Why I Think there Will Be a “Dollar Panic”

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The Great American Credit Collapse

By Bill Bonner, Chairman Bonner and Partners:

Please remember this warning when you go to the ATM to get cash — and there is none.

While we were thinking about what was really going on with today’s strange new money system, a startling thought occurred to us. Our financial system could take a surprising and catastrophic twist that almost nobody imagines, let alone anticipates.

Do you remember when a lethal tsunami hit the beaches of Southeast Asia, killing thousands of people and causing billions of dollars of damage? Well, just before the 80-foot wall of water slammed into the coast an odd thing happened: The water disappeared.

The tide went out farther than anyone had ever seen before. Local fishermen headed for high ground immediately. They knew what it meant. But the tourists went out onto the beach looking for shells!

The same thing could happen to the money supply…

There’s Not Enough Physical Money

Here’s how… and why:

It’s almost seems impossible. Hard to imagine. Difficult to understand. But if you look at M2 money supply – which measures coins and notes in circulation as well as bank deposits and money market accounts – America’s money stock amounted to $12.6 trillion as of last month.

But there was just $1.4 trillion of physical currency in circulation – about only half of which is in the US. (Nobody knows for sure.)

What we use as money today is mostly credit. It exists as zeros and ones in electronic bank accounts. We never see it. Touch it. Feel it. Count it out. Or lose it behind seat cushions.

Banks profit – handsomely – by creating this credit. And as long as banks have sufficient capital, they are happy to create as much credit as we are willing to pay for. After all, it costs the banks almost nothing to create new credit. That’s why we have so much of it.

A monetary system like this has never before existed. And this one has existed only during a time when credit was undergoing an epic expansion. So our monetary system has never been thoroughly tested. How will it hold up in a deep or prolonged credit contraction? Can it survive an extended bear market in bonds or stocks? What would happen if consumer prices were out of control?

Less Than Zero

Our current money system began in 1971. It survived consumer price inflation of almost 14% a year in 1980. But Paul Volcker was already on the job, raising interest rates to bring inflation under control.

And it survived the “credit crunch” of 2008-09. Ben Bernanke dropped the price of credit to almost zero, by slashing short-term interest rates and buying trillions of dollars of government bonds.

But the next crisis could be very different…

Short-term interest rates are already close to zero in the U.S. (and less than zero in the Eurozone, Switzerland, Denmark, and Sweden). And according to a study by McKinsey, the world’s total debt (at least as officially recorded) now stands at $200 trillion – up $57 trillion since 2007. That’s 286% of global GDP… and far in excess of what the real economy can support.

At some point, a debt correction is inevitable. Debt expansions are always – always – followed by debt contractions. There is no other way. Debt cannot increase forever.

And when it happens, ZIRP and QE will not be enough to reverse the process, because they are already running at open throttle.

What then?

The value of debt drops sharply and fast. Creditors look to their borrowers. Traders look at their counterparties. Bankers look at each other. And suddenly, no one wants to part with a penny, for fear they may never see it again. Credit stops.

It’s not just that no one wants to lend; no one wants to borrow either – except for desperate people with no choice, usually those who have no hope of paying their debts.

Just as we saw after the 2008 crisis, we can expect a quick response from the feds. The Fed will announce unlimited new borrowing facilities. But it won’t matter….

House prices will be crashing. (Who will lend against the value of a house?) Stock prices will be crashing. (Who will be able to borrow against his stocks?) Art, collectibles, and resources – all we be in free fall.

The NEXT Crisis

In the last crisis, every major bank and investment firm on Wall Street would have gone broke had the feds not intervened. Next time it may not be so easy to save them.

The next crisis is likely to be across ALL asset classes. And with $57 trillion more in global debt than in 2007, it is likely to be much harder to stop.

Are you with us so far? Because here is where it gets interesting…

In a gold-backed monetary system prices fall. But the money is still there. Money becomes more valuable. It doesn’t disappear. It is more valuable because you can use it to buy more stuff.

Naturally, people hold on to it. Of course, the velocity of money – the frequency at which each unit of currency is used to buy something – falls. And this makes it appear that the supply of money is falling too.

