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Thursday, March 21, 2013

What would a 2013 US Bank Holiday look like?

OK, so today was supposed to be the day all was resolved in Cyprus, that little island country non of us cared about before and probably don't care about in the present..

Everything was supposed to magically work out to find a deal to keep their economy solvent and the banks were to re-open its doors...

Except none of that happened...

So now the EU has given this line-in-sand 'deadline' of Monday to come up with some way of financing the rest of the bailout that the EU only wishes to given in portion, and the lovely bank holiday, now in its 6th day counting last weekend, will continue for an additional 4 days.. until next Tuesday..

Now most Americans think this will never ever happen to us, so they aren't really caring about Cyprus or looking with detached interest, like watching the after-effects of a car accident off to the side of the road involving people one does not know...

But we explained yesterday in some detail, we had a bank holiday once back in 1933.  Officially on a national level, it lasted 9 days counting weekends but prior to FDR declaring it, 33 different state governors had made the declaration and closed banks a couple weeks prior to FDR.

And if/when a bank holiday occurs in the US, this is what it will mean:
1) The only money you can access is going to be via ATM.  You won't be able to withdraw money directly, have it wired to other accounts, cash checks, cash out CDs..

We do believe bills will continue to be paid electronically but since that option wasn't available in 1933, we're only making logical assumption.  However you wouldn't be able to make any non-electric deposit into your account if you're short funds and need to pay bills.

There's also a good chance the stock market may close to coincide with the holiday so no means of cashing out stocks.
2)  The Executive Banking Act of 1933 established the President as ipso facto leader during a bank holiday.  Only he may declare one and he has ultimate final say as to its duration and what needs to be done during an emergency.

That means as unthinkable and perhaps unconstitutional as it seems, if the market plunged a few thousands points in a day, people mad-dashing to withdraw funds and the only way to resuscitate the economy would be to take, lets say 5% from the accounts of every depositor, you better believe he'd do it!

This is not a partisan attack on the current President.  We're pointing out in a true emergency, the President has that power and would do it if he is advised and believed that was the best option to save the nation from destruction.

That means never assume all is always to be hunky dory.
3)  Even if private citizens' accounts are not directly touched with money siphoned, expect the currency to be devalued.  This was done in 1933.

Its a bit complicated to get into.. the formulas and such, but using 1933 as a guide, the dollar was devalued by 40%.  Back then the currency was pegged to gold which was why FDR demanded upon pain of arrest, all gold be turned in...  Now its backed by nothing.

So simple math:  40% of $1 = 40 cents.  What was once $10 has value of $6
4) If a bank holiday lasts more than a couple days and there's no clear time frame for banks to open, expect to have your credit cards rejected by merchants.

When you use them, especially those tied to your checking account, they provide funds to the merchants which they 'cash out' into their accounts.  No bank functionality means there's no transfer of funds and merchants do not normally wish to wait for repayment.  This is occurring in Cyprus

So literal physical cash will be King.
5)  As we mentioned yesterday, what calmed the nation back in 1933 into ultimately returning their money back into the banks was FDR giving a 100% guarantee on all deposits no matter how big or small; no limit...  Then using the 'fireside chats' to assure the people all would be well...

And as we explained, after one year of that, when enough people were calm about their money in banks, the FDIC was created and lowered the insurance coverage maximum from infinity (which was not realistic for the US to back, but people were more gullible and trusting of government then) down to $2,500.

Over time the FDIC limit has been raised with it currently at $250k per account.

There's a little over $10 Trillion in total US citizens deposits with a National debt over $16 Trillion and government running yearly deficits...  Do you think that same '100% of everything' guarantee could be offered today... and believed?
The ultimate point of all this is to get it through your noggins not to be complacent and assume it will never happen here because we're so great or infallible...

Everything is inter-connected.

For instance here are the financial sources demanding blood, um.. we mean $$ from Cyprus?

1) The International Monetary Fund (IMF) which the US created and controls with a 16.4% veto power making it have a larger say in decisions made than All other nations in the IMF combined.

That means 16.4% of its funding to dole out loans come from the US i.e. US taxpayers.  We put a 'dummy' (sometimes literally so) European as head of the bank to diffuse the appearance we run it.

Side note.. the US also runs the World Bank but we make no effort to mask that-- the head of the World Bank is Always an American, appointed by the US President
2)  European Central Bank (ECB)    There may be other players too but basically its the EU...and who has received about $1 Trillion in backdoor, backstop funding since 2009 to keep its monetary unit solvent?

Yes.. the Federal Reserve..   And how does the Fed get money?  Its created out of thin air with money printed to match the amount needed, which adds up to newly created debt which someone has to ultimately repay...

See how incestual it is?

So don't be in la-la land and think things in small or third world nations don't have any affect on the great powerful Oz.. um.. Uncle Sam...

Prepare yourself all contingencies... There's really no good reason to keep your savings in a bank-- what is not used on bills, or emergencies other than a naive trust that government will protect you in times of economic chaos...

Or you're just one lazy grasshopper...