Markets in a tailspin

[Kwatt]

How much money that exchanges ownership everyday is physical? Don you think the fed actually moves physical dollars when it changes interest rates?

I don't think much changes ownership everyday.

There is not much to change ownership. That is the reason for my concern.

Think of all the monetary or near monetary assets the people have in this country. Then think about all the large financial starting to collapse. A lot of people are going to start worrying. Some are going to want to put a something in the mattress "just in case". And it is just not there. Only about $1000 in cash per person in the US. About 50/50 split in circulation and in the "banks". So ~$500 per person available in the banks.

If enough people want to take out ~$2499 the well will run dry.
And once the first FB,Tweet, or IG goes out that they were turned away because the bank was out of "money". More people will try.
That is how bank runs start.

NOTE: The amount of $2499 I used is that is all I can get without filling out paper 24 hour's in advance where I bank. Max. of ~999 at the drive through. $1000-$2499 I must go inside and fill out paper work.

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[fskimospy]

I don't think much changes ownership everyday.

There is not much to change ownership. That is the reason for my concern.

Think of all the monetary or near monetary assets the people have in this country. Then think about all the large financial starting to collapse. A lot of people are going to start worrying. Some are going to want to put a something in the mattress "just in case". And it is just not there. Only about $1000 in cash per person in the US. About 50/50 split in circulation and in the "banks". So ~$500 per person available in the banks.

If enough people want to take out ~$2499 the well will run dry.
And once the first FB,Tweet, or IG goes out that they were turned away because the bank was out of "money". More people will try.
That is how bank runs start.

NOTE: The amount of $2499 I used is that is all I can get without filling out paper 24 hour's in advance where I bank. Max. of ~999 at the drive through. $1000-$2499 I must go inside and fill out paper work.

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That doesn't make sense though, as all deposits are FDIC insured. Stopping bank runs because the bank could somehow run out of money is the entire purpose of the FDIC.

 

[Kwatt]

That doesn't make sense though, as all deposits are FDIC insured. Stopping bank runs because the bank could somehow run out of money is the entire purpose of the FDIC.

I am not talking about anyone losing any "money". I am referring to losing "faith" in the system if they can not get "cash" when they want it.

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[fskimospy]

I am not talking about anyone losing any "money". I am referring to losing "faith" in the system if they can not get "cash" when they want it.

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I guess I don't understand then. Why would people care about holding physical bills? If the financial system collapses to the extent that actually having dollars under your mattress would be necessary there's a good chance those bills aren't worth anything either.

 

[Kwatt]

I guess I don't understand then. Why would people care about holding physical bills? If the financial system collapses to the extent that actually having dollars under your mattress would be necessary there's a good chance those bills aren't worth anything either.

I think that is correct also.

But, fear and panic can not be controlled with logic. It runs its course till it is exhausted. All any logical person can do is get out of the way...

A large group of people is the "populace". A large group of fear driven people is a mob.

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[Kwatt]

Why would people care about holding physical bills?

When Greece instituted capitol controls having a little tucked away would have made a difference to most people if only for a physiological boost.


The reason I even noticed is that when I go to a "cash" only auction/estate sale. I need cash.(who would have guessed) And I have to fill out paper work for the cash.

So I looked it up.

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[fskimospy]

When Greece instituted capitol controls having a little tucked away would have made a difference to most people if only for a physiological boost.

The reason I even noticed is that when I go to a "cash" only auction/estate sale. I need cash.(who would have guessed) And I have to fill out paper work for the cash.

So I looked it up.

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Yes but Greece does business in a currency it doesn't control. You can't compare Greece to America on anything having to do with monetary issues.

 

[Kwatt]

Yes but Greece does business in a currency it doesn't control. You can't compare Greece to America on anything having to do with monetary issues.

If the banks here start running low or out of cash. What will they do?

Maybe I am not giving the average Wal-Mart shopper enough credit for their critical thinking skills.

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[dullard]

If the banks here start running low or out of cash. What will they do?

Yes but Greece does business in a currency it doesn't control. You can't compare Greece to America on anything having to do with monetary issues.

