My take after following the debate & whatever info sneaks through:
Peak oil is here.
Its a big world, likely to be a plateau for some time (5-25 years)
Oil businesses (KSA, OPEC, Commercial interests - drillers, integrateds, Autos?) too rich and influential. (As someone said $1 trillion is available for drilling more holes but one cannot get a few bucks for renewables). In addition our use of oil is very profligate. Therefore we will continue to use oil until the flows become small
3.1) The world will use less at higher prices but given excessive waste in current usage that will not affect economic growth.
Oil/NG/NGL (&coal) will be burned - climate change be dammed.
Plenty of renewables - Biomass derived liquid fuel (likely to come from a synthetic conversion cycle) burnt in an ICE (internal combustion engine) - mated with a plug-in hybrid (battery, ultracapacitor) will be the ultimate transportation solution. Electricity to come from renewables (Wind, solar). Expect that most energy will be from electric drive - biomass fuel for long trips only (this would be ideal environmentally)
We can make just one compound with extreme purity in synthetic reactors - to make a bunch of burnable liquid fuels in arbitrary ratio for the sake of "burning" - not a big deal, but needs institutional support. That will be forthcoming when oil has declined substantially that efficiency gains still leave shortages. Also Oil interests control the current infrastructure (pipelines, gas stations) and will not share it until the oil cow is fully milked. This is also the problem for current VCs (e.g. Khosla et al) who can make fuel but cannot distribute it.
In summary - running out of oil is not a big deal. However, climate change and environmental destruction is a big deal.
Plenty of folks who are on the pay of the KSA (& ilk). One of whom is the fellow who is so anti #6 above.
I have some hope for item 3.1, but not enough conviction to call it a done deal. We do have a lot of waste, and low benefit (IMO) uses for oil today. Those could be dropped (squeezed out) over time.
My early morning thought is that the pain in that might come down to the uniformity, or volatility, of the price curve. If there are sudden and dramatic swings, we'll see more people caught on the wrong side of an economic trend (as GM and Ford recently have been).
True enough. Unfortunately without government intervention (e.g. sliding subsidy proposed by Khsola) it specially kills the renewable guys who need predictable cash flow after putting up a capital intensive plant.
--
Aside Ford/GM/Chrysler (C bailed out by DCX) - their problems are related to high oil but not totally so: UAW, retiree health care, management incompetence and bureacracy built up over 75 years as a successful organization also play a part.
After all Toyota, Suzuki, Honda, and some others (Tata Motors, Maruti-Suzuki, Hyundai) are doing quite well.
To take the second first, Ford and GM do have "structural problems" but those unfortunately tie them to the same SUVs that sufferred market reversals. Their high costs force them to bet on high margin vehicles, and SUVs have traditionally borne those margins.
The double-whammy in a move to small cars (now or later) is that they are simply less expensive, and support lower margins.
On the first ... that's not where I come from at all. I think we should be taxing fossil fuels but keeping our hands (subsides) completely off the production of renewables. Create a level playing field, and let the best solution (even if that is efficiency!!!) win.
True comments on Ford and GM. I think that it is likely though that even with low oil prices ultimately Structural problems would have overcome the two automakers regardless of oil prices. The UAW would not give an inch unless Chapter 11 was around the corner, and the other brands were moving into full size pick-ups for example.
I have to agree with the fossil fuel/subsidy issue also. However, conventional wisdowm is (& this may be more due to politics) that a tax on fossil fuels will not fly so the "sliding" subsidy was the other option. Perhaps it could be designed to be technology agnostic as long as the solution was renewable.
All it will take is for a critical mass of investors to understand that economic growth will no longer be possible as total energy availability declines in the world. Then they'll take their money out and that's all she wrote for "the economy".
Seems to me the current run-up in the Dow is money fleeing real estate. Looking for the last refuge of profitability. And of course the Dow is propped up by defense contractors spending gov't money that was created out of thin air.
When I first encountered PO I had the thought that "it's over, as soon as "everybody" realizes it". And given the amount of effort being expended to keep the problem covered up I doubt I'm the only one who realizes this.
