In the past, bank runs materialized when depositors (the public) sensed impending insolvency. Today that sense has been dulled by deposited insurance backed by the printing press. So far the relatively slow and orderly loss of purchasing power in the US dollar, i.e. higher food and energy prices, has yet to rattle confidence to the point of decisive action. In other words, the public has yet to seek alternatives to fiat en masse.
What happens if, more likely when the loss of purchasing power transitions from slow and orderly to fast and chaotic? FDIC deposit insurance and other carrot-on-a-stick programs won’t be enough to prevent bank runs. This is the clear lesson from history unless millions of years of human evolution and behavior designed to ensure survival suddenly disappears in the next five years.
Headline: Savers may flee U.S. banks
Eric Sprott, the Canadian money manager who in 2008 predicted banking stocks would collapse, says U.S. savers will eventually pull their money out of banks that are carrying too much leverage on their balance sheets.
Banks are leveraged 20 to one and their portfolios are mainly composed of government bonds and mortgages, the founder of Sprott Asset Management Inc., said Friday at the SALT, or SkyBridge Alternatives, conference here.
"House prices keep going down, the number of people under water keeps getting worse," said Sprott, 66, who is chief executive officer of the Toronto-based firm.
Source: theprovince.com
From Bob
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