But imagine what happens to credit money. The money doesn’t just stop circulating. It vanishes. As collateral goes bad, credit is destroyed.

A bank that had an “asset” (in the form of a loan to a customer) of $100,000 in June may have zilch by July. A corporation that splurged on share buybacks one week could find those shares cut in half two weeks later. A person with a $100,000 stock market portfolio one day could find his portfolio has no value at all a few days later.

All of this is standard fare for a credit crisis. The new wrinkle – a devastating one – is that people now do what they always do, but they are forced to do it in a radically different way.

They stop spending. They hoard cash. But what cash do you hoard when most transactions are done on credit? Do you hoard a line of credit? Do you put your credit card in your vault?

No. People will hoard the kind of cash they understand… something they can put their hands on… something that is gaining value – rapidly. They’ll want dollar bills.

Also, following a well-known pattern, these paper dollars will quickly disappear. People drain cash machines. They drain credit facilities. They ask for “cash back” when they use their credit cards. They want real money – old-fashioned money that they can put in their pockets and their home safes.

Dollar Panic

Let us stop here and remind readers that we’re talking about a short time frame – days, maybe weeks, a couple of months at most. That’s all. It’s the period after the credit crisis has sucked the cash out of the system… and before the government’s inflation tsunami has hit.

As Ben Bernanke put it, “a determined central bank can always create positive consumer price inflation.” But it takes time!

And during that interval, panic will set in. A dollar panic – with people desperate to put their hands on dollars… to pay for food, for fuel, and for everything else they need.

Credit may still be available. But it will be useless. No one will want it. ATMs and banks will run out of cash. Credit facilities will be drained of real cash. Banks will put up signs, first: “Cash withdrawals limited to $500.” And then: “No Cash Withdrawals.”

You will have a credit card with a $10,000 line of credit. You have $5,000 in your debit account. But all financial institutions are staggering. And in the news you will read that your bank has defaulted and been placed in receivership. What would you rather have? Your $10,000 line of credit or a stack of $50 bills?

You will go to buy gasoline. You will take out your credit card to pay.

“Cash Only,” the sign will say. Because the machinery of the credit economy will be breaking down. The gas station, its suppliers, and its financiers do not want to get stuck with a “credit” from your bankrupt lender!

Whose credit cards are still good? Whose lines of credit are still valuable? Whose bank is ready to fail? Who can pay his mortgage? Who will honor his credit card debt? In a crisis, those questions will be common as “Who will win an Oscar?” today.

But no one will know the answers. Quickly, they will stop guessing… and turn to cash. Our advice: Keep some on hand. You may need it.

Unfortunately, many Americans suffer from what psychologists call “willful blindness.” That’s why we have assembled the full, shocking details on what we call the Great American Credit Collapse. To get the full details, read on here.

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  126 comments for “Why I Think there Will Be a “Dollar Panic”

  1. May 5, 2016 at 12:28 am

    I don’t know if I can buy this argument or not.. If money exists as numbers on a ledger it is still money and real.. The government could print it all but that would mean semitrailers moving huge bails of money back and forth between banks every day.. The warnings of a debt collapse are worth noting and the possibility of credit cards being worthless could happen in a genuine collapse but a debit card would still work if there is money in your account.. The day comes when a debit card with money to back it up becomes worthless will be the day you wished you had bought bullets; something survivalists have been preaching since 1975.. Ain’t happened yet..

    • May 5, 2016 at 12:38 am

      You said “The day comes when a debit card with money to back it up becomes worthless…” That has already happened in lots of places, including Greece. Greeks could only get tiny amounts of money out of their bank accounts via their debit cards, no matter how much money they had in the bank. They resorted to bartering and other tricks (but not bullets) to deal with it. I understand that Greece and some of the other countries where this happened are not the US, but….

      • Panayiotis
        May 5, 2016 at 9:30 am

        In Greece there was no limit on any card based transactions.

        • May 5, 2016 at 10:18 am

          For example, you couldn’t get cash out of the ATM beyond very low limits.

