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.
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
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.