. And this is where things start getting interesting. Because should every retail saver who has documented paper claims in America's checking, savings, time-deposits and money market pull their money, they would find that there is just $2.6 trillion in cash available to actually satisfy said claims.
But wait, there's more.
While the M2 conveniently ignores it, another major component of monetary aggregates is institutional money funds, which adds another $1.833.2 trillion in claims to physical fiat. Added across and we get just over $10 trillion.
But wait, there's more.
Remember how on March 23, 2006 the Fed discontinued the M3 because it was "too expensive" to keep track of all this "money." Well, courtesy of various replication loophole Zero Hedge has been able to track a far more comprehensive indicator of the broadest money stock in the US economy: the shadow banking system, which for all intents and purposes is the same as above: namely claims on actual money however more by institutional accounts than retail.
The breakdown, based on the most recent Z.1 (through March 31, 2011) is as follows:
- GSE Liabilities: $6,577.8 billion
- Agency Mortgage Pools: $1,166.3 billion
- Asset-backed securities Issues: $2,280.6 billion
- Securities Loaned by Funding Corporations: $709.0 billion
- Liabilities in Fed Funds and Security Repo agreements: $1,263.3 billion
- Total Outstanding Open Market Paper: $1,131.2 billion
Whipping out the calculator, and we get... $13.1 trillion in shadow banking system claims. Adding across with the M1 and M2 stock noted above and one gets $23.1 trillion. As a quick reminder, the physical money, in a best case scenario, is $2.6 trillion when adding reserves, and in a worst case, $967 billion. In other words, the paper to physical dilution is anywhere between 8.8 times and 24 times.
But wait, there's more.
Observant readers will recall that in our 2009 piece which before anyone else had even considered it, explained how the Fed bailed out the world with FX liquidity swaps, one of the key take home messages was that there was a synthetic short on the USD to the tune of about $6.5 trillion courtesy of the USD carry trade and other considerations. In other words, this is how many dollars would have to be conjured up into existence to satisfy existing electronic claims (and why the Fed had to scramble to implement the FX swaps when it did). One thing that is certain is that in an American (and thus global) bank run, all of the dollar shorts would cover in milliseconds as the carry trade would collapse instantaneously.
The take home is that courtesy of this latest and greatest demand on cash, there is up to another $6.5 trillion in potential claims on underlying hard dollars (and likely much greater as this BIS study was conducted at a time before ZIRP, and before the USD was the new, step aside JPY, carry currency of the world).
Summing it all up
Putting together all of the above, there are anywhere between $967.3 billion and $2.6 trillion in physical claim satisfying pieces of paper which everyone would scramble to grab if the sky was falling, and against these there are just under $30 trillion in paper claims on said hard paper. This can be seen visually on the indicative chart below:
Do readers see now why it is irrelevant to add X trillions or even quadrillions in derivatives? Because when just taking the plain vanilla electronic claims on circulating dollars there would have to be between a 11x and 31x haircut when everyone rushes to procure the suddenly all too precious pieces of paper with the picture of a dead president on the face.
For all intents and purposes this has been more of a thought experiment than any indicative scientific evaluation as there are many other nuances when analyzing all of the above. However, for the sake of esthetic purity, the truth is that no matter how one slices and dices it, there will be an unimaginable scramble to get out of electronic dollars and into physical ones. The amusing thing is that there are many who are worried that physical silver claims may be diluted by outstanding paper. This is true, however, ironically, it is very true when dealing with the heart of the fiat system. And recall that we refused to look at the $1 quadrillion in credit money at the derivative level. We believe that for illustration purposes, knowing that at best 10% of electronic money is covered in a worst case scenario should be sufficiently enlightening. As for those who say that all the Fed would need to do is merely hit the print button and not stop, remember: this money would simply flow to bank reserves. How it gets from there to outright currency in circulation is something the Fed has been bashing its head over the past 3 years, so far, unsuccessfully. And any money paradropped into circulation directly, would not do anything to alleviate the dilution factor as it would add to both sides of the "claim" and "deliverable" ledger (not to mention that it would also leads to instantaneous hyperinflation).
So, in the loosely paraphrased immortal words of Troy Mclure, now that you know, roughly, what a bank run would look like, don't do it.
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Can't wait.
a WHOLE NEW DEBATE will soon emerge, never mind this fake 'debt ceiling debacle'
when the event of which is described above, got PMs (for realz)?
Sad most fail to recognize the economic reality of history once again repeating itself.
I think I'm in love. Lol. Prep and wait for the soon-to-come fall. It's basically inevitable at this point
I love your ID and avatar dude. But keep in mind...and why not dance to this song tonight:
http://www.youtube.com/watch?v=WJiHp-2CmVY
Glad to see ZH talking about Bank Runs.
They really do mean martial law at this point.
Like we were looking at in 2008 -- like always happens in every credit money system -- boom, bust, bank run.
Get out of the Ponzi and stay out.