Do you think people are going to get all their dollars printed out, and put in physical safes?
How actually, in a world where bank accounts are nothing more than rows in an Oracle database, does money stop moving? The banks certainly are not going to stop doing deals (though a return to higher standards of regulation is likely).
There are plenty of things to worry about, but this is not one of them. The Federal Reserve will make sure the FDIC has whatever money it needs to make the bank deposits good. Since they can print the money, they won't run out.
And, since it is disadvantageous to keep your money at home if you know you can always get it from the bank, you can be reasonably sure that any bank runs will be very limited. As far as I recall, the only significant runs during the S&L crisis were against S&Ls that didn't have Federal insurance.
The other thing is that it is unlikely that any large bank will be allowed to fail at all (they didn't allow Continental Illinois to fail, and it was a pipsqueak compared to the current banks).
With the consolidation of the US banking system over the past 25 years, the bulk of deposits is in the large banks.
Note that I am not saying anything about the safety of the banking/financial system here--it is entirely possible that there could be serious disruptions that would cause all manner of problem, and the owners of banks could be at risk--but bank depositors whose deposits are under the $100,000 FDIC limit, aren't going to be the (direct) victims.
And, since it is disadvantageous to keep your money at home if you know you can always get it from the bank, you can be reasonably sure that any bank runs will be very limited.
People may not trust the banks. Or the government. As it is, people post regularly at PeakOil.com about supposed secret Homeland Security plans for barring withdrawals. Dunno if there's any truth to it, but obviously, there's some anxiety about it.
The other thing is that it is unlikely that any large bank will be allowed to fail at all (they didn't allow Continental Illinois to fail, and it was a pipsqueak compared to the current banks).
My worry is the opposite. With banks so large these days, will they be able to bail them out? If, say, Citibank fails?
Educated, business owner, employer, Democrat. I don't trust our government on policy or the ability to protect the supply and value of money. I'm in the fiat-currency-I'll-keep-gold-and-silver camp. There's enough cash in the bank to contribute to the day-to-day operations of my business and the bank's intersts, but primarily our savings are in easily-traded silver and gold.
Stormy weather ahead for the dollar? With the very-real impacts of Peak Oil, not to mention GW and assorted international conflicts I have little confidence in the dollar. I feel I got out while the gettin's good.
I took a banking class and learned all about the FDIC. The FDIC works in such a way that it's not capitalized. What I mean is there is never any money sitting aside for faiures. The FDIC deals with them on a case by case basis and the $100K cap isn't a real max, it's the minimum you're insured for. Most times all the FDIC does is take the bank that is failing over, then ask another bank to come in and fix everything.
Even if you're over the $100K, most times all monies are honored since another bank assumes the portfolio minus the BS that the FDIC does pick up (bad loans) or adding some cash to grease the wheels. In general they rarely ever simply payout your cash, instead focusing on letting a stronger bank manage the branch and if they want to close it later, then fine, but the push is to clear it up asap.
Are there still people left in the US with money in the bank?
If so, and if there's a threat of a bank-run, the Argentina model worked: limit withdrawals to maybe $100 a week per capita. If need be, include plastic, limit spending to $100. Since most is plastic these days, that problem is not the key one. Empty ATM's will do the trick.
A bigger issue for banks is repossessing assets. Housing property is the first big one. And they will repo, bet on it. They let New Orleans folk bleed, and they will the rest of the poor.
The US economy depends on growth, it can't exist without it. That growth has been artificailly facilitated by M3 and other forms of creative money creation. If people's labor can no longer create growth, the game is over. The taps will be closed, and all you have to your name is debt. Maybe not you persoally, but a whole lot of others will.
There may be plans to abolish the dollar, and turn to the AMERO for instance, but would all those foreigners who hold trillions in dollar-denominated assets accept that?
Moreover, such a move is useful only when there is some kind of renewed growth on the horizon. There isn't. For one thing there's too much debt that needs to be paid off, for another there's no manufacturing base left. Society has been utterly gutted.
More likely, the debt will be paid off, albeit partially, out of the pockets and the property of the people. Prepare for a lot less of a lot of things, first of all energy.
