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Because people believe in the FDIC, not that there won't ever be a bank run.
by xxpor 8y ago
Because people believe in the FDIC, not that there won't ever be a bank run.
- behindmyscreen 8y agoBelieve in it? Trusting FDIC is tantamount to trusting the full faith and credit of the US Government. If you don’t trust it what are you doing here?
- xxpor 8y agoThat's my point.
- geggam 8y agoInteresting isnt it ? The banks are secured by the govt which happens to be the biggest debtor to the banks. Problem being the govt is really the people and when it comes down to it the people are on the hook for their own debts regardless of how it gets paid. AND we bail out the corporations who spend too much.
- manfredo 8y agoNot really. The government has the authority to print money. They can ensure banks never run out of cash. But it may cause inflation if they overdo it. I suppose inflation is paying for it, but I get the feelings that the semantics around whether inflation is "paying" for things have changed recently (or maybe I've been hearing too many ardent MMT evangelists).
- geggam 8y agoThe ability to print money was outsourced to the Federal Reserve, while regulated by the govt it is not the govt. When we "borrow" money from the Fed it is at interest. We have created a debt based system where everything is a borrow. Fiat currencies are based on the value of the peoples ability to create value. When the people owe the banks more value than they can generate they are bankrupt. When the people and the govt ( the people ) owe money to the banks to the point they cannot generate enough value to cover the debts what will happen ? I think we will see soon :)
- geggam 8y agoBTW you downvoters who think the Federal Reserve is the govt should read a bit https://www.federalreserve.gov/aboutthefed/section9.htm https://www.federalreserve.gov/aboutthefed/section9.htm
- manfredo 8y agoThe federal reserve is indeed part of the government. It has separations from the executive branch but it is indeed part of the government. The same website you linked to has an FAQ page dedicated to clearing up this misconception: https://www.federalreserve.gov/faqs/about_14986.htm https://www.federalreserve.gov/faqs/about_14986.htm > The Federal Reserve System is not "owned" by anyone. Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was established to serve the public interest. > Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund.
- ummonk 8y agoNobody ends up on the hook. The Fed is a large enough entity that it can step in and prevent the tragedy of the commons that occurs when individual banks start failing and people start making bank runs. This is how the federal government made money off the bailouts. Well this and basically looting Fannie Mae and Freddie Mac.
- mikeash 8y agoThe FDIC couldn’t handle a run on every bank. If people thought there would be a massive run, they’d rush to withdraw their money despite the FDIC. So it’s really both: belief in the FDIC’s ability to handle small runs gives people the belief that there won’t be big ones.
- steve76 8y agoI believe the majority of the balance sheets are on the sideline, based on the demand for currency in the world? So the real fallout from a bank run will be price inflation without wage inflation?
- pmalynin 8y agoThe govt could just print the money out. Sure inflation, but when your economy is crashing inflation will encourage spending
- throw0101a 8y agoI don't think there would be inflation. Inflation begins (IMHO) when there's a lot of money in circulation: too much cash chasing too few resources, bidding up prices. In a bank run, people are taking home bills because they want them to be "safe" in case the bank goes under (never mind FDIC, which most people probably do not understand). Money sitting under the proverbial or literal mattress is not in circulation, and not going to cause the bidding-up of prices.
- gbear605 8y agoIt wouldn’t immediately cause inflation, but eventually they would start spending that money under their mattress, causing the amount of money in circulation to increase.
- 8note 8y agowouldn't that happen anyways? if people have money on banks, they're still going to use it eventually. the thing that changes if the money is under mattresses is that the banks stop having money to lend and invest. I don't know if that creates inflation or not?
- throw0101a 8y agoI don't think that if you picked the average person of the street that they'd know about FDIC. First, too many people don't have a lot of 'cash' savings. Second, as long as most people's debit and credit cards continued to work, they probably would not notice bank receivership. Most folks: don't have savings, have a chunk of money tied up in their retirement savings, and another chunk tied up in property/residence.
- fullshark 8y agoThey probably have seen enough bank robberies in movies to know "your money is insured"