So what you’re saying is…I should take all my money out of the soon-to-implode banking system?

Gotcha.

Aren’t all banks technically bankrupt?

It seems to me that if the people want to have US dollars it doesn’t matter if they are stored in a bank or in a safe at home. When the system gets to a point that people can’t withdraw money from their bank the money won’t be worth anything anyways and it won’t matter. If only individual small banks fail, like what happened with IndyMac (i think that was the one that just recently went belly up) then the worst depositors have to fear is a delay in getting their money back and ultimately it wouldn’t have mattered if they took it out or left it in. What people should be asking is, should I be holding US dollars at all?

So, I just graduated from an econ program (masters). What the heck do I do? Leave the ‘states?

“I wouldn’t dare contribute to the rumor-mongering problem that the government is stamping out.”

I will! With up to quadrillion in derivatives out there, there is no way they can print their way out of this one, but I’m sure they’ll try their hardest. I’ve been crying out disaster on every blog I can, I figure if I can save just one sole their retirement – it’s worth it.

Of course, everyone will get their money out, but by time they do their 401k and 50 copper cents will buy them a soda pop.

Anybody and everybody had better get all their money out of every financial institution in the USA and most of the western world right now and take delivery of stocks (that might be worth keeping – eg. not housing nor banks). Even empty out the IRA’s and take the penalty. Most importantly, put it into something real like silver or gold.

Careful Jeff, they may be wearing a wire!

Oh dear, seems theres another David C posting in this forum now. Damn, I just cant keep up. Just so you know, I didn’t post the comment above.

David Ch
Formerly David C
Formerly David

Mr. Tucker,

Your response should encourage your friends to put even more funds into the banks, not less. As it is, you are skirting dangerously close to actively inciting a banking panic with your reluctance to enthusiastically champion the US banking system. Any further resistence on your part will likely result in our having you arrested.

Who do you think you are that you can get away with this? Chuck Schumer?

In 2002, I left the US and took all of my savings with me. I bought a small productive farm and invested the rest in euro-denominated investments and 10% in a gold and mining fund. Not everyone is able to move so easily, which entails some personal sacrifice, but it is clear that holding dollars or dollar-denominated assets have been and will continue to be a losing proposition. The US simply cannot pay for its adventures and extensive bureaucracy without recurring to an increasingly large inflation tax. Furthermore, when oil begins to be traded in currencies other than the US dollar, and other states move away from USD reserves, America will no longer be able to export inflation and its citizens will increasingly bear the full weight of the costs of a bloated and militaristic state. We are definitely living in a transitional period away from the Bretton Woods world of dollar hegemony. Best wishes to all.

Kevinabt, your are wrong. If there is a general bank run in america, the people who have dollars out of the banks will become instanteanously much richer. In fact, the money supply will shrink very strongly, general demand for goods and services will too, and so prices in general will fall. That is, the purchasing power of cash balances, held out of the banks, will rise. It would be very good for bargains.
The problem is that politicos will probably impose price controls (price minimas, wage minimums), which will completely hamper the economy.
Murray Rothbard, in “America’s Great Depression”, in fact defended bank runs, for they are the long-term solution to the trade-cycle/inflation problem.
Of course, in the short-term, the “economic inflation/bubble junkie” suffers from hard money, rising interest rates, and bankruptcies.
A shrinking money supply is a problem for sellers, not for buyers (in reality, almost everybody assumes these two positions). Who would suffer from such a crisis would depend on ones debts, inventories, cash balances, etc…)

Go to your bank while it’s time!

Just a thought- perhaps the way to personalise the Federal Bureaucracy is to shorten Jackbooted Thug to the generic name for law enforcement- Mr. Jack Boot. At last Big Brother has a name!!!!

Pedro: “If there is a general bank run in america, the people who have dollars out of the banks will become instanteanously much richer. In fact, the money supply will shrink very strongly, general demand for goods and services will too, and so prices in general will fall. That is, the purchasing power of cash balances, held out of the banks, will rise. It would be very good for bargains.”

That was a *brilliant* piece of economic analysis! Proof that deductive a priori reasoning is far more valuable than empiricism. Eliminating bank lending squashes competition for scarce goods, whether capital or consumer (demand is shifted back from borrowers to lenders). Lending is just another form of trade, which won’t occur unless both sides are by definition increasing their wealth at the moment of trade. Fractional reserve lending does the opposite; it increases competition for scarce goods.