The problem in Argentina was that the government didn't have the money to prop up the banks, because they were trying to maintain a peg to the dollar, so they couldn't bail out the depositors. The depositors wanted to take their money out either as dollars, or take it out and convert it to dollars, because they knew the peso was going to be devalued. As soon as Argentina devalued, the problem was solved, although Argentina was hugely impoverished as a result.
No such problem exists for the the US. US banks may fail in some way, their investors may be wiped out, but depositors under the FDIC limit will be made whole.
And yes, as someone else mentioned the FDIC may well honor deposits over $100,000. They did in the Continental Illinois example I mentioned above, where not only did all the depositors get their money, but creditors not only of the bank but of the bank holding company did as well. The stockholders, on the other hand, were toast.
I guess my point is that historically the reason for bank runs has been people being afraid that the banks were not solvent and that would not be able to get their money out--either in a reasonable amount of time, or ever. This is just not a reasonable fear in the US, so I doubt that there will be serious bank runs by insured depositors. But even if there are, the banks will be provided with the funds needed to make the depositors good.
This is just not a reasonable fear in the US, so I doubt that there will be serious bank runs by insured depositors. But even if there are, the banks will be provided with the funds needed to make the depositors good.
There are two limits that you ignore.
1/ A bank run is a physical phenomenon. One or two people that lose faith in the bank and/or currency will not pose a problem, they'll get their money and go home contented. But that is not a bank run. That means, let's grab an example, 100-1000 people who all want their money at the same branch and at the same time (rumours travel fast).
If they each have $20.000 in their account, the bank won't have the cash to pay them. The manager will try to close the door and tell them to not worry and come back the next day. But that doesn't help, on the contrary. They are there because they're worried. Never tell a worried person not to worry. If you have this at one branch, more will follow.
It makes little difference whether you think there is a "reasonable" fear. It's not about reason.
2/ There is no insurance that covers 20 million accounts that each have those same $20.000 in them (let alone $100.000). Like a branch of a bank has limited cash, so an insurance too has limits. It wasn't made for these situations. It'll cover the first few thousand accounts, if that, and then close the door. And maybe even tell people not to worry.
Yes, the government could go to the Fed and ask them nicely to print a few hundred billion. But don't count on it. The "insured" depositors may not either.
Besides, it's not the government's role to prop up the banks. They're private institutions.
There is a strong correlation with gold and fiat dollars. When in the 1960's US creditors demended the US pay its outstanding debts in gold, Nixon said no.
Like those debts didn't have a true value in gold, so your holdings in a bank may not have a value in real dollars.
In fact, FDIC insurance was made for exactly this kind of situation. The government has decided it is its role to ensure the stability iof the banking system. The vast majority of all American savings is insured up to its full amount. There is really no reason to have a bank run, and I don't think any have happened since the depression.
I don't mean to crash your bank run fantasies. I can tell you are enjoying this.
Banks have a capital account on their books. They provide cash needed on demand from this capital account. Based on reserve ratios (mostly below 10% on demand deposit/savings accounts). If they fall below a set ratio they immediatly start requesting cash. If hordes of people showed up, they would most likely talk to the employees of this bank and the manager would be made aware that people think there's going to be a run (which I must admit in today's age does sound ludicrous at first). The manager can request emergency loans performed intrabank and they'll get the funds there.
FDIC was created first to end bank runs that were common place and to sort of total failures as in concentrated commercial loans causing an entire bank to fail, thus taking the cash of the savings/checkings account with it. Bank runs dont happen b/c we simply don't need to worry what happens if they close.
I'm a bit of an econ novice, but I'm trying my best to keep up. It seems to me that what everyone is saying is that the Fed could bail out the banks in the event of a run by printing more money, so maybe everyone could pull out their cash, but the cash would now be worth a hell of a lot less, so everybody loses. (hyperinflation?) That's the "shrinkage" you refer to, right? - not what happens when get out of a cold pool (although just as harmful to the manhood, if not more).
I expect something along these lines of course - less available energy obviously means less wealth to go around, I'm just struggling to grasp a mechanism for how it will actually going to go down.
