Let’s just say that creditor nations get their way and insist that bank rescues must and will be funded at least in part by depositors. That is what is in the process of happening to Cypress depositors.
Let’s also pretend that that Europeans became so skittish over what is occurring to depositors in Cypress that they think it may happen to their deposits. Let’s say the concern becomes to real and imminent that a run on banks occur first in Greece, Italy, and Spain, and after a few days spread to Euro-nations with sounder economies throughout the “Zone” .
Suppose these runs result in failures of some of the largest banks in Europe. And since the US banking system is tied to these large banks in many ways, fear spreads here in the US and folks begin withdrawing their funds from US banks in droves.
My question to you is this: Is it worth it to you to withdraw all or a substantial portion of your funds from US banks? Would you only leave enough to pay your bills each month, or would you take it all out? If you took it all out, how would you pay your utilities, your mortgage and car payment, would you be able to purchase anything from Amazon or any other retailer further than a short drive from your house? How would a “cash only” existence affect your day to day activities?
These are some of the things that are increasingly worth our while to consider.
Let’s go a bit further with these scenarios. What impact would bank runs and bank failures have on the value of the dollar? Would taking 10% from everyone’s bank account cause the dollar to be worth more, less, or will its value remain the same? Theoretically, if money is taken out of circulation, the value of the dollar increases. But are these dollars really taken out of circulation? Or are they just taken out of our control and into the circulation of the government or bankers?
What affect would bank failures have on the value of the dollar? Again, to the extent that money remains in failed closed banks, that money is at least temporarily taken out of circulation. Of course there are FDIC guarantees, but the FDIC has only enough backing to cover a small minority of deposits in US banks. Eventually the “good faith and credit” of the US government “may” supplement depleted FDIC funds. What would that do? That ADDS to the money supply which in turn reduces the value of the dollar, creating inflated prices for everything.
Any way you look at it, our use of money will be disrupted in some manner for some unknown period of time, whether it be days, weeks or months. We need to be keeping our eyes out for these events that can overtake us in a matter of days or hours. Or they may never occur. We don’t know.
What we DO know is that events in the banking realm are getting dicey. We know that people often react to uncertainty and fear in irrational ways creating unanticipated consequences. I’m just suggesting we think about these things and what we can do to position ourselves to minimize the emotional and financial trauma that is more likely to result if we ignore what is happening.
I would love to hear about the steps that some of you may be considering to help you cope with what may be increasingly likely scenarios.