      • RD Blakeslee
        May 5, 2016 at 12:29 pm

        BARTER can be very important (and virtually overlooked as a viable personal “financing” system in our “modern” times).

        Those of us who have stayed in rural circumstances have such means of exchange.

        May 6, 2016 at 11:27 am

        AH, but as an American, on vacation in Greece (Mykonos, Ios, etc) with a wallet full of US Notes? Let me tell you…..one hell of a vacation…..

    • Jungle Jim
      May 5, 2016 at 8:30 am

      I once knew a man who jumped off a ten story building. As he went past each floor, people could hear him say “Well, so far, so good”.

      • Jack
        May 5, 2016 at 9:18 am

        Jungle Jim, sad to say, I think you’re right. We’re all basically bankrupt except we just don’t know it (yet).

      • Thomas
        May 5, 2016 at 10:45 am

        Heard the same thing said by Steve McQueen, in The Magnificent Seven – 1960.

        • FortyYearsInThe UniversitySystem
          May 6, 2016 at 1:59 pm

          Well, I was on the ground floor that day, looting a dumpster.. I mean recycling some underappreciated goods.. and I was there when he met his destination. He didn’t say anything. He went splat, crunch. That’s all. Splat, crunch. It was sobering, I tell you, very sobering.

    • nick kelly
      May 5, 2016 at 12:20 pm

      As a middle road you could put some money in a Canadian bank. Several thousand US banks went under between 1929 and 1934 taking their deposits with them. No one lost a dime in a Canadian bank. Last loss was the failure of the Home Bank in 1926 which brought in Canadian deposit insurance- mostly unneeded as it turned out.
      There is a downside to this- the banks were conservative to the point of suffocation, and in a risk- off time, still are.
      Some Americans and others shorted the Canadian banks and then were blown away by record earnings. Maybe they were too early to short and as energy loans sour and real estate follows this could be a trade.

      Just remember it’s a cartel- there are only 5 of size, and they all charge fees. Up until 2008, the Royal Bank with dividends reinvested returned 17 percent per year for over 5 years.

      • May 5, 2016 at 7:28 pm

        It is illegal to open a bank account outside of the US. Go to Credit Suisse online and try to open an account.

        • Wayne Bonin
          May 5, 2016 at 11:04 pm

          It is not illegal, but almost impossible for a US citizen as the IRS regulations are such a pain in the ass.

        • d
          May 6, 2016 at 1:46 am

          No FACTA has simply made everyday Americans poisonous and expensive to deal with.

          Thats why slightly richer American have holding company’s in Panama or other places, as the holding company, not based in America, is welcome everywhere.

          The IRS dosent chase wealthy Americans, it chases wage and salary earners, as it easier,

          Nothing to do with congress shielding the rich, nothing to do with 1 % privileged

          Simply easiest return for the leftist staffed and run IRS and shows a better % return rate, per $ of expenses.

          FACTA isnt about stopping the rich avoiding taxes, it is about keeping the captive cattle on the ranch. So the IRS Staff can have an easy life..

        • Bob
          May 13, 2016 at 10:12 am

          No David it is not illegal to open a bank account outside the US if you are a US citizen. I have done it many time and I now have an active one. There are no substantial difficulties with the IRS if your account has less than an exchange value one 100 hundred thousand dollars. Every country and every bank has their own rules and banking systems vary widely. In other words, bank the not equal bank.

        May 6, 2016 at 11:56 am

        One of the lies used to create the Private Federal Bank Corporation, was an “elastic” currency to prevent another 1907 Bank run and bank collapse (instigated by Morgan when he trashed, intentionally, the Knickerbocker Trust Company)

        BUT, when the Depression was triggered (by banks raising the interest rate on margin loans), the FED refused to loan any money to numerous banks (5,000 of them). They failed, which was the intent.

        This is why America has 5 huge National Banks…..J.P.Morgan-Chase (Chase, the Rockefeller Bank), Bank of America, Wells-Fargo, CITI and and Goldman Sachs (all stock holders in the private Federal Bank Corporation). Get rid of the local and state banks and own/control it ALL.

