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What An American Bank Run Would Look Like

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http://www.zerohedge.com/article/what-american-bank-run-would-look

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%.

.....

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.

More at the link.

Interesting reading this, the other day I hypothesized that in an electronic hyperinflationary world we could see a run to paper currency and a few days later there is this.

Would the Fed print high denomination bills to satisfy the claims?

Although I suspect the safety of paper money over electronic would be temporary, plus what happens to online trading which it totally reliant on the value placed in binary code? For online trading to function you'd need a clearing house where you would be able to get hold of those precious pieces of paper.

The wonderful dynamics of fiat.

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Interesting. So what would happen to the price of gold (sorry for the thread killer). Non-physical money becomes worthless, cant spend gold to buy food, i have some rare paper money and you only have physical gold how much will you give me for a twenty? Could be interesting.

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Interesting. So what would happen to the price of gold (sorry for the thread killer). Non-physical money becomes worthless, cant spend gold to buy food, i have some rare paper money and you only have physical gold how much will you give me for a twenty? Could be interesting.

Coins would be chopped up into small bits and used like that...sort of like how gold is/was used in Zimbabwee: quarter of a gram gets you a loaf of bread etc. The thugs controlling the food would have sets of scales and assay kits...like they do in Zimbabwee.

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Stupid article. If the need arose for more notes, they would just print them. Really.

I'd expect them to be printed, as I said they'd just print high denomination bills to settle up with the big boys.

$100m dollar bills would sort that little problem out, plus those with them wouldn't be able to spend them easily.

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I'd guess that any shortage of paper currency would be short-lived -- perhaps a few to several months at most. It should be pretty easy to crank up the presses and satisfy the new demand, but not overnight, unless they've got a huge hoard of pre-printed bills stashed away somewhere.

Would it be prudent to have a few month's supply of currency stashed away just for necessities? Short-term interest rates are really low right now, so you're not losing out on much by holding onto paper currency.

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as sceppie always says.....in a (deleveraging) crisis the most valuable thing in the world is that thing that can settle your debts,

Assuming repayment of debt is the flaw in such thinking.

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http://www.zerohedge.com/article/what-american-bank-run-would-look

More at the link.

Interesting reading this, the other day I hypothesized that in an electronic hyperinflationary world we could see a run to paper currency and a few days later there is this.

Would the Fed print high denomination bills to satisfy the claims?

Although I suspect the safety of paper money over electronic would be temporary, plus what happens to online trading which it totally reliant on the value placed in binary code? For online trading to function you'd need a clearing house where you would be able to get hold of those precious pieces of paper.

The wonderful dynamics of fiat.

As the article said, M1 is base money and the Fed can just Print/QE it as needed. Just get the bank to transfer some US Treasury into the Fed account

and the Fed will increase the bank's base money balance. If it comes to a state of desperation, Fed probably will take any debt (with a haircut) and print

the base money...

All these are done electronically and no trees need to be fell (thought electricity may be used).

Edited by easybetman

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They should of kept that nuclear bunker packed to the rafters with physical paper money. :lol:

Federal Reserve Bunker

Federal Reserve site before renovation by Library of Congress (circa 1990)

With Cold War tensions came fear that in the event of a nuclear war, the economy of the United States would be destroyed. In response to this, the United States Federal Reserve constructed a bunker to house enough U.S. currency to replenish the cash supply east of the Mississippi River in the event of a catastrophic event.[4]

Dedicated on December 10, 1969, the 400-foot-long (120 m), 140,000-square-foot (13,000 m2) radiation-hardened facility was constructed of steel-reinforced concrete one foot (30.5 centimeters) thick. Lead-lined shutters could be dropped to shield the windows of the semi-recessed facility, which is covered by 2 to 4 feet (0.61 to 1.2 m) of dirt and surrounded by barbed-wire fences and a guard post. The seven computers at the facility, operated by the Federal Reserve Bank of Richmond, were the central node for all American electronic funds transfer activities.[4]

Between 1969 and 1988, the bunker stored several billion dollars worth of U.S. currency, including a large number of $2 bills shrink-wrapped and stacked on pallets 9 feet (2.7 meters) high. Following a nuclear attack, this money was to be used to replenish currency supplies east of the Mississippi River.[4]

http://en.wikipedia.org/wiki/National_Audio-Visual_Conservation_Center

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They should of kept that nuclear bunker packed to the rafters with physical paper money. :lol:

http://en.wikipedia.org/wiki/National_Audio-Visual_Conservation_Center

After a bank run, once enough fiat was printed to satisfy demand most people would end up with lots of paper money in their hands, and no where to put it....so it would start drifting back into the banks.

It would all last around 6 months and then start getting back to some sort of normality. During this period Gold would skyrocket in paper value, and then just as quickly plummet in paper value. everyone would end up a lot poorer as a result because of the drop in buying power of fiat due to the shock and inertia created in the system.

The system isnt going to crash and burn totally.

When people compare most western countries to Zimbabwe, its a red herring because we have the infrastucture to get things moving again fairly quickly..there would be riots...there would be deaths...and there would be fear, but a certain calm will resume, even if a martial law was declared....people crave their normality and safety, which has been created in the last 80 years, and this desire will help to bring it back.

Edited by GinAndPlatonic

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So is the money still there or not?

No. It's a library now.

I don't know if the UK did likewise, but there were huge strategic stores of food, fuel, medical supplies etc. in the event of a conventional or nuclear war with Russia, even things like electrical transformers were held in reserve in hardened facilities, to repair the power grid. Most of these these things were disposed of in the 1990s with the ending of the Cold War 1.

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I'm not sure.

Say company or individual 1 decides to throw in the towel and leave various bad debts all over the place then these other companies and individuals are then left with the struggle to find the readies. You end up with rolling defaults until everything is insolvent...unless you find somewhere or somehow to stop it.

They (you know, 'them') try to stop it at the outset rather than stop the process as it is rippling through the economy because it is quite difficult to manage.

I agree that Angela. So either TPTB reliquify and replace debt with fiat, or participants default. I don't see either circumstance maintaining an debt-repayment demand for fiat in anything but the immediate panic phase.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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