How Currency Runs Happen

by Chris Laird
Prudent Squirrel Newsletter
February 22, 2009

Unless the US had sent out $trillions of stabilization over the last year, our banks would have closed twice. Our financial markets would be at ten percent of their present value, and our bond markets might have collapsed, and everyone else’s. Effectively everyone, institutions, individuals, businesses and funds would have tried to pull money out of every possible account. Needless to say, that is what forces bank closures – to stem it. In fact, that UK minister stated that they temporarily froze electronic transfers that fatal day in the Fall of 08.

Then, when bank closures happen, a general financial emergency is declared, and governments freeze international money transfers to prevent a run on the currency.

I think you get the idea. The entire world economy would stop, businesses could not ship, food would shortly be unable to ship, as no one can transact. Everything stops, probably even the gas pumps. And gas stops being shipped etc. The world supply chain is roughly 3 days supply of everything.

I am not exaggerating.

This is what has so far been narrowly averted, two times in the last year and a half.

So, even though many of us can still buy things at the stores, and still get our money, and invest, things are a bit dicey, to say the least.


How do we protect ourselves?
One possible strategy would be to pick several currencies, have insured accounts in a mix of them, and some insured CDs. Also having actual cash in several currencies is not a bad idea too. Basically, the idea is to spread the risk and by having some cash you are not dependent on electronic accounts, which I expect to be locked if there is a currency/bank run and resulting foreign exchange restrictions that may last who knows how long.

And of course, gold and silver coins, including platinum, but I prefer gold mostly. Also essential is having food and necessities, to include your meds for several months, the longer the better without going crazy (a Year?).

But, this edition was to emphasize just how close we came on two occasions to an actual world banking run and closure, with foreign exchange controls and likely shortages of many things due to a stalled supply chain as no one could transact or buy/ship/finance inventory.