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Thread: Help Me Understand Greece....

  1. #1
    Member TGS's Avatar
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    Help Me Understand Greece....

    So, today their banks shut down to some degree. Cash withdrawals are limited to small amount, barely enough to buy food essentials for a family with kids.

    If the banks are shut down, how is this supposed to fix their financial problems? How does this not lead to the country slipping over the edge into civil unrest, if not a coup or insurrection?
    "Are you ready? Okay. Let's roll."- Last words of Todd Beamer

  2. #2
    Quote Originally Posted by TGS View Post
    If the banks are shut down, how is this supposed to fix their financial problems? How does this not lead to the country slipping over the edge into civil unrest, if not a coup or insurrection?
    Normal rules don't apply short term, since this is a game of chicken between Greece and the EU. Greeks will tolerate short term chaos for a better deal, but probably not long term.
    Likes pretty much everything in every caliber.

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    Site Supporter Jay Cunningham's Avatar
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    With fractional reserve banking systems (such as our federal reserve) there is never enough "money" (fiat currency) to cover withdrawals. If a bunch of people (not that many, really) starting withdrawing money from our banks here in the U.S. (sometimes called a "run") American banks would shut down too. They'd have no choice.
    Last edited by Jay Cunningham; 06-29-2015 at 11:18 AM.

  4. #4
    The R in F.A.R.T RevolverRob's Avatar
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    I think the answer to your question has been covered. But I'll add it doesn't help Greece.

    Not only are people going to withdraw everything they can every day, until they have it all. In the short term there will be an increase in mugging and robbery, especially against tourists (because tourists cards still work fine to withdraw as much currency as their foreign banks allow). I wouldn't be surprised to see an uptick of kidnapping and forced ATM withdrawals from wealthy tourists.

    Tourism in Greece, it's main financial source, will become essentially non-existent. Greece is the new Egypt for travel. I can't help but wonder if we'll soon see Greek fishing boats converted to pirate boats and see a spike in piracy, theft, human trafficking, smuggling, etc. If I were a criminal I would be salivating at the thought of committing crimes in Greece in their soon-to-be state of utter chaos.

    -Rob

  5. #5
    Quote Originally Posted by Jay Cunningham View Post
    With fractional reserve banking systems (such as our federal reserve) there is never enough "money" (fiat currency) to cover withdrawals. If a bunch of people (not that many, really) starting withdrawing money from our banks here in the U.S. (sometimes called a "run") American banks would shut down too. They'd have no choice.
    Not really, or at least anymore. The Fed will print new money to take to the banks to keep them open. It did so in 2008 and will do so now. Of course, that creates a lot of risks by itself, but what it does mean is that bank runs are not a current issue for the US.

    Greece, however, can't print its own money, and the ECB (the Euro version of the Fed), having pumped 150 billion Euros or something into the Greek banks to keep them afloat, announced it wouldn't give them any more. So they are running short on cash and people who were stupid enough to trust the government and kept their cash in those banks now can only withdraw something like $60 per day in Euros--if they can get to the head of the line at an ATM before it runs out of cash.

    Greece will start printing its own "money"--whether a new currency or a kind of tax receipt--with a few weeks, which will ease the liquidity problem but destroy the value of money.

  6. #6
    Site Supporter Jay Cunningham's Avatar
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    Quote Originally Posted by Jeep View Post
    Not really, or at least anymore. The Fed will print new money to take to the banks to keep them open. It did so in 2008 and will do so now. Of course, that creates a lot of risks by itself, but what it does mean is that bank runs are not a current issue for the US.

    Greece, however, can't print its own money, and the ECB (the Euro version of the Fed), having pumped 150 billion Euros or something into the Greek banks to keep them afloat, announced it wouldn't give them any more. So they are running short on cash and people who were stupid enough to trust the government and kept their cash in those banks now can only withdraw something like $60 per day in Euros--if they can get to the head of the line at an ATM before it runs out of cash.

    Greece will start printing its own "money"--whether a new currency or a kind of tax receipt--with a few weeks, which will ease the liquidity problem but destroy the value of money.

    If the 10 people with the highest dollar amounts in their accounts walked into your local bank branch and each demanded all of their money, your branch would have to shut its doors because it doesn't have the money.

    Yes, the fed can always "catch up" but any individual bank can be affected on the front end. Credit unions may be less vulnerable to this, depending upon their lending policies.

  7. #7
    Quote Originally Posted by Jay Cunningham View Post
    j


    If the 10 people with the highest dollar amounts in their accounts walked into your local bank branch and each demanded all of their money, your branch would have to shut its doors because it doesn't have the money.

    Yes, the fed can always "catch up" but any individual bank can be affected on the front end. Credit unions may be less vulnerable to this, depending upon their lending policies.
    This would be the outcome, if we lived in 1929.

    With FDIC this would not happen today. Contrary to the whinings of the conspiracy theory set, bank runs are product of group psychology more then mathematical trickery .

    You might say "well what if FDIC goes down?". The answer is, the Fed steps in and finds a buyer for the failed bank. See the " sale" of Washington Mutual to Chase when the former went insolvent and FDIC was having a Really Bad Year.Consumer deposits and withdrawals were not affected .

    All that being said, Greece's problem is not economic. It is political. Had that nation merely endured a few more years of public sector belt tightening , they'd be in the clear regarding servicing their debt. Yes they're in the hole bad now, but long term inflation combined with austere spending means they'd climb out within a business cycle.

    Unfortunately Greek voters have made it abundantly clear at the polls they're totally uninterested in cutting expenses and restoring their finances the Old Fashioned Way. As reducing expenses isn't a practical option(OMG we can't cut transfer payments/welfare/crony jobs in the capitol!) , Tsipras is betting on a national default.

    Sure, that way a Greek fishing on the creek won't be able to buy gas, fishing line, or bait for lack of a functional banking system or open economy; but Tsipras can blame it all on Germany and plan his reelection as his voters starve. If he does the response thing and cuts Greek government spending , its his name that will be pulling the blame train.

    Tl/DR ; Greeces economy is being deliberately torpedoed, because it plays better for PR in Athens HQ.
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    Quote Originally Posted by GardoneVT
    Tl/DR ; Greeces economy is being deliberately torpedoed, because it plays better for PR in Athens HQ.
    Kinda like "gun control "?
    "No free man shall ever be debarred the use of arms." - Thomas Jefferson, Virginia Constitution, Draft 1, 1776

  9. #9
    Site Supporter Jay Cunningham's Avatar
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    Contrary to the whinings of the conspiracy theory set, bank runs are product of group psychology more then mathematical trickery .
    The cause isn't particularly important. Group psychology is what causes AR-15s to jump from $900 to $2600 and makes all the .22 LR ammo disappear every time some dickhead shoots up a school.

  10. #10
    The R in F.A.R.T RevolverRob's Avatar
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    Quote Originally Posted by Jay Cunningham View Post
    j


    If the 10 people with the highest dollar amounts in their accounts walked into your local bank branch and each demanded all of their money, your branch would have to shut its doors because it doesn't have the money.

    Yes, the fed can always "catch up" but any individual bank can be affected on the front end. Credit unions may be less vulnerable to this, depending upon their lending policies.
    Hell, I've had banks turn away cashing a check before, because they lacked the funds to cash it. And we're not talking about on a Friday payday when everyone is there to cash a check and we're not talking about a serious amount of money (e.g., not more than $10,000).

    -Rob

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