"The End Game: 2012 And 2013 Will Usher In The End"

“What happens—two words. Bank Holiday. The banks will close to avoid runs.”

I doubt that. The rationale for bank runs isn’t what it was in the ‘30s. The FDIC, what Milton Friedman called the greatest legislation to come out of the Great Depression, makes a big difference.

The Bank Holiday of March 1933 was done in order to halt the bank runs that had been wiping out thousands of otherwise healthy banks.

The public was fearful of having their money in banks because when banks failed you lost all your money. There was no deposit insurance.

The collapse of banks and the resulting loss of their depositors’ money made the American money supply contract by a full 30% from 1930-33. This is the source of the great deflation of the 1930s.

When the banks reopened the Fed announced that it would back all deposit accounts with a 100% guarantee, creating a de facto FDIC. This restored confidence in the banking system, and soon after Congress passed legislation creating the FDIC.

When the electronic debt bubble implodes, (and physical history says it must), paper debt notes will be used by some who lack any alternative. That will work for awhile, as others have stated. Eventually producers will stop taking the paper notes and will demand real money (gold, silver eagles, nickels, old pennies, etc..). The long term US affects of the electronic debt implosion can be seen over the short term in Greece right now. Power companies will soon be failing. Prisons cannot feed their inmates. What we need to be doing is finding alternatives to the paper debt notes. The states should be taking control of these issues, since the feds have failed miserably.

You make a good point. But I was not asserting that the bank runs would look exactly like those from "It's a Wonderful Life." In the digital age, everything will look different and the vehicles will have different names.

But you can be sure that when the debit cards don't work, people will line up at Wachovia Wells Fargo to get their money out to buy what ever is left on the grocery store shelves, which will not be much.

Maybe..."Facebook bank holiday."

I still believe a few weeks' worth of cash is a wise precaution...at least until cash will buy nothing.

If we’re talking purely US centric, anything imported would start getting scarce and very expensive when you did find it.

Utilities would get increasingly slack about outages until you’d start hearing stories about areas where a utility just up and folded with no one wanting to take it on, resulting in strange, Katrina-like temporary refugee odysseys that would come and go like protracted rolling blackouts.

You’d see people up and relocating for practical reasons other than solely employment. Some areas will hold up much, much better than others. Hope you’re in one. The criteria should be well known to any conservative.

Well I don’t know why we should expect debit cards to stop working unless a computer system goes down- they are merely tools for accessing your bank account, no different than checks. Just faster and electronic instead of slower and paper.

The reason that there were bank runs during the Great Depression really doesn’t exist today- back then your money vanished if your bank collapsed- whereas today your accounts are insured- you only need to keep your account balance under the FDIC limits and you’re fine, even if your particular bank goes under.

I have friends who had accounts in banks that failed a couple of years ago. They mostly suffered some inconvenience because they couldn’t access those accounts for awhile. Only one lost money because he was above the FDIC guarantee.

Keeping cash on hand in case of a widespread power failure is wise enough- although a supply of food & water will be a lot more useful. Out here we call it the Earthquake Kit, your regional disaster may vary.

When the debit cards and credit cards stop working, it will be because the financial institutions make them stop working, probably at the behest of those nice people who make you feel so secure at the FDIC. Did you know they went "bankrupt" (I put those quotes on advisedly) over a year ago? Maybe it's even been two years...

A "bank holiday" is a response to a psychological phenom, where all trust in our financial institutions fail and people start to panic at the fate of their digital money. They'll start to want that nice, solid paper fiat money--until all fiat money becomes worthless.

Then that will challenge that ephemeral notion of "liquidity" that economists are fond of worrying about. Trouble is, economists aren't good at making computer models of the chaotic human heart.

I disagree. Green cash money will be good in a deflationary collapse. In an inflationary collapse then it loses worth each day and people might tell you they will not accept it but will accept precious metals. But then the Feds might enforce the legal tender laws where you must accept green cash money for payment

"This note is legal tender for all debts, public and private." is what it says on your dollar bills on up

That is what is says, but in a major federal debt collapse, in the end, no one will be selling debt. They will be trading assets. Green ink on rice paper has very little asset value when the fed fiscally collapses. A fiscally collapsed fed will have no power to enforce anything. You best prep my friend. And the states better come up with some real money alternatives. What is happening to the EU, already happened to the USSR. And it will eventually happen to the US. Same problems.