      • marty
        May 10, 2016 at 8:24 pm

        That was then….this is now. And the next few years.

        RBC and Scotia are just as brain dead when it comes to hoarding derivatives.

    • micromacroman
      May 5, 2016 at 7:09 pm

      I always deal in cash. Sure I have bank accounts, and debit cards. Got rid of all credit cards 8-yrs ago. But keep cash in pocket, in safes…etc. Interesting thing to notice–like I do, is the “AGE” of the physical cash, and how shoddy & warn out it is becoming. Seems like not a whole lot of bills have actually been produced since series 2009. And have not seen a single one newer than 2013 yet………..Go ahead, look in your wallet and check.

    • Char
      May 5, 2016 at 7:58 pm

      Too much debt not enough cash. The depositors will bail out the banks. It was decided several years ago your deposit is an investment, if the bank goes down so does your money. Not enough money in FDIC if you think that is a safety net. It will happen very fast. Small limits for withdrawals. The banks got the government to have all government checks, VA, social security etc to be automatically deposited into a bank account, think about that. Banks want to eliminate cash so they know what you are doing with you money and accounts can be drained with missing 0’s.
      With the crash will come hyperinflation and soon the cash will be useless. We need to go back to gold backed currency like the Swiss, China and Russia are planning.

    • Paul Richards
      May 6, 2016 at 10:39 am

      don’t be naive foolish. every currency in history that followed the cycle we are in has collapsed. In fact every currency in circulation has collapsed, except gold.

      May 6, 2016 at 11:25 am

      The Government can over-ride credit card resistance.

      IF your credit card account is “in good standing”, and you have available credit, the Government, under “State of Emergency” can demand the retailer/vendor/supplier must take your credit card in payment, the issuing bank MUST honor the card, etc. and the Government can even go so far as to guarantee the payment if you default.

      Remember, Ayn Rand ( a woman, for God’s sake) wrote in her book, in 1955, that as the economy collapsed, the Government ordered everybody to spend the same amount this year as they did last year.

      Good Socialist Economic Policy.

      For those of you who have never read ATLAS SHRUGGED….read it.

      Also, who is saying the Government isn’t already printing and stockpiling paper notes as we speak? They are not that stupid. I can see each bank branch stuffing their vaults with paper….”just in case”..

      If anybody here works for a bank, can you let us know if this is happening?

      • Bigfoot
        May 6, 2016 at 5:12 pm

        Can they command the electrical grid to run also?
        Ayn Rand (a woman, for God’s sake)????????????? meaning?
        Atlas Shrugged was written in 1957 not 1955 & I’m sure you realize it’s fiction, right? I would think with your claimed expertise of history you could have gotten the date correct.

      • Bill
        May 8, 2016 at 9:13 pm

        If folks in our small town Southern bank want $10,0000 or more in cash they must order it at least 7 days ahead. Yes their passbook may say their balance is say $26,000 but the bank does not have it in cash. The bank can draw up a loan contract and give you a credit line for $10,000. You can then put down the check to buy a car for example. But try to cash it. Different story.
        Some portion of it is available depending on day of week, day of month.

  2. Gerald Wiltek
    May 5, 2016 at 12:35 am

    This scenario is certainly a possibility, and what is more, it has happened many times before!
    But, there is likely going to be a slightly different slant this time. Because of modern communication, things are going to be fast, and almost certainly widespread if not global. New substitutes for money will appear, if society continues to function the way we know. Cell phone based payments and currency will appear, and in ways where government is kept out of the loop. The implications for the bankers and the state are staggering, and we are on the outer edge of their control. Gold might (almost certainly will) get monetized and silver could be used for day to day transactions. .
    Times are going to get tough which ever way you look at it.
    If you don’t trust the government, the politicians or the banks, the choice is easy, logical and simple.