And don't get out of the Ponzi, because everyone else in the scheme needs you to keep dancing.
http://www.zerohedge.com/article/chart-day-currency-devaluation-old-school-style#comment-1265536
(for all you mouth-breathers out there: this link means you click to go there and then be sure to see comment 1265536 -- or ctrl+F "5536" -- it's a very relevant anecdote)
Looks like government corruption & inefficiencies will screw us every time
Trade fiat digital currency, which can be taken away from you at any time, for a REAL precious metal: Platinum.
Or, silver if you like.
Like trading places: "Your debit card, please".
They can just 'turn off your chip'. SHut you down with one call from Joseph Lieberman.
Wake up, check your accoutns: $0.
"Sorry schmuck, we TOOK your money. whatcha gonna do about it? Sue us? HaHaHa"
Scary.
You sure don't want to be in "physical" (lol) dollars, either. Look at every single currency revaluation of the 20th century, the old physical currency was either declared null and void after a short period of allowable trade in (at devalued levels, often as much as 10 old :1 new) or just declared null and void (or became that way via market forces).
the only reason to hold dollars is for the short window where you can't get money out of the banks, but people still take dollars. think like, people are deer in headlights, well, you have a bunch of dollars (which are about to be worthless) you can topoff your reserves of food or gas or whatever from whoever is stupid enough to trade things to you for dollars even though the banks have halted electronic transactions.
+1
Save in nickels.
I'll repeat: When the SHTF, cover your stash with shit and drive to Belgium
Hey Vic . +1 W/T/F has been out of the (tumble weed) far too long.
This isn't a dating site. And Blyth is but a junior contributer...
A couple of months ago I was at a luncheon where Fed Pres Fisher from the Dallas Fed gave a talk. The numbers he threw out for physical cash that I was remembering was 906B, but billion here a billion there, you know. Anyway, he called this "walking around money", money you have in your pocket.
What was very intersting that he said, that would be very relevant to this article, was that about 60% of all physical walking around money was outside the US. Looking a the bank run scenario again with only 40% of the available cash now takes on different light. And if you all remember, the recently printed up $100B of new $100 dollar bills were screwed up and they have to go physically sort through them which, even if they had a high speed sorter, would take over a year!
What a bank run in the US would look like?
http://www.youtube.com/watch?v=rcPrt57EXRk
"Rollover (1981)"
http://www.youtube.com/watch?v=-pQVZBtQ9cI&NR=1
http://www.youtube.com/watch?v=6butfe1f9Hg&NR=1
Bend OVER ...ROLL OVER...and take it in the ASS....
Pfft....the FED would just start printing 1000,10.000 and 100.000 bills. Maybe even 1000.000$ bills.
It would only take a week to supply the market with those "Hard" paper dollars.
GHUTENBERG HAS GOT THAT ONE COVERED MY FRIENDS!
The real problem starts AFTER a bank run. When there are so many paper dollars in ciruclation that everybody starts asking himself: is this paper or money?
And then real hyperinflation kicks in.
Reagan on the thousand. Bush 1 on the ten thou. Clinton on the hundred thou. Bush 2 on the million. And at the rate it's going, Obama on the billion.
I think they'd better use Disney characters which are international more know and respected than those presidents.
But if you want to stick to those characters, they can first make a cartoon of them.
Cirgar Clinton, Bomb Away Bush, Looney Bush Junior, Obama Dumbo and Dementia Reagan the Second generation... something in the line of X-men.
+1 YEN
Ding, we have a winner.
Y'know, I bet they already have the notes printed.
I (not John Marshall) will return on the $500.
It'll rhyme with '29, bitchez. (with security added)
$500: William McKinley
$1,000: Grover Cleveland
$5,000: James Madison
$10,000: Salmon P. Chase
$100,000: Woodrow Wilson
http://cgi.ebay.com/1934-500-MCKINLEY-FEDERAL-RESERVE-NOTE-LARGE-COPY-/2...
Someone had some good coffee this morning, with an unusually valid point to make in the early AM.
Yes, since when would a lack of paper and 0s keep a printer of usury notes from meeting demand?
Not that it really makes a difference.
Hyperinflation from too much money, or collapse from having none.
End result the same....
" as of July 6 there was $1.66 trillion in bank reserves with the Fed,
Nice try....next joke.
Wonder if anyone thought to add in the stashed dollar coins:
Fed Presidential $1 inventory tops 1.2 billion
The Federal Reserve's surplus inventory of Presidential dollars has ballooned to a whopping 1.252 billion coins in three and a half years, with collectors remaining the primary consumers for the coins. More…
Reserves are not FRNs in print.
A bank run is not going to happen because the treasury will just announce that all deposits
in banks, money markets, and CD's will be backed by the full faith of the United States Treasury.
That's the only thing that backs up paper currency as it is. So where's the problem? Now if
everyone wanted their money redeemed in Gold, now you got a problem.
The entire point of this post is that the thought experiment of the bank run would occur when said full faith is exhausted.
I didn't think a physical Thai baht in 1997 was worth more then a virtual one but I never looked at the data.