It seems to me that what everyone is saying is that the Fed could bail out the banks in the event of a run by printing more money, so maybe everyone could pull out their cash, but the cash would now be worth a hell of a lot less, so everybody loses.
Not everyone agrees with that. It's something that is frequently debated here at TOD. Some think hyperinflation is in our future, since printing more money is the politically easy way. Others think we're headed for depression, because we are too dependent on foreign investment for "Helicopter Ben" to actually start throwing dollars out of helicopters.
And some think both are in our future: hyperinflation at first, as the printing presses are fired up, then depression, when it's realized it's not helping/can't continue.
I say short term disinflationary prices, followed by rapid inflation as PO takes hold. Ka-Poom theory from itulip.com and Eric Janszen, not mine - except for the PO part, he just said lots of inflation but I can see it getting much worse when it takes bite in.
ode, just because you cannot imagine how something could happen doesn't mean it will not happen. Money flow could decline dramatically as people stop spending on virtually anything other than their current debt.
The dollar is a "Whimpy" currency. A promise to pay you Tomorrow for your Hamburgers today... and the promise depends on future growth.
Our whole economic system depends on continuing the current monetary arrangement, which means recycling the dollar is crucial. Currently, we borrow over $700 billion every year from our gracious benefactors, who work hard and take our paper for their goods.
Then we borrow all the money we need to secure the empire (DOD budget $450 billion) plus more. The military might we enjoy becomes the "backing" of our currency.
There are no other countries that can challenge our military superiority, and therefore they have little choice but to accept the dollars we declare are today's "gold." This is why countries that challenge the system - like Iraq, Iran and Venezuela - become targets of our plans for regime change.
Russia's Economic Minister German Gref has presented a concept of an independent pricing system for Russian oil at a meeting with President Vladimir Putin. The Russian Fuel and Energy Exchange in St. Petersburg and futures trading of Russia's REBCO crude oil are to become key elements of Russia's pricing independence from North Sea's Brent brand.
The meeting with Vladimir Putin dedicated to prospects of Russian oil trade was not announced beforehand. The economic development and trade minister presented a comprehensive plan for a revolution of world oil prices and transferring to independent pricing for oil export from Russia.
The price on the Urals brand is currently calculated as a derivative from the Brent oil and BFO blend which is extracted at three deposits in North Sea. German Gref's performance was largely an impromptu, and President Vladimir Putin obviously was not always getting him right.
An ITAR-TASS correspondent who was present at an open part of the session reports that the president endorsed am idea to call futures contracts on Russian oil exports REPKA [turnip in Russia] and praises the name of the national blend.
Now, don't conclude too easily that Russia is trying to undermine the US. The Cold War brought such fantasmagorical profits to both "sides", that you just have to wonder: Were there truly two sides?
The threat to the dollar, though, is clear. If not Putin, someone will open the curtains.
I think people vastly underestimate 3.1. We not only have a lot of waste, but also a lot of unnecessary luxuries that we can easily do without (which I also consider waste). Doom and gloomers like to point out that people who can't afford a new car will be stuck and unable to upgrade to a more fuel efficient vehicle.
The funny thing is, you don't even need a more fuel efficient vehicle. Just driving your current vehicle in a gas conscious way, even an inefficient PoS SUV, will result in massive increase in MPG. People can easily boost their gas mileage by 20% by just doing two simple things: driving slower on the freeway (55 MPH as opposed to 75/85 MPH, even going down from 65 is a sizable improvement in most vehicles), driving less aggressively (speeding up more slowly and aiming to maintain speed when possible rather than riding the accelerator and brake).
So all this nonsense about how society is going to collapse as a result of Peak Oil is just crap as far as I'm concerned. It will be tough, but one of the convenient side effects (or ironic side effects?) of doing nothing to reduce our oil usage is that we have huge room for improvement. There's a lot of stuff we can cut out, such that we have a buffer against serious problems.
Provided the decline on the other side of the peak is not too steep we should do OK. The concern however, is that if the decline is extremely steep then we could run into serious problems. I still think we'll manage without societal collapse, but if we're talking declines of 10% per year then it's going to be really rough sledding.