Eskimospy is correct. As far as I know they Greece doesn't have a true FDIC equivalent either.

Bank runs are always a risk. But the US has FDIC insurance to pay cash to people when banks run out of cash and can print as much cash as we want to fulfill the FDIC needs. Greece has neither.

 

[Kwatt]

But the US has FDIC insurance to pay cash to people when banks run out of cash

The FDIC can "credit" the accounts. They don't have cash.

and can print as much cash as we want to fulfill the FDIC needs. Greece has neither.

The Federal Reserve prints "cash". How fast can they print it?
How fast can they distribute it nationwide?

How long did it take to get relief to Katrina affected sites? How long till everybody settled down?

I am not comparing the monetary systems. I am thinking about Joe-six pack not being able to buy another set of used "Jumbo Mudders" from the junk yard.

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[LegendKiller]

The FDIC can "credit" the accounts. They don't have cash.



The Federal Reserve prints "cash". How fast can they print it?
How fast can they distribute it nationwide?

How long did it take to get relief to Katrina affected sites? How long till everybody settled down?

I am not comparing the monetary systems. I am thinking about Joe-six pack not being able to buy another set of used "Jumbo Mudders" from the junk yard.

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So you think cashless block chain is any different?

 

[Kwatt]

So you think cashless block chain is any different?

I had to look up "cashless block chain" to be sure I was right about your question.

No, I do not. Although I don't know enough to be sure.

I am not sure how to say it. The USD is considered a "save haven" by the markets. A large part of the people are not in the markets directly. So, if things look bad the only thing they will know is the dollar. If the markets start looking bad some are going to want cash and it is not there for them if too many want it.


What in your view was the reason for the bailouts and QE?



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[LegendKiller]

I had to look up "cashless block chain" to be sure I was right about your question.

No, I do not. Although I don't know enough to be sure.

I am not sure how to say it. The USD is considered a "save haven" by the markets. A large part of the people are not in the markets directly. So, if things look bad the only thing they will know is the dollar. If the markets start looking bad some are going to want cash and it is not there for them if too many want it.


What in your view was the reason for the bailouts and QE?



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The bailouts were not about the banks, or the depositors, specifically they were about the companies that are financed by the banks. The deposit money was safe at Wachovia and others. What was not safe were the small, medium, and large business financing performed by the big banks. A lot of that was funded through the asset backed commercial paper market, or held on balance sheet through bank loans, or securitized into term securitizations.

Since the banks had no capital and nobody had great price discovery for how much an asset (bond) was worth, nobody knew whether they should buy new bonds and at what price they should sell them.

QE was an extension of this. They need lending to pick up. Lower rates through qe has helped, but then regulations have countered it.

The fdic fund would have needed bailing out had more banks gone under, but that was a small problem relatively to the entire capital markets shutting down, especially when you consider the capital markets shutting down would have exacerbated the deposits issue. No capital markets, no pricing, no pricing, mark to market suffers, mark to market suffers, capital declines, capital declines banks become insolvent, banks become insolvent, capital markets get worse. Rinse, repeat.

 

[Kwatt]

The bailouts were not about the banks, or the depositors, specifically they were about the companies that are financed by the banks. The deposit money was safe at Wachovia and others. What was not safe were the small, medium, and large business financing performed by the big banks. A lot of that was funded through the asset backed commercial paper market, or held on balance sheet through bank loans, or securitized into term securitizations.

Since the banks had no capital and nobody had great price discovery for how much an asset (bond) was worth, nobody knew whether they should buy new bonds and at what price they should sell them.

QE was an extension of this. They need lending to pick up. Lower rates through qe has helped, but then regulations have countered it.

The fdic fund would have needed bailing out had more banks gone under, but that was a small problem relatively to the entire capital markets shutting down, especially when you consider the capital markets shutting down would have exacerbated the deposits issue. No capital markets, no pricing, no pricing, mark to market suffers, mark to market suffers, capital declines, capital declines banks become insolvent, banks become insolvent, capital markets get worse. Rinse, repeat.