Too much emphasis on quantity in this post. Quantity has little to do with it.
This post is the equivalent of...I better not drive a car because I might get into an accident and die.
Tyler,
You are getting closer and closer to fear mongoring everyday that passes.
You know nothing about basic economics.
'Those who ignore history are destined to become roadkill at some point.'
- Author unknown
Do you really believe it's not possible many of us will see a bank run in the U.S. at some point in our lifetimes, especially given the trajectory that we're witnessing form?
$250,000 in FDIC insurance on deposits won't stop a stampede under an entire litany of scenarios.
While I'd never be able to hazard an accurate estimate of the odds of this happening, I will say that it's my humble opinion that it's far larger than most people suspect, whereas you at least appear to insinuate that it's almost impossible.
Why any one would keep other than money to pay bills in the bank, is beyond me. And will fully deserve the hosing they someday will receive..
In the event of a collapse the gov't will have no choice but to accept electronic dollars to pay your taxes. Likewise your mortgage and any bank debts would have to be accepted in order to maintain appearances. You would need cash for any nonessentials such as food.
Up here in Canada, due to the linking of the banks, there will be no such thing as a bank run. If one goes, they all goes. But I've often wondered--if all the banks fail, and then the government sends you a cheque for the total amount you had on deposit--where do you go to cash it?
"You would need cash for any nonessentials such as food."
Erm....I am sure that even in Canada, food is not nonessential, eh?
With all due respect to Tyler's work , I have to agree . I detest fear mongering . ZH should be above that .Its insulting to a persons intelligence . Use your scenarios in a movie script please , and not here . nuff said .
It's more like "if this theatre caught on fire, could I make it to the exit?"
The more you stumble about in the dark the closer you are to a nasty toe stubbing..
Clearly TD is not saying that there is going to a bank run. He's just pointing out that there is not enough paper money to cover one. What you do about it is your business. And I might ask, who determines if there is a bank run? You?
bank holidays. that's what would happen.
it's hard to imagine this whole thing unfolding without at least one physical currency panic. they'll just call a series of holidays, fire up the presses & purchase worthless debt so granny can pull out her soon to be worthless dead presidents.
btw, the $23 trillion number is pretty close to my calculation of the REAL US national debt, excluding the NPV of entitlements & international alliances liabilities (IMF, World Bank, etc.).
Agree 100%. They may let some banks fall, but in the event of complete lost of credibility, no one will be allowed to take out the money from the bank. We know that very well down here in Latin America. That's why you know you cannot keep your savings in banks, every 8-10 years a new liquidity problem arises and the same thing again: bank holidays, deposit confiscation, extraction limits, currency exchange prohibitions, and so on, the same tune over and over again for decades now. That's why people keep dollars in bills, not electronic, "under the matress" or in safety boxes. Money in banks is just transactional, day to day operations; real savings are not there.
A bank run is not going to happen because the treasury will just announce that all deposits in banks, money markets, and CD's will be backed by the full faith of the United States Treasury. That's the only thing that backs up paper currency as it is.
"Full faith and credit of the US Government" has to do with the government paying its debts.
It has nothing to do with the currency, which the US Treasury has no control over.
I don't foresee a bank run in America. If demand for physical currency suddenly skyrocketed, the Fed would declare a bank holiday, you can't get your money out, end of story.
The real threat is a dollar collapse, where the rest of the world suddenly loses confidence in the US dollar.
That's exactly what the growing CRIIPE alliance is quietly working on, taking the rest of the world away from the US dollar.
When (not if) that happens, OPEC nations will suddenly stop accepting US dollars for their oil.
Not even Iraq. America will be kicked out of Iraq (and Afganistan) instantly under threat of China / Russia / India / Iran / Pakistan nuclear attack.
Forget Brent crude too, Britian will join the alliance (along with the rest of Europe) and back away from America.
America won't be able to buy oil anymore, at any price. Bernokio can print all the currency he wants, it won't matter, America won't be able to buy oil for any amount of dollars, those dollars won't be accepted by OPEC.
Domestic oil production will be nationalized, fuel will be severely rationed. It won't matter how much gold and silver you have, you won't be able to buy fuel except perhaps on the black market, and it won't matter, the American economy will collapse into chaos quickly, you won't have a job to go to, and store shelves will be empty.
That's when the US dollar collapses and America collapses in a few days or weeks.
By the way, Israel will be hung out to dry. Sure they have nukes. But Israel would be turned to glass if they tried to use them, so Israel will back down and go along.
S-C-O. That's the most frightening three letters to America's (criminal) leaders now. They know what it means and they know America's time is almost up. That's why they're looting America fast as they can now. They know America doesn't have much time left.
Doesn't USA (I mean, the FED) have plenty of Iraqi Dinars to buy oil with?
Wasn't that part of the plan? Invade, devalue currency, issue new bills, revalue tham years later, pay for the war and make a profit. Whether the plan works out or not that's a whole different story, but that could very well be the bankster's back door...