Bush's term ends in 2 years and he's barred from running for reelection, so unless we can find another idiot on par with Robert Mugabe, I don't think we have too much to worry about ending up like Zimbabwe.
Imagine a major terrorist attack between now and then. George Allen is elected president -GWB II.
Wars with Iran. Maybe some kind of military action with North Korea. Perhaps civil unrest in Saudi Arabia (the situation in Saudi Arabia is so strikingly like the situation in Iran in the late 70s-- restive middle class, religiously inflamed poor class, growing gap rich and poor, soaring population with falling living standards, ruling class has reputation for complete corruption, massive expenditures on foreign arms to provide 'security', and now, with Iraq, a safe haven for insurgents just across the frontier).
A repeated pattern of denials that there is a crisis, followed by actions which are diametrically the opposite of the rational, measured ones.
Increasingly polarised domestic politics. Violent incidents justify crackdowns and reductions in civil liberties. The arguments are increasingly about whether to teach evolution in schools, abortion, etc. rather than about how to adjust to a changed world environment.
Economy living beyond its means. The GSEs (Fannie Mae, Ginnie Mae, Freddie Mac) finally get in serious trouble over the collapse of the housing bubble. Hundreds of billions of dollars of federal bailout.
If a 'liberal' president were to be elected in such an environment (I don't count Hilary Clinton as a real liberal, but let's call her one for the purposes of same) then she would be paralysed by opposition-- every measure of reform would be stopped either in the Congress, the judiciary (FDR's problem-- his second term was effectively a wipeout, and the economy slumped back into depression in 1938, if there hadn't been the rising threat of international events, it is arguably he would have been defeated in 1940).
The US see-saws between right and left, and nothing gets done as successive crises hit.
On one level it's incredibly far-fetched, on another there are all too many tell-tale signs.
- Peak oil is here.
- Its a big world, likely to be a plateau for some time (5-25 years)
- Oil businesses (KSA, OPEC, Commercial interests - drillers, integrateds, Autos?) too rich and influential. (As someone said $1 trillion is available for drilling more holes but one cannot get a few bucks for renewables). In addition our use of oil is very profligate. Therefore we will continue to use oil until the flows become small
3.1) The world will use less at higher prices but given excessive waste in current usage that will not affect economic growth.- Oil/NG/NGL (&coal) will be burned - climate change be dammed.
- Plenty of renewables - Biomass derived liquid fuel (likely to come from a synthetic conversion cycle) burnt in an ICE (internal combustion engine) - mated with a plug-in hybrid (battery, ultracapacitor) will be the ultimate transportation solution. Electricity to come from renewables (Wind, solar). Expect that most energy will be from electric drive - biomass fuel for long trips only (this would be ideal environmentally)
- We can make just one compound with extreme purity in synthetic reactors - to make a bunch of burnable liquid fuels in arbitrary ratio for the sake of "burning" - not a big deal, but needs institutional support. That will be forthcoming when oil has declined substantially that efficiency gains still leave shortages. Also Oil interests control the current infrastructure (pipelines, gas stations) and will not share it until the oil cow is fully milked. This is also the problem for current VCs (e.g. Khosla et al) who can make fuel but cannot distribute it.
- In summary - running out of oil is not a big deal. However, climate change and environmental destruction is a big deal.
- Plenty of folks who are on the pay of the KSA (& ilk). One of whom is the fellow who is so anti #6 above.
All IMHO only.My early morning thought is that the pain in that might come down to the uniformity, or volatility, of the price curve. If there are sudden and dramatic swings, we'll see more people caught on the wrong side of an economic trend (as GM and Ford recently have been).
True enough. Unfortunately without government intervention (e.g. sliding subsidy proposed by Khsola) it specially kills the renewable guys who need predictable cash flow after putting up a capital intensive plant.
--
Aside Ford/GM/Chrysler (C bailed out by DCX) - their problems are related to high oil but not totally so: UAW, retiree health care, management incompetence and bureacracy built up over 75 years as a successful organization also play a part.