      May 6, 2016 at 12:02 pm


      Do not trust:

      Any Bank
      Any Politician
      Any News Broadcaster
      Any Preacher, Rabbi, Pastor, etc.
      Any Boss you work for
      Any TV News broadcast
      Any Person who owes you money
      Any Realtor
      Any Insurance agent
      Any Financial Planner

      Now that our modern currency (it is not money since only gold/silver/copper can be money) is a fraud, all financial transactions are based on fraud.

      Return GOLD as money and we will have trust. Until then? It is all a lie.

      • Bigfoot
        May 6, 2016 at 4:41 pm

        “only gold/silver/copper can be money”

        Says who? Throughout history many things other than gold/silver/copper have been used for money.

          May 6, 2016 at 5:00 pm

          But only GOLD has survived the test of time.

          Bring me a GOLD coin from Crete, 1,500 BC, or a GOLD coin from Egypt, 3,000 BC and I can still buy anything made today.,

          NOTHING else has this history. NOTHING

        • d
          May 7, 2016 at 2:27 am

          “NOTHING else has this history. NOTHING”


          Copper, tin, bronze, silver, and lead, all have simular history.

          Today gold is a false market over 1100% overvalued.

          Simply look at the divergence between silver and gold to see this.

          Metals have the history, not just gold.

          Gold is about as useful as lead, unlike lead, it is much easier to make pretty things from that hold their shine, and over time the volume of lead available has risen, over gold.

        • Bigfoot
          May 6, 2016 at 7:01 pm

          Not but, but, but – , either something other than gold/silver/copper can/has been used for money (IT HAS) or not. Feel free to send me all that worthless cash (the stuff that’s not money) you have. I will gladly accept it. Whether or not gold/silver has been used as money for ages is not the question.

          Again, the first question. Says who? I was only quoting from your comment so I guess the answer to says who is you, eh? It’s actually a question meant to stimulate some thought. I’ll ask another one briefly. Since you want to talk history. History shows than mankind has used many different things for money. Do I have to type the list? The only constant is that all parties involved agreed the item had value. Anything can be money.

          I made no reference to history & yes, I’ve spent a good many hours studying the history of money. As I mentioned here before, I claim to be an expert on nothing.

          I hear the same old chant, only gold is money, only gold is money. We have to get back to a gold standard. OK. Here’s the second question although the first went unanswered.
          How, right now, world wide, would we convert to a gold standard? Details!

          I’ll be patiently waiting.

  3. Agnes
    May 5, 2016 at 12:41 am

    I would dearly love to READ the report. Listening to vids is really hard for me!!! On May 27, 2008 I read an article by Darryl Robert Schoon on the evaporation of credit during the Great Depression(on Sept. 15th following Lehman filed for BK). Both the article above and the article by Schoon inspire much thought about what is next.

    “For if in the green wood they do these things, what shall be done in the dry?” I can see why some people do not want to have children–such a treasure to be risked.

  4. shaba
    May 5, 2016 at 2:54 am

    I subscribe to the Rickards theory – the only clean balance sheet left is the IMF’s, so they will bailout the central banks during the next crisis with the SDR.

    Pretty wise to have a small amount of cash on hand just in case.

  5. MC
    May 5, 2016 at 3:15 am

    Well, just yesterday the ECB announced its member banks will stop issuing the €500 bill. Still no word if the note will be “outlawed” but it’s a very distinct possibility.
    Now, all the €500 notes issued in the EMU so far account for a massive €306 billion or about 27% of total physical. By contrast €200 bills, the second highest denomination, account for a platry €45 billion, or just 4% of notes and coins in circulation. War on savers?

    Total value of €500 notes peaked first in 2011, then it flatlined until 2013, when value started climbing again, albeit not as sharply as before, but because of lack of physical, not demand.
    What happened in 2013? The Cyprus banking crisis, which exposed the whole EMU banking system as a Potemkin village built on a treacherous ground of NPL’s, bad assets and shady practices.

    I predict demand for ChF1000 notes will start picking up very soon. While the BNS would very much like to get rid of it, popular resistance, not to mention the very distinct possibility of a legally binding referendum, has forced Bern to stay quiet on the matter.