You are kidding? Green and red?
Aha!
You see clearly.
The U.S. has major bases in Saudi Arabia, Kuwait, U.A.E., Iraq AND QATAR, which together produce a big, big chunk of the global oil production. Iraq has the world's 3rd largest proven oil reserves (8%); that's larger than Iran, and almost as much as Canadian oil reserves (with Canada having much of that oil locked up in tar sands, which has a higher extraction cost).
China is fiddling around in Africa, "buying up dictators, land and oil," when Nigeria is the basic play there, and Africa produces 9% of the world's oil supply in totality (barely more than Iraq), while the U.S. has major military bases that control, directly or indirectly, about 40% of the global oil supply (subtracting Iran from the middle east producers), in the Middle East, alone (it can be argued Libya is already under our indirect control).
No one has outmaneuvered the U.S. in what is a dirty, dark chess game of oil real geopolitics.
Turning to our immediate neighbors who produce quite a bit, Canada and Mexico - are they really going to stiff the U.S., for a whole wide variety of good reasons to not do so (putting it mildly)?
From what I've read, China has around 83% of new oil well leases in Iraq.
The plan is going on, whether it holds or not that's another story.
What is the major U.S. base in Saudi Arabia? Check your facts.
The US once had 8 bases in Saudia Arabia, as recently as 1996. However, as of 2003 all US forces have been moved to Qatar.
Duplicate post, sorry
The US will ramp up production of its own oil, of which it has plenty.
Domestic oil nationalized? Not in our lifetime.
The treasury will what? Who's that, Geithner? What kind of meaningless crap is that?
The Bearing´s advice:
ALWAYS have six months worth of FRNs stashed away (or as near that as possible) AFTER you have accumulated whatever gold you are comfortable with.
Physical long green $ / FRNs are a part of Modern Survival Theory (MST, did I come up with that?), you will have to go to my blog for details. Want to do that, send me a gmail at my name, as my blog is in my real name. Tell me you will behave, some 170 ZH-ers can´t be wrong. More blog articles after July 15 when I return from Peru.
Beat the rush! Pull FRNs now! Buy gold now! Don´t forget OPSEC (buying guns & ammo, keeping quiet and food and water)!
I agree with you and would like to meet for lunch close to your fortress or pillbox to discuss where I should hide my six months of FRNs and gold. Come alone, and tell no one of your plans.
ok, sounds like a plan...
and of course, I'll come unarmed...
PMs and guns?
No way man. You need trade items for the apocalypse. Think Dark Ages. When the lights go out, people will reach for PPs, physical porn. Ditto for booze and smokes.
I have what it takes to recruit an army. I will rule the world and you will work for me when my army of reeling, wheezing, pervs gobble up the adjoining survivors.
Sin Army Rules
Ask the Germans what value their "physical" marks were, or the Soviets/Russians (3 currency devaluations and replacements in the 1990's alone), or the Argentinans. Physical pre-1997 Thai bhats were not worth any more after 1997 than the electronic ones were.
While I don't think I could ever be accused of being bullish on U.S. economic activity (an understatement), the biggest problem I have with your argument, which has become far too commonly accepted without robust rebuttal, is that not a single one of those failed currencies enjoyed global reserve status, nor did those nations possess the sole military superpower status the U.S. does today.
As for how things develop longer term, time will tell.
This is the big problem I have with G. Lira. His hyperinflation case rests on a sudden collapse in the confidence of the USD, and he actually draws comparisons between Argentina and the U.S.
Weimar Germany, when Germany was in a mega-Depression as a result of WWI reparations that make our present day (and massive) national debt look manageable?
Zimbabwe?
I don't think he's a fool, but I think those comparisons alone, without emphasis on the fact that it's not exactly easy to redraw a global reserve currency over a 50 year time frame, let alone in an instance, is completely foolish, bordering on insanity.
And without an existing world reserve currency in place and accessible, what provides the medium of exchange globally that's liquid and immediately 'usable?'
wouldn't need to convert to physical dollars. Virtual ones will empty store shelves just as well as paper ones. Its all about confidence.
We needed someone to state the obvious and you just did. I hope your insight saves you.
It is all about confidence, and when that is dissipated there will be a bank run of sorts, or actual. It snowballs. Your statement was superfluous at best.
Never in history have we had a financial bust like this...
with a nationwide system of ATM's...
Spitzer might just be right. When most people have no gold they will find something else to trade, like salt, soap or something that will hold its value against currency if only for a little while. We should not forget that the only thing that lost its value in Wiemar Germany was the Mark, other currency did fine as did investors that held any commodity, not just gold.
We buy gold because it is the ultimate store of value in that you can store a great deal of wealth in a very small place, indefinitely, and it has a value that is global, but other localised systems of barter will emerge and through it all we will have worthless paper dollars and worthless electronic dollars as well, and some people will still have no choice but to accept both of them in ever increasing quantities.
You'll just need a wider screen...
