What should the average person do in this situation? Thank you for your posts. They have been insightful.
The major withdrawals were coming from institutional investors and corporate entities (when IBM lists "cash" on the balance sheet it is actually "cash and equivalents", and money markets count - they like making a little interest on their money too). What they were doing was buying 3 month treasuries which is why the yield on those short term instruments actually went negative for some time - they were willing to lose money in return for the perception of safety.
As to what the average person should do and the "stuff it in the mattress question", that is the nightmare situation. If real yields turn negative you have a "deflationary spiral" - the incentive is to stuff it in the mattress and if your refrigerator breaks you don't buy a new one because you will need less money to buy a new one next week, so maybe you just patch it up. While this frugality should be commmended on an individual basis, on a macro basis less refrigerators get made, and eventually factories shut down and people get put out of work. Economic activity spirals lower and there is no easy mechanism to stop it.
What I would do personally? Money markets are now insured by some obscure gold act interpretation that the fed made last week, so your money is safe as long as the US government is not defaulting (which, despite my pessimism, is extraordinarily unlikely to happen). If you want a non-US emergency stash, put some money in a foreign held bank account. I think HSBC is one of the largest and best capitalized banks in the world these days and they have a US deposit arm. Its still a US sub, so its not absolutely remote, but its a bit of a hedge.
Thank you NY Conservative. I have my savings in a money market fund with Northwestern Mutual and I know they are pretty stable themselves, but I guess one never knows in this kind of environment.
I am going to check into HSBC.