    And finally there’s the “barbarous relic”, gold. Generally speaking since 2009 gold has performed well against the euro with valuations always at least 40% over “pre-crisis” levels. In February 2016 gold has picked up momentum again and is presently trading at over 35 €/g.
    This is both due to a lack of physical and the ECB’s ominous rumblings.

    The ECB has been waging a relentless war on savers for years while chasing impossible to meet inflation targets: this is due to the time-honored practice of removing some items (like groceries) when prices increase “too much” or shuffling items (like rents and utilities) around. Had CPI calculated like in the late 90’s, the 2% target would have been met and exceeded long ago and the ECB would have had to invent some other hobgoblin to fight.
    Savers have fought back. Like guerrillas, we haven’t got tanks or artillery, so we have to make to do with what we have. Those who could afford it bought prime real estate and other high value items, like paintings. The others made do with a combination of cash and gold.

    In 1979, a little after the Red Army thundered into Afghanistan, a Western journalist met with a group of Pashtun tribal elders near the Pakistan border. After observing their little ragtag army, he asked them “How can you fight the Red Army? They have tanks, artillery and jets. You have old British rifles and a handful of obsolete Chinese mortars!”
    One of the elders, a small man with a well trimmed white beard and piercing eyes looked upon him like one would look upon an ignorant child, smiled and said “Allah the All-Merciful is on our side. Our cause is just and Allah, blessed be His name, will give us victory even if it takes a hundred years”.
    Sometimes I really wish I had some of the moral strength that Pashtun elder had because this war has dragged on an awful long time.

    • walter map
      May 5, 2016 at 10:13 am

      Your Pashtun elder did ultimately defeat the Russians, with a lot of tactical help from the U.S. in the form of support for al Queda. You’re probably aware of how that eventually backfired, with the assistance of additional players. Similar machinations have been underway in recent years with both al Queda and ISIS.

      Wheels within wheels. It’s not really necessary to be Arrakeen to get a handle on it. The national Wurlitzer certainly isn’t going to forthcoming about it.

    • nick kelly
      May 5, 2016 at 12:06 pm

      If by outlawed you mean not honored i.e. not changeable for smaller notes- no, there is no measurable distinct possibility. ALL the notes you receive may be worthless, but that’s not your implication- if you are saying the 500 may be singled out. Many very large denomination US notes are no longer printed but are still honored- they at worth at least their face value.

      African countries and some South American are prone to dishonor old currencies, which they relaunch and rename. Suitcases of the old currencies are abandoned at airports etc.

      A confusion in Moscow arose when the US redesigned the $100 bill- a brief panic that the old one was about to become worthless and thousands of mattresses were un-stuffed until the owners were reassured.

      • Event Horizon
        May 6, 2016 at 12:29 pm

        The 500 Euro will not be outlawed. They will disappear. Banks will retire them and send them back to the Central Bank for 5 E100 notes.

        They will disappear and the stupid European peasants won’t notice, won’t care and will go back into the fields to support those Families that have ruled for 500+ years.

        • Bill
          May 8, 2016 at 9:23 pm

          Actually the €500 is being swapped for a new €200 note. The €500 will be withdrawn and phased out over the next 24 months or so. But outlawed, no, gradually just withdrawn. Source: family friends in Holland just last week.

  6. frederick
    May 5, 2016 at 4:19 am

    Get yourself some junk silver pre 65 coins dimes and quarters and you will be fine if the dollar collapses or banks declare week long holidays Also stock up on necessities and İm no prepper but with inflation WHY NOT?

  7. David Lentini
    May 5, 2016 at 5:24 am

    Not a bug, but a feature. I’m sure many want to see the money disappear as a “natural” end to physical currency.

  8. d
    May 5, 2016 at 5:33 am

    In today’s economy YOU DO NOT HAVE ANY MONEY IN THE BANK.

    YOU ARE AN UNSECURED BANK CREDITOR, to the value of your deposit.

    If you have more credit in your bank account than is needed for the next two weeks expenditures you have a problem.

    I can not help you as you will not listen.

    If you have cash in a bank controlled safe deposit box.

    You will still have a problem.