It's difficult to see how paper dollars will become worth more than virtual ones...
Except if the virtual system stalls. If you can't use debit/credit cards, if atm macines are turned off. Then initially only cash will be accepted, then once that becomes worthless we're into barter territory.
I hear what your saying but to me it's like nukes; you can't uninvent them. Whilst the electronic system might fail it is certain that banks and others will run out of paper dollars long before computers do, but that doesn't mean that they will become more valuable, or that your paper dollar will become worth more than my bag of sugar.
So whilst it makes sense to keep some dollars on hand this idea that it should be 10% in cash to me is a bit OTT. I can't see anyway that ATM's will fail once the govt accepts that it has to make good on everyone's electronic claims...
To that I keep my store house full and my money in gold safely stashed overseas...
but but but Weimar is crisis-proof! 'krisenfest'
http://www.weimar.de/nc/de/wirtschaft/startseite/aktuelles/newsanzeige/a...
Es ist ja jetzt krisenfest.
Food Stamps are just swiped once a month.
Suppose the entire Population swipes the credit card to the max seeking delivery of Silver and Gold right frigging this week?
The next problem is logistical. The Fed has several locations around the USA. Each location distributes and takes currency (Bad dollars and issue new dollars) backed by a alterate location sufficently far away to survive a problem.
Payroll, Western Union and associated secondary providers of money/credit such as Pawn Shops which has historically functioned as a banking system long before the US Banking system was chartered back in the 30's Those will also be cleared out.
I don't know exactly how many armored trucks can move at a moment's notice versus how many bank branches in each of the states... the people do know where these buildings that contain cash are.
ATM couriers are next. Once those are stripped bare as locusts strip a field.
Then the service industry on through retail malls will be stripped as the night deposits are intercepted as managers are killed after closing with the little brown bag.
By the end of the week the actual locations of the factories and mints will probably have military deployed in active security.
What happens next is every house, apartment and dwelling will be methodically searched for any remaining cash by the growing hordes who are angry that they cannot get cash.
But before all of that happens, a war will be fought electronically. It is possible to say within the hour the entire electronic holdings of those who deposited US Dollars in any legal form and held as binary in records could be drained. Or deleted.
Anyone left alive and actually seen with a green us dollar will be killed on sight as dogs would fight over meat. The rest will sort of "Disappear the best they can"
In this vision of a mega run, one must ponder this question.
Do you hold physical into the multiplier waiting for the new currency to be issued? or do you sell as to get rid of the dead weight and convert to cash.
What is cash?
I suppose my banking is mostly virtual in the form of auto drafts and incoming direct deposits. The total failure of the 12 or so banks that control the operation of the "Fed Wire" that makes this kind of banking happen will probably render the entire exercise of being a good citizen who pays the bills on time irrevelant.
At some point in time there will again be a money issue. They did when the Continentail Money failed. They did when the various banks across the west had thier own money and all were brought into line with the fed government and ultimately the greenback was brought to war to make payroll.
To use a toll ferry at the end of the Civil War, it will cost you 5 dollars Union or 40 dollars confederate.
Which is it?
dp
There will be no demand for physical cash. Why do you think computers will stop working ? Is this Y2K all over again ?
Physical US cash will go the same way every other basket case economies physical cash. Simply a peasant medium of exchange that nobody stores value in. The Jamaican dollar for example.
Not so sure about this. >95% of the "cash" is digital. If the digital cash goes boom, the physical will still be good to have for the immediate weeks/months after a bank run.. This is until they get all of the trillions in printed form and distributed.. Then, (if not sooner) silver and gold coins will make a few people very wealthy..
The run will begin with digital money going dark, because it can be turned off from central locations. The ATMs are dark. And the cashiers say "I don't know what's wrong with all the credit card machines!"
The run is not initiated by individuals. It is precipitated from central locations.
Spitzer,
I applaud your blind faith and trust in the electronic currency system that is based upon a bank's promise to pay FRNs upon demand. Keep your debit card handy and good luck...
Yes, there are ATM cards.
Spitzer,
You are right on the money with this.
It will be the interfacew between the virtual reality and the old reality. Been waiting for theis confrontation for decades. I don't have an opinion on it, however; I came back to the US just to see what happens.
I believe that I will have a few dollars, francs, and euros, just in case you have overestimated the good will of human beings-----zerohedge includes physical fiat.
I want to be in a position to do nothing.
Thank you for your input Spitzer
All kidding aside, the shelves in Japan were empty in 3 days. If you don't have food on hand, you have nothing. That would still be true if the USD was rock solid.
and this is precisely why some of us keep a "substantial" amount of "green paper" (say about 2 years living expenses - at existing prices) close at hand.
It is not an investment and does not replace PM's - just another (hopefully)insurance policy in the event that things get a little too squirrely - - -
i.e. - - - defationary
Amen! Holding actual physical cash these days loses almost nothing as most ROR are close to zilch.
Cash, like PM needs guarded though. Still, I have 10% in real, physical US$.
so why don't you just spend your physical (or virtual for that matter) dollars now and buy a store room full of canned food?
