Once again I learned something while reading Mish. Greece is, of course, going to leave the Euro zone soon. What I hadn’t thought about was the very likely preliminary step of freezing bank deposits just before it happens:
Your country is part of a currency that holds value pretty well
Your country is about to leave that currency
Your new currency will be worth less
You want maximum value for your money, so
You pull your cash out of the bank denominated in the old, more valuable currency
So does everyone else
The banks have maybe 5% of their “deposits” in cash on hand
The banks cannot pay out the deposits everyone wants cashed out
The bank closes, totally bankrupt
This happens at every bank
The banking system collapses
The nation grinds to a halt
This takes maybe a week, start to finish
With a now totally-defunct banking system, there is no way to stay in the old currency
To prevent this very ugly kind of withdrawl from the Euro, bank deposits must be frozen. When that happens, stand by.
But of course, America’s economy is decoupled from Europe’s! No worries, here!
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