    In greece when people we allowed to access their bank controlled safe deposit boxes after the bank freeze.

    All content had to be revealed to a state inspector the next time a box was accessed.

    Credit in “E wallets” phone payments systems, Etc, is useless, when the credit system freezes, or there is no electricity, or access signal.

    The ECB has just agreed to stop printing 500 Eur notes, they will still allow them to circulate, and will not officially be withdrawing them.


    • walter map
      May 5, 2016 at 8:57 am

      Banks should be public.


      • d
        May 5, 2016 at 10:00 am

        Banks should be 100% reserved. and chinese walled from all other financial trading activity’s, beyond basic loans.

        The they would be banks, not financial trading houses, with retail depositors money, insured by the state (FDIC), maybe.

        Then it really would matter who owned them.

        Having private management, would help to prevent state political nepotism/crony projects. Such “projects” are always a danger when the state has control of something, with public money in it.

        • walter map
          May 5, 2016 at 10:25 am

          The problem is not ‘the state’ per se. In a democracy, the general population is the state, including you. No, in western-style ‘democracies’ the problem is corruption of the state by corporatism, which corruption seeks to exclude you from any control of the state for their corrupt purposes, until such time as it can corrupt you also and manipulate you into supporting its corruption of the state. Happens all the time.

          You’re gravitating towards social democracy, despite yourself. All in good time.

        • Bigfoot
          May 5, 2016 at 10:42 am

          “Banks should be 100% reserved.”-BINGO
          I think we have more commonalities than differences :-)

        • d
          May 5, 2016 at 11:10 am

          If you go to 100% reserve.

          with a chinese wall on other activity’s

          Only a limited number of commercial fiances houses, the state, and the CB, can create money.

          Which puts the brakes, on the whole cheap credit, bubble blowing thing.

          You cant go from 1 to 100 overnight, and as you do, the economy will slow a little.

          As the growth, borrowed by excessive credit, will still have to be paid back.

          The national Economy ,will also slowly, become a lot more stable.

          Banks will, and finance houses, may, have to be restricted, on the amount/% of offshore entity’s cash deposits they may hold. As even at a low interest rate the bank’s paper will be very attractive internationally.

          To do something like that, In a modern, leftist cheap credit, Bernie sanders FREE FREE FREE democracy (As they call it) you need a longer election cycle.

        • walter map
          May 5, 2016 at 12:46 pm

          “Banks should be 100% reserved.”

          How would it cover its costs with 100% of deposits in reserve? Even if you reduce banks to the function of not-for-profit utilities they’re still going to have to hire people to do the work, and they’re going to expect to get paid.

          Do you charge customers fees for deposits? Negative interest rates? Government subsidies maybe?

          Perhaps you should put a little more thought into this.

        • d
          May 5, 2016 at 4:36 pm

          Perhaps you should read a history book, and learn the term. At 100% reserve, a Bank can lend 100% of what it has on deposit less any FDIC requirements.

          What it can not do, is lend 110% of its total deposits IE create 10% from air, banks can and do make a profit like that.

          I worked in banking and in financial trading houses.

          When I worked in my first bank, the law required 30% total deposits be in Government stock and 20% be in cash reserve.

          However the bank was still allowed to lend by creating from air, 4 times its total daily deposit balance. 25 % total reserve.

          US banks have less than 20% reserve cash and paper, and lend average of 10 or more times their total daily deposits balance. 10% total reserve.

          Banks can still make money at 100% reserve just not as much.

          This is not a concept I dreamed up it is an old concept that has been proposed more than once.


          It hasn’t been followed as we have a huge global air credit and growth debt that we may never be able to pay. Unless we have a long period (3 plus decades) of low or no growth. Something the IMF is trying to avoid. They appear to be will to risks a massive financial implosion and system destruction instead.

          They leftist still keep demanding their free lunches, and denying somebody somewhere has to pay for it.

          One of the reason the world is grinding to a halt currently, is we have borrowed and consumed at least the next three decades of growth, and the consumerism model of capitalism (Which is unsustainable any way) based on an ever increasing population base, is starting to run up against planetary sustainability.