Well debit cards just access checking accounts- so if they ‘stop working’ you just go back to writing checks, which is what we all did before debit cards.

The FDIC really can’t ‘go bankrupt’ in a fashion that hurts depositors. The Federal Reserve has the ability to backstop deposit accounts no matter what condition the FDIC fund is in. They did exactly this the day that the 1933 bank holiday ended.

“A “bank holiday” is a response to a psychological phenom, where all trust in our financial institutions fail and people start to panic at the fate of their digital money. They’ll start to want that nice, solid paper fiat money—until all fiat money becomes worthless.”

There’s nothing special about ‘digital money’. Before computers that same money was nothing more than accounting entries on bank ledgers. And it’s all been fiat for individuals since 1964 and for countries since 1971. The panic has been a bit slow in showing up.

The bank runs in the early 1930s were due to a good deal more than psychological phenomenon- people could and did lose all of their money when banks failed. This ended when the Fed began acting as a defacto FDIC. The 1933 bank holiday came after 3 years of bank runs, after a full one third of American banks failed and the money supply shrank by 30%. If there was a risk of another bank holiday it’s not like the situation comes out of the blue with no warning.

“Then that will challenge that ephemeral notion of “liquidity” that economists are fond of worrying about.”

Liquidity is just the measure of funds available for lending. Bank reserves in excess of reserve requirements. It’s easily adjusted by open market operations, by the Fed buying and selling Treasury paper.

Wise words from you but in a deflationary collapse your paper FRNs will be accepted because so much digital cash will evaporate in bank runs. Credit cards and checks will not be widely accepted. People will gravitate to what is familiar and this is green FRNs.

Hard to believe but 98% of Americans don’t have a clue what gold and silver money is. In 1933 when FDR confiscated gold, back then Americans had a very good idea what silver and gold coinage was and what silver and gold backed currency was. Back then we had such paper currency which circulated along with currency not backed by precious metals.

I get your point but keeping bank ledger books took skill, diligence, patience. It left a nice paper trail. Every digital transaction of today also leaves a paper trail, so I am told. Idiots can create digital money today. The scale of digital fiat money creation is much much larger than what was created back in the "bank ledger" days. Money is more abstract when you are creating mountains of derivatives, using credit cards, swiping smart phones. Green fiat money is a very tangible but how much do you spend each day? I am usually using a credit card

I guess you should tell all that to the Greeks, when their banks declare their version of a holiday.

At some point the illusion that the currency is worth something will fail. Exactly how, I do not know. Fiat is so much more fiat than it used to be. The house of cards is falling in such excruciatingly slow motion that we are suckered into believing that it isn't falling at all.

” keeping bank ledger books took skill, diligence, patience. It left a nice paper trail. “

Banking has been computerized for a very long time now. Going on 50 years. They began using mainframes with your customer data on punch cards back in the 1960s.

“Idiots can create digital money today. “

I have no idea what you have in mind here.

“The scale of digital fiat money creation is much much larger than what was created back in the “bank ledger” days. “

Well all the numbers are larger due to years of inflation and the growth of the economy. But the money creation process hasn’t changed, money creation still occurs as it always has and that’s at the local bank level. You apply for a loan at your local bank, and your loan officer credits your account. That loan amount is new money added to the money supply; that’s how the money supply grows under a fractional reserve system.

” Money is more abstract when you are creating mountains of derivatives, using credit cards, swiping smart phones. Green fiat money is a very tangible but how much do you spend each day? I am usually using a credit card”

Derivatives really have nothing to do with the money supply, they are options contracts and/or insurance and were issued primarily by investment banks, which aren’t banks as you know them. Swiping smart phones are no different than debit or credit cards, just another means of accessing your accounts. They are just tools, they don’t increase the money supply.

Currency has been just a small fraction of the money used in transactions for well over a hundred years, since the time that checks became more convenient than handling currency.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.