He probably has that too. You dont want to get into too much of a bunker mentality though. Being able to move town/state/country is going to be an important survival tool. So storing 2 years worth of food and water in 1 location isn't necessarily smart. Another reason not to own a home - it just ties you down.
I disagree
In a SHTF scenario, the roads will not be passable in the first few days. Heck, they are not passable now on holiday weekends. Worse, they will be unsafe in a week.
You cannot possibly carry enough food to see you through this. It could take months to put things in order. You just have to put all your eggs in one basket and hunker down, not run around in cammo.
The big enemy is starvation, not zombies, harriers, or looters. Looting is a secondary consideration. Of course, if you move around and look like you have food, looters will be a problem.
Starvation isn't a possibility, it is a given. When the intricate dance that feeds 380 million Americans crowded into concentrated areas far removed from farms, people will begin to starve in one week.
Food is the ultimate problem because our society is too efficient and fragile. Nothing can go wrong under these conditions without a extreme result.
Absolutely smiddy.
just in time delivery and food and many millions of humans dependent on it is a tinder box indeed.
In India, what are called Farmer's markets are daily, pervasive and usually excellent. India is one giant, teemeing, constant maretplace. But int he cities, it's changing fast.
Shiny, neon lit mega-stores and waxed apples. Very bad sign, especially in such an in-efficient country.
ORI
http://aadivaahan.wordpress.com/2011/07/08/july-15th-aug-15th-month-long...
Fair points. I shall re-evaluate - im currently mobile and liquid looking to put roots down.
Good points all, except for that last. Food isn't nearly as critical as clean water. And if the city water shuts down because the operators decided to stay home with their families, anyone without stored water dies. In, like, a week.
Water first. Then food. Then ammo. THEN PMs and maybe some FRNs.
There was a television special that gripped the Nation during the cold war when I was a young adult.
A family fled the city in the station wagon (Minivans of the day) and made it far enough into the mountains to escape the nuclear hellstorm sure to fall. They stopped to get gas at a really tiny place among the trees.
Attendant: Howdy!
Car: Fill up please
Attendant: 10 dollars per gallon please.
Car: OMFG THAT IS ROBBERY!
Keep in mind gasoline was around 95 cents to the gallon on up to 1.10 at the time.
What year was that? Gas in Texas ran ~$0.30/gal until Carter.
"OMFG" goes as far back as the cold war, eh?
It was "The Day After" or something like that.
OMFG is simply a abbrevation in netspeak the resulting diaglogue.
I was on the east coast and lost the .29 cent gasoline after 1969
Sounds like Panic In Year Zero!
http://en.wikipedia.org/wiki/Panic_in_Year_Zero!
If it all happens, your cash will work for, at most, 24-48 hours longer than your plastic.
You would do better to find ways of stocking up on the stuff that you want to buy with your cash. I.e. go all the way to the bottom of the abstraction pyramid. Water, then food, then heat (depending on where you live).
If you live in a place that is not livable without electricity ( Phoenix! ) personally -- I would say to leave that place in the clothes you are now wearing.
Fuck paper. Wire transfer to APMEx. Done.
Wire transfer to gainsville coins. Better prices.
Uh, that site is down.
http://www.gainesvillecoins.com/?gclid=CLH64ofV-KkCFcYE2god0Cf5Yg
ditto
How long is it taking to get deilvery of coins ordered on Gainesville, provided they have em in stock at the time you order? Last time I tried it took a month and I almost chewed off my hand in anticipation.
Consider that further restrictions on delivery may happen and many will willingly chew the paw off to get out of the liquidty bear trap they got caught in.
One day these globalist fuckers are gonna come on television and tell everyone that currecy, gold, silver, etc are all illegal, and that everyone gets the same amount of carbon credits that they can use toward food and energy consumption. Bet on it.
and it won't make any difference at all to gold held offshore...
and especially if it can be sold offshore, and the money repatriated at whatever value through an ATM.
Would that be illegal for governments too? Why are they stocking up? Holders of genuine physical PMs are tiny in the scheme of things. Even more so once you strip out the tungsten ;)
I don't think this time gold will be made illegal. Last time, they had to somehow get gold out of the hands of the populace because money was made of gold. This time, almost all the gold is in the hands of the wealthy. They don't need to make it illegal to hold, they already hold it.
alongside with restrictions to withdraw / use money... 'transitory' orders will be issued, like: only xyz $ per month, and only for daily consumption etc, real estate or investment goods purchases have to approved by xyz. When a bank run is imminent, such orders will prevent the said bank run.
30 trillion only?
what about stocks and bonds held that can be converted to cash electronically? If someone sells their corporate or treasury bonds and gets $1 mil in their brokerage account, that adds to the $30 trillion, no?
This post looks only at money stock equivalents in various levels of abstraction, and their relationship to the top of the money claims pyramid. No asset transposition was assumed as in the scenario presented above, it is highly likely that the dollar value of all assets would go bidless, as everyone scrambles to procure dollars in lieu of dollar equivalency.
