[Iaato]

Lots of good advice here. As I read this, I think of how many other people are going to slowly come to the same conclusions as we have over the course of the next year or so, and what that is going to do to the functioning of our banking system. Back to midnight gardening and money under the mattresses. I noticed last week that Costco was highlighting their big safes.

My theory on the FDIC insurance is that if it gets to the point that you need to invoke it, you're going to be in line with so many others that the value of your money will have inflated away to nothing by the time you get it back. So I'm certainly not counting on that, either. And I do think it will come to that.

[SchroedingersCat]

Ah, the sound of the Fed printing money. Let's see...there is about $820 billion in US cash How Currency Gets into Circulation. Since the majority (60%-65%) is outside the US, let's say that $400 billion is in the US. That's about $1,333 for each person in the country. Subtract out what the banks keep on hand, what the stores keep for change, etc. and I'm guessing it's well below $1,000 per person.

How fast can the Fed print new money to satisfy bank runs? Printing presses only go so fast. Trucks can only carry so much. Banks can only receive and store a certain amount. Just because the Fed has the ability to print money, don't think that it is some magical process that is outside the laws of physics.

[Tyler_JC]

$this->bbcode_second_pass_quote('SchroedingersCat', 'A')h, the sound of the Fed printing money. Let's see...there is about $820 billion in US cash How Currency Gets into Circulation. Since the majority (60%-65%) is outside the US, let's say that $400 billion is in the US. That's about $1,333 for each person in the country. Subtract out what the banks keep on hand, what the stores keep for change, etc. and I'm guessing it's well below $1,000 per person.

How fast can the Fed print new money to satisfy bank runs? Printing presses only go so fast. Trucks can only carry so much. Banks can only receive and store a certain amount. Just because the Fed has the ability to print money, don't think that it is some magical process that is outside the laws of physics.

[IslandCrow]

So far my plan only cover a partial solution:

1) pay all the outstanding bills. This means that you don't have angry suppliers after you (with expensive interest rates for late payments ---a standard feature here in Finland with the government setting the interest rate chargeable at 11,5% for 2008) while the bank guarantees are sorted out.

2) Keep enough cash to cover needed purchases (at a much reduced rate) for a couple of weeks.

3) Increase the cash in circulation by starting to use cash for shopping instead of electronic payments.

[aahala]

There seems to be a good deal of confusion over "a bank run"
(like the movie "it's a wonderful life") and bank failures.

There has been no successful bank run in the US since sometime
in the thirty's, and if it did occur, having currency under the
mattress or other banking accounts is unlike to help. "Money"
is likely to be worthless. It's not the FDIC, but the Federal
Reserve that treats bank runs. Procedures are in place that
will deliver virtually unlimited amounts of cash within in a
few hours. A bank may have to be closed for a few hours, etc.

The FDIC is involved in funding insured accounts should a
bank fail. Bank failures have been rare since the FDIC was
formed(a lot of S&Ls failed, but they were insued by the
FSLIC, which for all practical purposes went bankrupct itself).

Unless the government collapses itself, you will get your
money within the insurance limits but the value of the
money could be a small fraction of its earlier value. The Fed
can change the reserve requirement, which would greatly
increase the amount of funds available--demand deposits.
Cash of course could not be printed so quickly or in such
large amounts, but that's not of great importance, as cash
is always only a small proportion of "money."

[CrudeAwakening]

$this->bbcode_second_pass_quote('Tyler_JC', '
')
The Federal Reserve can always loan money to banks at extremely favorable rates.

In a worst case scenario, the Fed can just print the money and give it out to depositors.

[CrudeAwakening]

$this->bbcode_second_pass_quote('Tyler_JC', '
')The bank runs of the past were based on people worried about a shortage of gold bullion in the bank vaults to secure the deposits.

But so long as stores accept 1s and 0s, there will be no bank run.

[Lanthanide]

$this->bbcode_second_pass_quote('IslandCrow', '3')) Increase the cash in circulation by starting to use cash for shopping instead of electronic payments.

[lowem]

Some precautions *before* any "bank" starts to "run" :

1. Spread out your cash over several banks.

2. Keep some money in "cash-equivalents", eg money market funds, time/fixed deposits (we call them FD's, you might call them CD's).