After all Toyota, Suzuki, Honda, and some others (Tata Motors, Maruti-Suzuki, Hyundai) are doing quite well.
To take the second first, Ford and GM do have "structural problems" but those unfortunately tie them to the same SUVs that sufferred market reversals. Their high costs force them to bet on high margin vehicles, and SUVs have traditionally borne those margins.
The double-whammy in a move to small cars (now or later) is that they are simply less expensive, and support lower margins.
On the first ... that's not where I come from at all. I think we should be taxing fossil fuels but keeping our hands (subsides) completely off the production of renewables. Create a level playing field, and let the best solution (even if that is efficiency!!!) win.
I have to agree with the fossil fuel/subsidy issue also. However, conventional wisdowm is (& this may be more due to politics) that a tax on fossil fuels will not fly so the "sliding" subsidy was the other option. Perhaps it could be designed to be technology agnostic as long as the solution was renewable.
All it will take is for a critical mass of investors to understand that economic growth will no longer be possible as total energy availability declines in the world. Then they'll take their money out and that's all she wrote for "the economy".
Seems to me the current run-up in the Dow is money fleeing real estate. Looking for the last refuge of profitability. And of course the Dow is propped up by defense contractors spending gov't money that was created out of thin air.
When I first encountered PO I had the thought that "it's over, as soon as "everybody" realizes it". And given the amount of effort being expended to keep the problem covered up I doubt I'm the only one who realizes this.
Money can't sit, so it will back something, and likely that something will be a story of growth under the new conditions.
That story may even prove true.
How actually, in a world where bank accounts are nothing more than rows in an Oracle database, does money stop moving? The banks certainly are not going to stop doing deals (though a return to higher standards of regulation is likely).
The average American thinks they are safe from "runs on the bank" now, because of the FDIC. But it hasn't really been tested.
When the tide goes out, we could all find we've been swimming naked.
And, since it is disadvantageous to keep your money at home if you know you can always get it from the bank, you can be reasonably sure that any bank runs will be very limited. As far as I recall, the only significant runs during the S&L crisis were against S&Ls that didn't have Federal insurance.
The other thing is that it is unlikely that any large bank will be allowed to fail at all (they didn't allow Continental Illinois to fail, and it was a pipsqueak compared to the current banks).
See http://www.erisk.com/Learning/CaseStudies/ContinentalIllinois.asp if you are interested.
With the consolidation of the US banking system over the past 25 years, the bulk of deposits is in the large banks.
Note that I am not saying anything about the safety of the banking/financial system here--it is entirely possible that there could be serious disruptions that would cause all manner of problem, and the owners of banks could be at risk--but bank depositors whose deposits are under the $100,000 FDIC limit, aren't going to be the (direct) victims.
People may not trust the banks. Or the government. As it is, people post regularly at PeakOil.com about supposed secret Homeland Security plans for barring withdrawals. Dunno if there's any truth to it, but obviously, there's some anxiety about it.
My worry is the opposite. With banks so large these days, will they be able to bail them out? If, say, Citibank fails?
Stormy weather ahead for the dollar? With the very-real impacts of Peak Oil, not to mention GW and assorted international conflicts I have little confidence in the dollar. I feel I got out while the gettin's good.
Now, about those printing presses...
Even if you're over the $100K, most times all monies are honored since another bank assumes the portfolio minus the BS that the FDIC does pick up (bad loans) or adding some cash to grease the wheels. In general they rarely ever simply payout your cash, instead focusing on letting a stronger bank manage the branch and if they want to close it later, then fine, but the push is to clear it up asap.
If so, and if there's a threat of a bank-run, the Argentina model worked: limit withdrawals to maybe $100 a week per capita. If need be, include plastic, limit spending to $100. Since most is plastic these days, that problem is not the key one. Empty ATM's will do the trick.
A bigger issue for banks is repossessing assets. Housing property is the first big one. And they will repo, bet on it. They let New Orleans folk bleed, and they will the rest of the poor.
The US economy depends on growth, it can't exist without it. That growth has been artificailly facilitated by M3 and other forms of creative money creation. If people's labor can no longer create growth, the game is over. The taps will be closed, and all you have to your name is debt. Maybe not you persoally, but a whole lot of others will.