Since the physical cash supply couldn't satisfy such a run, wouldn't they go for the next best thing, and that is, alternative currencies issued by non-government issuers, and not denominated in terms of government-backed denominations, ie: stocks?
Dollars and cash becoming so valuable....is so 2008/2009, ie: old fashioned.
OMG! I come to ZH for a little light reading at 10pm pacific time on Sunday and I'm about to PUUUUUUUUUUUUUUUUUKKKKKKKKKKKEEEEEEEEE.
I'm now sitting here shellshocked - do I run tomorrow to the bank and get the cash from my accounts knowing that they'll take DNA as I have $10,010.50? Wil the bank even have the cash after the weekend as its a monday? If I get mine will anyone else get theirs after me for Monday before a delivery of cash to the bank?
OMG!!!!!!!!!!!
I'm about to hurl.
you might be too late...
They might not give you more than $2,000 a day -- new money laundering rules.
You weren't planning on opening a laundry? So solly.
Cost you 100 dollars to generate 5 wires.
5 wires to 5 banks.
Visit each one a few hours later. All done.
+1. Then go and get some gold and silver coins, and some food etc. Why wait for the stampede.
if you really think about it - the whole picture - you'll come to the uncomfortable but profound conclusion that to really save yourself you have to save everybody (basically). What good will having 10k be when 90% of people have nothing? Bank run like described above, with no precautions by govts and trade stops overnight and all the components, supply chains for medicine, food, waste removal, electric utilities stops within days.
Having more green or gold than the next guy will be a Pyrric victory...
Live in a small town, village, and look after your neighbours. Share your resources, knowledge, skills and build up from the ground.
something like that, but we are so dependent on international trade that your plan needs to run in parallel to some govt mitigation efforts (or at least institutional re food supply chains etc)
In the event that the financial system crashes.
People will still show up to work if they trust their employer's promise to pay. But when that employer is not trusted because it is a big corporation, or their continued existence is in question? That's where your supply chain breaks down.
In the Great Depression, grocers extended credit to known and trusted neighbors. My great grandfather lost his store that way. Even if companies didn't know this, they don't have that type of relationship with their customers.
Well that's your mistake right there.
Um, dude. This is the light reading!
He forgot about the $400 billion or so of actual printed FRN's tied up in drug trafficking and laundering running around through the drug cartels, CIA, Wells Fargo and B of A. You'll have to back that out of the $967 billion because the 2.whatever is a bullshit number and we know they aren't going to step in with that cash in case of a bank run.
I withdrew all of my money from my 401k and bought beanie babbies. I will be comfortable in my retirement.
You may very well preserve value better than the elderly motherfuckers who leave it all in CDs, that's for sure.
The mothers of the elderly are dead---leave'em be please.
And besides, most of us have not put money into CD's since 1993 or so----we're old but we are not stupid.
Respectfully---we do nothing
Only if you turn them into a beanie bag chair.
good evening
to polish
some gold...
under the bed for the past 14 years ......what seems to be the problem
Given that a mere 3% or so of total USD exists in physical form, in circulation, in the U.S. financial system, at any given time, I would expect the price of the particular components necessary for the fabrication of paper USDs to skyrocket (as the race to convert digital dollars into paper ones is undertaken) in the event of a bank run.
we are already at "peak print". after the recent debacle of the misprint of the last $100 replacement round there just is not enough time (or perhaps cotton) left to helicopter anything other than MRE's
Don't forget that anyone with a checkbook has the ability to create their own debt notes.
Yes, many places currently do not accept checks, but if the need was dire, a seller could accept them and require the person writing it to "sign" it with a thumb or fingerprint.
and he could of course, always cut the thing off if it bounced...
$10,000 bills. Prob solved.
Why keep physical dollar bills when you could accumulate millions of nickels? Still not quite sure how one could go about even doing that.
I also have a ton of Dave and Busters points/tickets, however they are all currently digital. I will need to convert them into physical at some point. I'm guessing they will be the new bitcoin.
On a serious note, if there is a bank run and any sort of "bank holiday" is announced then all digital credits become worthless temporarily anyways. The Fed has the ability to print dollars in any denomination it chooses, correct? They have already proven they will do whatever it takes to keep liquidity flowing. If they need to print million dollar bills to prove their point I am guessing they will. For the good of the country, of course.
China wants to cash in $1T of its savings, here's your trillion dollar bill with slick willy's face on it. Good luck getting change for that before its only worth 3 eggs. Thanks for all the fish!
There's a place called Portland Mint that will sell you nickels $300 face or $10,000 face at a pop.
BTW -- I like how the new nickels have Jefferson's face getting closer and closer. Pretty soon we'll just be able to see his nose or something.
Yep.
Nickels will from then on be called nostrils.