Negative real interest rates will shrink the active money and credit supply (nobody wants money, and borrowers are stuck having to get money to pay their debts, or face forfeiting the assets they traded for with borrowed funds). There’s no reason to give away free stuff to others through lending for known less future return for oneself. The Federal Reserve is actually causing deflation with real negative interest rates (private credit M3 *dwarfs* M1 + M2), as they have crowded out private market lending. The Fed has to hyper-inflate to cause uncontrollable new pockets of inflation, such as we see in the commodities markets to try and compensate. They end up losing the war on two different simultaneous fronts; the more they fight, the more they lose, with both inflation and deflation killing the dollar from different angles (the only reason people would trade real goods like houses for even less fiat further inflated dollars is because they have no other choice). Trillions and trillions in subjective valuation have evaporated into thin air in the housing market and stock market. The stock market has lost 75% of its value since 1999 (number of DJIA shares which trade per ounce of gold).

People won’t trade other real goods like gold and oil except for increasing amounts of money (though those who are net borrowers of those goods have to convert those goods to money to pay their debts). Trade slows down, kills the mutual wealth creation trade brings. A synthetic rod is stuck in the gears turning trade economic activity. A new competing money supply is evolving on its own in the form of gold and oil, and other scarce commodities. A store of value function becomes more demanded than a means of exchange function for money.

People want to “sell, sell, sell” those dollars! But who are they going to be sold *to*? To the highest bidders of dollars. And those are the people who have the most real assets to trade for the fewest dollars, those most affected by the collapse in the subjectively valued loans and credit put into assets which were previously bid up the most — desperate owners of houses. But they too hesitate, can’t believe the loss of subjective value in their primary assets, further collapsing trade.

Banks and debtors will default, causing a desperate surge in supply and a crash in demand. Perfect for scooping up bargains “when blood is running in the streets”. The “gold standard” never mattered. It was a scarce valuable commodity ceasing to be loaned that mattered, which always occurs when market trust subjective valuation crashes (precisely the time when everybody with real valuable scarce commodity assets runs away from fiat money). Those that get newly printed money first traded it for other real goods first, further leveraging their asset takeover power when supplies are increased out of desperation defaults. They own the “black market” real money secondary back up system, the diamonds, the gold, the oil, and they can squeeze others desperate to trade assets because of loan obligations.

An organized bank boycott, such as induced in the free market from negative real interest rates, can bring a fiat monetary system to its knees, destroying those banks that have over leveraged from fractional reserve loans. So a combination of maliciousness and negligent incompetence kills the golden goose.

But the money supply doesn’t shrink in quantity, the subjective valuation of loans and credit collapses. Lenders don’t want to be stuck holding their removed money underneath their mattresses, but it’s harder to convert that fiat money into real assets, especially as the central bank is simultaneously hyper-inflating (and any legislation against “speculators” further collapses trade). So it’s not just the subjective valuation of the money supply which collapses, but also the subjective valuation of lending and credit loans. And that’s exactly what we see — even in the face of the central banks infusing its subsidiary banks with cash infusions created out of thin air, those subsidiary banks won’t loan, can’t loan, because there is nobody credit worthy left to borrow.

P.S. One of the funniest facts of the whole banking collapse is that inflation also kills the FDIC $100K insurance limit. What was that worth when it was first instituted? A million in today’s dollars? So funny to see the Fed offer out of the goodness of its heart to compensate 50/50 depositor losses over $100K (at least while it still can, in the beginning of the crash). Net debtor banks magically transformed themselves into net creditors, at least until reality called. But don’t hold your breath to see bank executives thrown in jail like Enron executives. The sheeple are still too stupid. This is just a wardrobe, er market, malfunction. Better to imprison the “speculators”! The only thing preventing this from turning into a full blown Great Depression is some Smoot-Hawley Tariff legislation, or maybe some peak cheap oil production that synthetically accomplishes the same trade transaction cost increases.

This will always eventually happen to any monetary system where the money supply is a mere “means of exchange” and not at all demanded as an end good to be consumed or employed in capital goods production. It’s inherently unstable and volatile, built upon the biggest active volcanoes, the biggest earthquake fault lines. And to think the ivory tower central bankers thought the cause of the Great Depression was “not enough money”. They could easily screw up even worse this time than they did in the 1930s. We might see simultaneous world collapse of all major fiat money systems. Unfortunately, everyone is a net loser from such an outcome, even those hoarding all the gold. And no doubt the dirty deed will try to be hidden and blamed on War. Iran isn’t a big enough target. The US also needs Pakistan, China, and North Korea for a good old fashioned World War grudge match. Any Archdukes scheduled to be at the Olympics?

The only possible solution is to massively cut government spending, taxation, trade barriers, and introduce a competing free market money supply while phasing out the central bank.