There may be plans to abolish the dollar, and turn to the AMERO for instance, but would all those foreigners who hold trillions in dollar-denominated assets accept that?
Moreover, such a move is useful only when there is some kind of renewed growth on the horizon. There isn't. For one thing there's too much debt that needs to be paid off, for another there's no manufacturing base left. Society has been utterly gutted.
More likely, the debt will be paid off, albeit partially, out of the pockets and the property of the people. Prepare for a lot less of a lot of things, first of all energy.
If you mean personal: why do you think that was made nearly impossible?
If you mena natinonal: that's the de facto reality since 1971.
I mean as a country. I'm sure you're aware of this paper...
http://research.stlouisfed.org/publications/review/06/07/Kotlikoff.pdf#search=%22kotlikoff%20bankrup tcy%22
We need to declare it to the world and start over.
No such problem exists for the the US. US banks may fail in some way, their investors may be wiped out, but depositors under the FDIC limit will be made whole.
And yes, as someone else mentioned the FDIC may well honor deposits over $100,000. They did in the Continental Illinois example I mentioned above, where not only did all the depositors get their money, but creditors not only of the bank but of the bank holding company did as well. The stockholders, on the other hand, were toast.
I guess my point is that historically the reason for bank runs has been people being afraid that the banks were not solvent and that would not be able to get their money out--either in a reasonable amount of time, or ever. This is just not a reasonable fear in the US, so I doubt that there will be serious bank runs by insured depositors. But even if there are, the banks will be provided with the funds needed to make the depositors good.
There are two limits that you ignore.
1/ A bank run is a physical phenomenon. One or two people that lose faith in the bank and/or currency will not pose a problem, they'll get their money and go home contented. But that is not a bank run. That means, let's grab an example, 100-1000 people who all want their money at the same branch and at the same time (rumours travel fast).
If they each have $20.000 in their account, the bank won't have the cash to pay them. The manager will try to close the door and tell them to not worry and come back the next day. But that doesn't help, on the contrary. They are there because they're worried. Never tell a worried person not to worry. If you have this at one branch, more will follow.
It makes little difference whether you think there is a "reasonable" fear. It's not about reason.
2/ There is no insurance that covers 20 million accounts that each have those same $20.000 in them (let alone $100.000). Like a branch of a bank has limited cash, so an insurance too has limits. It wasn't made for these situations. It'll cover the first few thousand accounts, if that, and then close the door. And maybe even tell people not to worry.
Yes, the government could go to the Fed and ask them nicely to print a few hundred billion. But don't count on it. The "insured" depositors may not either.
Besides, it's not the government's role to prop up the banks. They're private institutions.
There is a strong correlation with gold and fiat dollars. When in the 1960's US creditors demended the US pay its outstanding debts in gold, Nixon said no.
Like those debts didn't have a true value in gold, so your holdings in a bank may not have a value in real dollars.
In fact, FDIC insurance was made for exactly this kind of situation. The government has decided it is its role to ensure the stability iof the banking system. The vast majority of all American savings is insured up to its full amount. There is really no reason to have a bank run, and I don't think any have happened since the depression.
I don't mean to crash your bank run fantasies. I can tell you are enjoying this.
Banks have a capital account on their books. They provide cash needed on demand from this capital account. Based on reserve ratios (mostly below 10% on demand deposit/savings accounts). If they fall below a set ratio they immediatly start requesting cash. If hordes of people showed up, they would most likely talk to the employees of this bank and the manager would be made aware that people think there's going to be a run (which I must admit in today's age does sound ludicrous at first). The manager can request emergency loans performed intrabank and they'll get the funds there.
FDIC was created first to end bank runs that were common place and to sort of total failures as in concentrated commercial loans causing an entire bank to fail, thus taking the cash of the savings/checkings account with it. Bank runs dont happen b/c we simply don't need to worry what happens if they close.
I expect something along these lines of course - less available energy obviously means less wealth to go around, I'm just struggling to grasp a mechanism for how it will actually going to go down.
