What is worse than a bank run? A stealth bank run. European governments and media do not want bank runs reported even though they have occurred for several months. What are people putting their faith (and assets) for currency:
The dollar is proving scarce, even after the Federal Reserve flooded the financial system with an extra $2.3 trillion, as the amount of the highest-quality assets available worldwide shrinks.
From last year’s low on July 27, the greenback has risen against all 16 of its major peers. Intercontinental Exchange Inc.’s Dollar Index surged 12 percent, higher now than when the Fed began creating dollars to buy bonds under its extraordinary stimulus measures at the end of 2008.
Where are governments putting their faith: gold. Where should Americans put their faith?
The risk of stealth bank runs in periphery euro nations turning into full scale bank runs are deepening and this is likely supporting gold.
European policy makers have failed to build a shield robust enough to prevent a bank run in one country sending others in the bloc deeper into crisis. The risk of a Greek exit is leading policymakers to attempt to create such a shield or buffer according to Reuters.
A push by the ECB for the euro zone to stand behind banks suffering from bank runs is slowly gaining traction but the bloc has yet to build backstops to prevent, or cope with, a sudden collapse of confidence in banks and mass deposit withdrawals.
Last week, European leaders discussed pan European means of supporting banks, measures the ECB hopes will include a bank resolution fund to deal with the fallout from the wind up or restructuring of a failing bank.
But a wave of withdrawals by depositors – either for fear that their government is too weak to stand behind its banks or that their country will exit the euro and forcibly convert their savings into a vastly devalued national currency – would represent a crisis of completely new proportions.
Greece’s exit and reversion to their national currency, the drachma, could precipitate electronic bank runs in other periphery nations. The risk is that even savers who may trust their bank as being safe, come to the conclusion that there is a risk that their euro deposits may, in the event of a sovereign crisis, be forcibly converted to drachmas, pesetas, liras, punts and escudos.