Sounds good.
Was part of the reason nobody knew the value of some assets because the value was hidden? And some were lied about?

And what could have happened if the bailouts and/or QE had not taken place to the big financial institutions?

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[bshole]

More my retirement plans are more than 100k down..... damn this sucks. This isn't making any sense....

 

[LegendKiller]

Sounds good.
Was part of the reason nobody knew the value of some assets because the value was hidden? And some were lied about?

And what could have happened if the bailouts and/or QE had not taken place to the big financial institutions?

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Nobody was making markets because nobody wanted to be the guy holding the hot potato. If markets are choppy the bid/ask spread is wider. If spreads are wider, prices fall. If prices fall less people want to catch a falling knife. This causes spreads to widen more until the market cannot function.

The market is faith. Faith in the borrower, faith in the system, faith in being able to sell faith that if you are stuck holding it will still be worth something to somebody. The Fed back stops that faith.


Everything you do would have stopped. Because everything you do relies on that faith to one extent or another.

Stopping the capital markets in today's economy would lead to at least a temporary collapse in everything we do. From buying groceries to going to school.

When I was on that side I funded farm loans, cell towers, relocation receivables, credit cards, car loans/leases/dealer floorplan, small business loans and leases, consumer loans and leases. If I could not get funding I could not fund those receivables. If I couldn't fund them they couldn't fund themselves. If they can't fund themselves they cannot employ people, extend credit, generate income...etc.

And at the time that market could just barely get funded overnight, on a secured basis, against illiquid but solid assets. Why? Because nobody knew if the bank would be around the next day to repay, then they'd have to rely on illiquid assets to pay them off, which would do so over time almost certainly, but nobody wanted to take that risk (because if the system failed, nobody would have a job to repay).

Unless you want to go back to pre globalization economy, you must have s fed to backstop and calm the markets and they have to have a huge arsenal to do it. We benefit massively from the system we have but it has downsides and we need mitigants to those scenarios.

 

[michal1980]

More my retirement plans are more than 100k down..... damn this sucks. This isn't making any sense....

quit your crying mr millionaire.

The president said the economy is fine.

 

[Kwatt]

Nobody was making markets because nobody wanted to be the guy holding the hot potato. If markets are choppy the bid/ask spread is wider. If spreads are wider, prices fall. If prices fall less people want to catch a falling knife. This causes spreads to widen more until the market cannot function.

The market is faith. Faith in the borrower, faith in the system, faith in being able to sell faith that if you are stuck holding it will still be worth something to somebody. The Fed back stops that faith.


Everything you do would have stopped. Because everything you do relies on that faith to one extent or another.

Stopping the capital markets in today's economy would lead to at least a temporary collapse in everything we do. From buying groceries to going to school.

When I was on that side I funded farm loans, cell towers, relocation receivables, credit cards, car loans/leases/dealer floorplan, small business loans and leases, consumer loans and leases. If I could not get funding I could not fund those receivables. If I couldn't fund them they couldn't fund themselves. If they can't fund themselves they cannot employ people, extend credit, generate income...etc.

And at the time that market could just barely get funded overnight, on a secured basis, against illiquid but solid assets. Why? Because nobody knew if the bank would be around the next day to repay, then they'd have to rely on illiquid assets to pay them off, which would do so over time almost certainly, but nobody wanted to take that risk (because if the system failed, nobody would have a job to repay).

Unless you want to go back to pre globalization economy, you must have s fed to backstop and calm the markets and they have to have a huge arsenal to do it. We benefit massively from the system we have but it has downsides and we need mitigants to those scenarios.

Faith. That is what I am saying. And the average Joe is going to want cash if he loses faith. And it won't be there, it does not exist. If he can't get it he will start cutting back and there goes spending.

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[LegendKiller]

Faith. That is what I am saying. And the average Joe is going to want cash if he loses faith. And it won't be there, it does not exist. If he can't get it he will start cutting back and there goes spending.

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Which is why you have the fdic.