Not everyone agrees with that. It's something that is frequently debated here at TOD. Some think hyperinflation is in our future, since printing more money is the politically easy way. Others think we're headed for depression, because we are too dependent on foreign investment for "Helicopter Ben" to actually start throwing dollars out of helicopters.
And some think both are in our future: hyperinflation at first, as the printing presses are fired up, then depression, when it's realized it's not helping/can't continue.
The dollar is a "Whimpy" currency. A promise to pay you Tomorrow for your Hamburgers today... and the promise depends on future growth.
(I'm trying to steer clear of conspiracy ideas, a Congressman should have enough clout?!)
Ron Paul chooses to call it "insolvency", not bankruptcy. Different word, same outcome.
There's a video of the speech.
It's not exactly a secret.
And then move on to today's:
Now, don't conclude too easily that Russia is trying to undermine the US. The Cold War brought such fantasmagorical profits to both "sides", that you just have to wonder: Were there truly two sides?
The threat to the dollar, though, is clear. If not Putin, someone will open the curtains.
The funny thing is, you don't even need a more fuel efficient vehicle. Just driving your current vehicle in a gas conscious way, even an inefficient PoS SUV, will result in massive increase in MPG. People can easily boost their gas mileage by 20% by just doing two simple things: driving slower on the freeway (55 MPH as opposed to 75/85 MPH, even going down from 65 is a sizable improvement in most vehicles), driving less aggressively (speeding up more slowly and aiming to maintain speed when possible rather than riding the accelerator and brake).
So all this nonsense about how society is going to collapse as a result of Peak Oil is just crap as far as I'm concerned. It will be tough, but one of the convenient side effects (or ironic side effects?) of doing nothing to reduce our oil usage is that we have huge room for improvement. There's a lot of stuff we can cut out, such that we have a buffer against serious problems.
Provided the decline on the other side of the peak is not too steep we should do OK. The concern however, is that if the decline is extremely steep then we could run into serious problems. I still think we'll manage without societal collapse, but if we're talking declines of 10% per year then it's going to be really rough sledding.
It's the interaction of expectation, costs, and strategies for the future.
The fact that gasoline is approx $6/gal over there ties to the fact that they use less and drive funny little Smart Cars.
No rocket science there.
Or: in 10 years, the US will be well below Europe on the energy front.
Or: the available energy will concentrate, away from individual consumers.
Imagine a major terrorist attack between now and then. George Allen is elected president -GWB II.
Wars with Iran. Maybe some kind of military action with North Korea. Perhaps civil unrest in Saudi Arabia (the situation in Saudi Arabia is so strikingly like the situation in Iran in the late 70s-- restive middle class, religiously inflamed poor class, growing gap rich and poor, soaring population with falling living standards, ruling class has reputation for complete corruption, massive expenditures on foreign arms to provide 'security', and now, with Iraq, a safe haven for insurgents just across the frontier).
A repeated pattern of denials that there is a crisis, followed by actions which are diametrically the opposite of the rational, measured ones.
Increasingly polarised domestic politics. Violent incidents justify crackdowns and reductions in civil liberties. The arguments are increasingly about whether to teach evolution in schools, abortion, etc. rather than about how to adjust to a changed world environment.
Economy living beyond its means. The GSEs (Fannie Mae, Ginnie Mae, Freddie Mac) finally get in serious trouble over the collapse of the housing bubble. Hundreds of billions of dollars of federal bailout.
If a 'liberal' president were to be elected in such an environment (I don't count Hilary Clinton as a real liberal, but let's call her one for the purposes of same) then she would be paralysed by opposition-- every measure of reform would be stopped either in the Congress, the judiciary (FDR's problem-- his second term was effectively a wipeout, and the economy slumped back into depression in 1938, if there hadn't been the rising threat of international events, it is arguably he would have been defeated in 1940).
The US see-saws between right and left, and nothing gets done as successive crises hit.
On one level it's incredibly far-fetched, on another there are all too many tell-tale signs.
Yes, but it does seem to get the most done when the see-saw is balanced. Let the loonies on either side run the asylum and it all goes bad.