3. Have some money deposited with another bank in another country.

[Iaato]

Here's the problem with putting your faith in electronic cash. It's starting.

Citibank limits ATM cash

[LoneSnark]

Hmm, that clearly had nothing to do with insolvency and everything to do with a security breach. You can still withdraw all the money you want by going to a branch.

[cube]

Americans do NOT have any savings. Seriously. Ask yourself this question how much cash do you have in your savings account? It wouldn't surprise me if 80% have less then $8,000 in a savings account. Most Americans instead have their money tied up into assets like their homes, mutual funds, pension funds, IRA, etc....

Basically most of society's net worth is not liquid. You can't just walk up to a bank and pull out your entire net worth in 100 dollar bills at once. You have to sell off your investments first (assuming that's even possible: sell your home, close out the 401K with a penalty, pension funds cannot be touched). So the likelyhood of a bank run where Americans run to the banks and pull out a $100,000 errr sorry I just don't see it.
----------------------
2nd
Americans are up to their eyeballs in debt.

assets - liabilities == net worth

Once you subtract out the debt how much does an American really have? you cannot pull out cash from a bank if your networth is zero

http://www.csmonitor.com/2005/0523/p17s01-cogn.html
$this->bbcode_second_pass_quote('', 'T')oday, though, nearly 1 in 5 American households has zero net worth or actually owes more than it owns. And the odds of a son or daughter rising above their parents in such a financial predicament have shrunk.

[Kingcoal]

I think it's less a problem of people making runs on banks; we are well past that sort of thing in my opinion. The new problem is: "my money is worthless!" As others have pointed out, the system can be eternally "funded" by the great gods at the Fed. The bigger problem whether what they fund you with worth anything?

At the end of the day it's all about what the currency is backed with. Fiat currencies work when the market is allowed to do what it does and move money from unproductive to productive pursuits in an unhindered fashion. However, that movement is often extremely painful for some and that's what we are not used too. If a bank is insolvent, then let the blocks fall where they fall. Banks need to be allowed to fail and creditors need to be able to take legal action against defaulters. It's ugly, but then again, that's why economics is the dismal science. The system works if the government keeps to what it's supposed to be doing (regulation and fraud enforcement) and doesn't try to play the role of Great Provider. The absolute worse thing that could happen would be if the government just started allowing contracts to be defaulted on. The entire system, from top to bottom is based on the faith that contracts carry legal weight.

I'm not concerned; the Supreme Court has a long history of upholding the power of contract, whatever the consequences.

[IslandCrow]

$this->bbcode_second_pass_quote('Kingcoal', 'I') think it's less a problem of people making runs on banks; we are well past that sort of thing in my opinion.

[LoneSnark]

No, Britain just reorganized the Bank of England a few years ago to a structure which permits bank failures (either by design or flaw).

[WisJim]

If your bank doesn't have "enough" cash on hand (and they usually try to keep a minimum in the vault), it is easily possible to have what appears to be a bank run when an unexpected number of people want to get cash. With recent problems with fraud involving debit and credit cards, more people seem to wanting to get cash, especially around the holidays. If the bank understimates their cash needs, they can quickly run out of actual physical cash in the building until the armored car makes its next delivery--which could be in a couple of days, depending on holidays, and the size of the bank. I suspect that the average customer might think that it was a problem with the solvency of the bank instead of a temporary lack of cash at the teller stations or vault.

[I_Like_Plants]

WisJim the problem may be when most or all of the banks have people wanting their cash, and that can't be covered.

How are you going to convince John Q. Public that this isn't a bank run? Will John Q. Public get even 50% of his cash?

[cube]

$this->bbcode_second_pass_quote('I_Like_Plants', 'W')isJim the problem may be when most or all of the banks have people wanting their cash, and that can't be covered.

How are you going to convince John Q. Public that this isn't a bank run? Will John Q. Public get even 50% of his cash?

[I_Like_Plants]

Hm, you got me there Cube!

Good point.... very good point....

[CrudeAwakening]

ok...so who do the totality of US bank deposits belong to, if not Americans?

Lack of savings does not correspond to lack of bank deposits.