Not correct. The Fed must back each FRN they put into circulation with an asset of equal value to the face value of the note. If congress took back control of the money supply the Fed must surrender the FRNs as well as the assets they used to back them, and the values must match or the Fed (the banks that comprise the Fed) must continue surrendering assets until they do. This is the primary reason the Fed will not physically print the government out of its debt and the reason they are working so feverishly to save their system of credit.
Also, the credit that constitutes 98% of the current "money supply" has no legal standing as money; only the debts incurred through its use are legally binding. The Government only guarantees "money" held in deposit accounts (which is $0.00) through the FDIC, which primarily re-digitizes credited accounts and will only pay out FRNs (which it must Buy at face value from the Fed) as a last resort.
Not correct.
Not one single word.
never mind
"When the full faith of the U.S. is exhausted" Then paper money with pictures of dead
presidents will be worthless and there would be more pressing issues for people to deal with
other than obtaining Zimbabwai-like currency relics. If necessary, the treasury could just
issue debit cards like they do for food stamps in place of currency.
My wife works at a credit union. They barely have enough cash for a regular day of business. When it's low they order more from the distribution center but it can take two days for delivery. When there's no more they issue Cashier's Checks. LOL... So... even if you are the first in line during a panic don't expect anything. Not unless you know someone working there. You really think those bank / credit union employees are going to selflessly help everyone before themselves? Keep dreaming. You'll have to wait for the next delivery, if it comes.
I try to stay within my Courier's delivery. I have learned his schedule pretty well. It is not too difficult to go in 20 minutes later and take out whatever it is you want.
But getting it in anything other than 100's and 50's take time because they have to enter the vault and crack a few paper bands.
As far as I know, the vault is a joke at most places. Not much there.
Thats why people should keep as much cash on hand as possible.
I for one don't like leaving money in the bank, you give the bank a dollar and then you gota fight tooth and nail to get it back... what kind of business is this that they run nowadays.
As a patriotic American, I decided to donate
derivatives are a zero sum game.
Gordon Gekko: It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.
Isn't this just a rehash of Sandeep Jaitley's article that you published twelve or so months ago?
Incidently, doesn't it also explain why central banks are bailing out their 'clients'? There is no chance that commercial & investment banks can satisfy their dollar (or euro etc) obligations in physical cash, if the banks are left to hang so will the depositors, big & small.
The effect would be nothing short of catastrophic as all bank payments would stop as the value of bank assets fell to zero in a wholesale liquidation, plunging the world into depression.
You caught that eur/gbp move? I respect your input... YEN
There was a post on here a while back about inciting or being seen to be seen to be contributing to a resultant bank run as illegal. I know it's not the same thing but the US government seems to operate on some pretty loose intepretations of late.
We all know they are reading.
Here is the link to well, here;
http://www.zerohedge.com/article/guest-post-legislation-proposed-criminalise-calls-run-bank
This post is odd.
Appart from telling us that there is a lot more electronic money than paper money, it doesn't tell us why people would want to abandon the convenience of worthless electronic money for the burden of worthless paper money, ie going back to Weimar-style shopping with bags of physical currency?
Does this story imply that somehow paper dollars would be worth more than the electronic dollars, hence pushing everyone to pull out their electronic money?
Or does it imply that the only way to pull out your money from a failing institution would be to carry physical out, and to deposit it with the institution next door?
I'm assuming there is one viable one next door, otherwise it doesn't make much sense to carry physical if there is no institution left.
Or does it? A life with paper dollars but no banks? LOL.
You may have something here.
Suppose there was no cash necessary? Swipe your cell, have a transmitter on card or some other form. Email the money via Paypal. Whatever.
I have a feeling within a generation a great effort will be made to phase out cash.
It is odd. It seems to be telling everyone to hold paper dollars because they will be valuable???
I'll stick to my pm's and well stocked pantry thanks...
+1 I think that paper money will likely go worthless with the electronic and will not decouple unless there is some fightclub type breakdown of the computers that store the info. That is possible, but again I'm not sure if people will honor paper if that is the case. I think having a true alternative to the dollar is more advised like other currencies or small value commodities to do daily trading like silver or bullets or coffee.
Trading bullets would be a fool's game in a TEOTWAWKI scenario--you're basically broadcasting that you have so many bullets that you're willing to trade some away. Not smart.
And where do you believe the people will be getting those bags of physical currency?
It's just too bad if there is a bank run. Everyone should have known by now (after 10 years) that you can't wage wars across the planet for free. It'll cost ya.
The military, besides being the Elite's very own attack unit, is just a massive welfare program to keep young guys busy and off the streets. But they tell you they are in it to
protect our freedoms. Last time I checked I don't have as many freedoms as I did
10 years ago.
I would suspect a bank holiday would put a halt to a bank run. By the time
the banks opened up again, a new currency would make its debut
If everyone went to the bank to pull out their money, only like 1 - 3% of the population would recieve anything.
Not a question of if it will happen, simply when? it always happens, FDIC is just a front cover to promote "trust" in the banks.
Like you will ever see a dime from FDIC.... by the time you get your money it will be worthless.