What’s happening now is a “bank jog” — Greeks are pulling euro deposits out of banks fairly rapidly, but not quite fast enough to be called a bank run.
But where are the euros coming from? Basically, banks are borrowing them from the Greek central bank, which in turn must borrow them from the European Central Bank. The question then becomes how far the ECB is willing to go here; is it willing, in effect, to lend enough money to buy up the entire balance sheet of the Greek banking sector, given the likelihood that this sector will be left insolvent by Greek default?
Yet if the ECB says no more, Greek banks stop operating — and it’s hard to see how they can be restored to operation except by ditching the euro and using something else.
And if that happens, surely depositors in other European countries will start their own bank jogs …
Wednesday, May 16, 2012
The Bank Jog is On in Greece (Will This Start a Bank Jog in Other Parts of the Eurozone?)
Paul Krugman has a solid take on this:
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What? Bank run on fiat money? Hasn't Mr. Krugman been preaching that bank runs are a manifestation of the evils of that backward hard money system, and therefore, not a worry to be had within a governmental monetary system?
ReplyDeleteIt will remove all the masks and make the fractional banking system transparent in all its fraud.
ReplyDelete@geoih
ReplyDeleteOr collapse them all, outright.
Krugman Oct 2011
ReplyDelete'Let me add that the fractional reserve thing exhibits a characteristic common to a lot of what I see in the Paulist camp: they have an oddly antiquated notion of what money and finance are about, one that misses the “virtualness” of the modern world. They still think of money as being pieces of green paper, rather than what it mostly is now, zeroes and ones in some server somewhere. They still think of banks as being those big marble buildings, in a world in which most banking is a lot more abstract than that.
This is, after all, the 21st century. Things have moved on a bit.'
http://krugman.blogs.nytimes.com/2011/10/10/if-banks-are-outlawed-only-outlaws-will-have-banks/
That's a fine position, until the customers are standing at the teller window demanding their pieces of paper and the bank has run out. When that happens at enough banks, then you will see reality, and all the virtual digits floating around in the computer memories will not matter one bit.
DeleteKrugman is an idiot.