 

[shady28]

Nobody was making markets because nobody wanted to be the guy holding the hot potato. If markets are choppy the bid/ask spread is wider. If spreads are wider, prices fall. If prices fall less people want to catch a falling knife. This causes spreads to widen more until the market cannot function.

The market is faith. Faith in the borrower, faith in the system, faith in being able to sell faith that if you are stuck holding it will still be worth something to somebody. The Fed back stops that faith.


Everything you do would have stopped. Because everything you do relies on that faith to one extent or another.

Stopping the capital markets in today's economy would lead to at least a temporary collapse in everything we do. From buying groceries to going to school.

When I was on that side I funded farm loans, cell towers, relocation receivables, credit cards, car loans/leases/dealer floorplan, small business loans and leases, consumer loans and leases. If I could not get funding I could not fund those receivables. If I couldn't fund them they couldn't fund themselves. If they can't fund themselves they cannot employ people, extend credit, generate income...etc.

And at the time that market could just barely get funded overnight, on a secured basis, against illiquid but solid assets. Why? Because nobody knew if the bank would be around the next day to repay, then they'd have to rely on illiquid assets to pay them off, which would do so over time almost certainly, but nobody wanted to take that risk (because if the system failed, nobody would have a job to repay).

Unless you want to go back to pre globalization economy, you must have s fed to backstop and calm the markets and they have to have a huge arsenal to do it. We benefit massively from the system we have but it has downsides and we need mitigants to those scenarios.

People who know how this works mostly don't have a problem with the Fed stepping in for clearing houses and market makers when a big financial institution fails.

But the Fed should seize the remaining assets and liquidate. They did that selectively in 2008. There are big banks out there that should not be there.

And the FDIC - if it goes bankrupt and the Treasury steps in, which it would if say Bank of America failed, that's taxpayer dollars.

 

[brianmanahan]

More my retirement plans are more than 100k down..... d*** this sucks. This isn't making any sense....

it makes plenty of sense because PE ratios are really high right now

 

[Kwatt]

Which is why you have the fdic.

~7 trillion in total deposits. ~175 billion in the banks at any given time. ~40 billion held by the FDIC. As long as withdrawals in cash stay below ~4% everything is fine.
But if enough people wanted more than 4% in "cash" not a deposit slip not a politicians promise not a bank reassurance. Something that can be stuffed in a mattress. There "could" a problem.


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[OverVolt]

More my retirement plans are more than 100k down..... damn this sucks. This isn't making any sense....

Blood from a stone. You park your capital, and expect it to be used for something worthwhile to generate a return.

There is too much baby boomer capital searching for a return IMO. This is a demographics problem, demographics are destiny. Like how much capital could you possibly need to keep cranking out boxes of mac n cheese for the pitiful dividend.

Productivity hitting a peak is actually a bigger issue than PE ratios. PE ratios are really just a symptom of the struggle for revenue.

 

[Zorkorist]

Obama's socialism is finally coming to bear. People are realizing that attacks on profits by the state are inevitable, and will only be increasing.

It's not helping Obama has single-handedly destroyed America's resurging oil business.

Sell.

-John

 

[OverVolt]

~7 trillion in total deposits. ~175 billion in the banks at any given time. ~40 billion held by the FDIC. As long as withdrawals in cash stay below ~4% everything is fine.
But if enough people wanted more than 4% in "cash" not a deposit slip not a politicians promise not a bank reassurance. Something that can be stuffed in a mattress. There "could" a problem.


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People going broke en masse is actually the bigger concern. What you hit on is actually two points.

#1 Is people people not wanting to contribute to the economy because employment competition is too fierce. This is your tough as nails disabled person who says screw it I can't handle working anymore and goes on SSD, perpetual college students, people who completely give up trying to form a household, etc.

#2 Is that the bottom falling out is the biggest risk. Poor people just plain going broke. Everyone wants it to be the 1% gets wiped out in some huge market crash and the middle class rejoices that inequality has been somewhat leveled.

Thats not going to happen. Whats going to happen is that poverty is going to increase if the economy gets worse because of #1. It really wont be pretty. Preppers think of it as like, one super long camping trip, or something. But its actually entirely financial.