Americans Pay Attention!
Mish Shedlock has an excellent analysis of the risk of a bank run rising in Greece. If I’m seeing the future correctly, next up is Spain, Portugal, Italy, Ireland. Then we move on to France and the UK and then the U.S. Why will Greeks want to take their money out of Greek banks? Mish writes:
If Greece is ever forced to leave the euro, it will first have to redenominate domestic corporate and household liabilities into the new currency – let’s call it the drachma – or else domestic borrowers will be wiped out by the fall in the value of revenues relative to debt as the drachma immediately depreciates against the euro.
But it doesn’t end there.　 If a bank’s assets – its outstanding loans – are to be redenominated into drachma, then its liabilities, i.e. deposits, must be redenominated too, or else the balance sheet mismatch will bankrupt the bank.
And there is where the problem lies.　 As soon as any depositor realizes that bank deposits are likely to be redenominated into drachma, he will pull his deposits out of the banks so as to protect the value of his savings.
What can the Greek authorities do to protect the banks from bank runs? Why close the banks, Have a bank holiday, change the currency and then reopen them. And you know who is getting screwed! If that is going to happen in Greece or happens, it will put the fear of loss into citizens of Spain, Portugul, Ireland, and Italy and they will run to withdraw their capital from the banks.
Where does that money go? To the next safest fiat currency or Gold and Silver.
Mish suggest Christmas is a perfect time to close the Greek Banks. It’s just a matter of time before capital controls come to America.
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