Cash kills wealth

I did and I responded. Here is the response. Apology to Forum

 

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I was under the impression that the FDIC only insured the safety of your covered accounts up to the insured amount. Being once the FDIC takes control of a failed bank and re-establishes the depositor's account balances they only provide any additional funding (monies) required for proper reserves and capitalization.

 

I agree. I'm probably not stating this well since you and inflexion question it. The FDIC only covers insured balances for depositors. I just don't think that actions by the FDIC would be inflationary or increase the money supply.

 

I would think deflationary, since the FDIC would likely need to increase insurance fees charged to banks if they had a major incident. This would lower bank reserves all around, and lower the amount they can lend.

Just a thought.

 

Would there be a literal run on the banks in this country in this day and age of digital money? I mean, it's a known fact there is isn't anywhere near the cash available as there are are cash assets. Maybe one physical dollar for every million digital, and even thats highly optomistic. I doubt we'd see frantic mobs at banks like we saw in the 20's and 30's, or even as we're seeing now in Greece, who's banking system is arcaic at best. I would think if a bank was failing people would sit at their home computers and simply type in a routing code and transfer their funds elsewhere. I do this every week. Besides, the FDIC isn't going to protect your cash with cash. They're going to cut you a check, so no huge supply of actual cash will need to magically appear over night.
Guy

 

This is an interesting take. I am on the fence as to whether it would decrease or increase the likelihood of a bank run. If there is less cash to go around, but people want the physical paper under their mattress then it might actually increase the likelihood of a banking holiday.. but as you've discussed it would depend on whether people really want cash or if they are content to stay digital. My guess is that it would be a buffer at first, but an accelerant later on.

 

I'm as anxious as anyone when it comes to losing a large sum of money. In the past year, I've had 2 banks fail on me. Both banks contained the maximum FDIC insurance amounts allowed for a H&W, including joint, individual, and Totten trust accounts between us. I received letters stating I could accelerate the due date with no penalty, and instantly withdraw my entire balance. Knowing they were FDIC insured, I left the money in and continued to receive 5.75 APR for a year (yup 5 year CD's). My worry was negligible, and I had no urge to withdraw said funds.

 

I doubt that even with a non-FDIC bank or even with more than 250,00 in the bank that the government will cover all bets. In fact, I believe there is precedent for this. The government will print money before allowing a catastrophic bank run.

Mandy

 

How about the Treasury bonds sales? The Central bank can not be and will never be backed by its miniscule gold reserves which is an archaic remnant of the days of the gold standard.

 

This was exactly my thought before I came to check this thread In 2008 there was an electronic run on the banks, so we know how that will go, but a potential run on cash would require actually using the printing presses and shipping FRN's all over which would not be as easy to mitigate as just sending 0's and 1's on a computer.

 

US Treasury Bonds are claims on future taxes paid by indentured US taxpayer enforced by the law enforcement arm of the US government. To the banker, this is the next best thing to gold.

If gold is archaic, then they sure spend a great deal of money protecting what gold they have. Ft. Knox is protected by an entire US military Army base, and the Federal Reserve has its own expensive vaults buried in the bedrock below the streets of Manhattan. it seems to me if they simply wanted a reminder, they could hang a photo of some gold in the lobby. It would be much less expensive.

In regards to backing the US gold reserves are in fact used in part to back the base money supply of the Federal Reserve. Last time I looked at their balance sheet it was approximately 7,500 tons. This is 218,750,000 troy ounces.

 

On the discussion of cash bank runs. The taking of cash from banks would be a bad thing if it was sustained. While I realize they can always break the laws as they are doing in Europe to keep the banks that loaned money to Greece from failing, they can't print cash at will.

While the Federal Reserve can create all the electronic cash it likes, physical cash is counted directly against bank reserves and those ultimately have to be covered by real assets held by the Federal Reserve as the law requires via the Federal Reserve Act. If people start running the banks for cash, they may indeed have to close the doors because none will be left to give out. Of course it won't affect electronic commerce, but I can imagine what the shock would do to the financial system.

It was incorrectly stated above that the US could keep printing cash. The US government stopped printing currency in 1971 in lieu of the Federal Reserve doing it. While the US Treasury can issue US Treasury dollar bills as it once did, this has an even bigger problem. This money would go right on the balance sheet of the USA and there are constitutional issues on how taxes have to be handled to cover it. It's a fascinating subject.

Of course, they can simply ignore the law. It increasingly doesn't seem to be an issue now.

 

With all due respect, they can print cash at will (with authorization by congress) and they authorization to do so under the FDIC.

 

Current law does not allow for this. All you need to do to verify this is to look at the accounting on Federal Reserve balance sheet and it quickly becomes apparent this isn't possible. It's on their website.

Congress can of course pass any law it likes. Of course this requires agreement from both the Senate & House and while I'm not completely sure, I believe changes to the Federal Reserve Act would also require the President to sign off on it as well. I would expect a very strong debate on how the problem gets fixed.

 

then FDIC is worthless according to you because they can not hold onto cash as an asset and they can not print anything they need to assure the law is maintained such as the FDIC. However, your wrong and during the depression the Fed actually printed emergency cash to finally end the bank runs.

Mandy

 

The FDIC does not print money. That service is performed by the US Bureau of Printing & Engraving. Coins are produced by the US Mint. When the FDIC closes a bank, they move the deposits to another bank. Those deposits are guaranteed to a certain amount. It's just electronic bits on a magnetic drive.