“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.
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.