          A financial system with a 100% reserve can sustain a long large economic slowdown, and a population decline/Implosion. As it has the freehold asset to back the deposits. Therefor the State can safely print and lend short term cash to the 100% reserve bank. As bank’s working on 100% Reserve. Will always conservatively vale assets they lend against, and will run 100’s of miles from an potential debtor than is even vaguely sub prime.

          A system with a 3% reserve, which is what the global average is close to, and 5% + sub prime lenders with massively overvalued assets can not survive that and the banks do not have the assets for the tstate to safely print against.

          Which is why when the chinese/global population, find out how much physical CNY is really in circulation.

          china and probably the world financially implodes, as it will be closer to 6530 cny to 1 $ US, Than 6.53, in minutes. No matter what the PBOC daily fix says, when that number gets out.

        • Bigfoot
          May 5, 2016 at 3:42 pm

          There has been an ongoing debate regarding 100% reserve banking going back at least to the 1930’s & probably a lot longer. There would obviously have to be a separation in account types versus reserves. Demand accounts would be (and should be) 100% reserved & investment accounts would not. The non bank financial sector would have to shrink. Different parameters would have to come into play. I believe it’s theoretically possible but we will most likely never see it as it would definitely curtail what we call growth. There are a lot of different angles to this & we are most likely too far down the rabbit.

          What will constitute reserves for starters ? How is money created & what/who controls velocity? We could debate this till the cows come home. Some say we already have a 100% reserve system & the CB’s would just print to cover. Value of $ does what then? I’ll amble back off into the forest now.

        • d
          May 5, 2016 at 5:00 pm
        • micromacroman
          May 5, 2016 at 7:19 pm

          Glass-Steagall, how we miss thee.

      • Faithful Reader
        May 5, 2016 at 10:19 pm

        I’m into public banks & free currency. I like the Bill Still talks….he says gold backing isn’t the answer. It’s about ending the fractional reserve banking. No more Federal Reserve. They broke it for sure….now we will get to invent something new. There’s a lot of freedom in all this breakdown. Looking on the brighter side…..

    • robt
      May 5, 2016 at 9:05 am

      In Canada anyway, cash in a safety deposit box is illegal. Probably that’s also the case in many other jurisdictions.

      • d
        May 5, 2016 at 10:03 am

        Bank controlled, safe deposit boxes. Yes.

      • david
        May 5, 2016 at 2:15 pm

        Chase bank in the states won’t allow it

  9. Chris
    May 5, 2016 at 6:18 am

    The only comfort an American can take from this article is that as the currency of reserve the the US Dollar will be the last domino to fall. Of course, that is little comfort when one equates the ramifications of a credit freeze to the sinking of the titanic. Psst. – We all know who will get into the life boats first, right?

  10. bead
    May 5, 2016 at 7:40 am

    The moral of the story is buy a vault, a rifle, and lots (and lots) of ammo. Then you may imagine yourself sole survivor. Certainly weapon sales indicate many believe in the scenario. I don’t know about vault sales.

    No food or gas equals no government and no civil order. I think we’ll see good old hyperinflation before we live through this imagined Dark Age. Yes, the technocrats are creepy and amoral but they’ll find a way to “foam the runway.” Of course it won’t be anything close to fair.

  11. Bigfoot
    May 5, 2016 at 8:25 am

    I subscribe to the line of thought Bonner lays out here & have for years. I have used an ATM for cash one time (late 80’s) in my life out of sheer curiosity. I do use a debit card but I always have the cash in my pocket for whatever purchase I am making. This has come in handy numerous times when “the machines were down.” Yeah, the debit/credit cards don’t seem to work real well without electricity. For a number of years now, there has been no reason for me to store excess cash in a bank. There is no return/reward from the bank for me “giving them an unsecured loan.” My access to the cash could be cut off at any time for a variety of reasons & there is nothing I could do except “hope” for a return. I funnel just enough cash through a checking account for general living expenses. FDIC has worked historically but the reality is there is less than 1% coverage of deposits. It’s mainly a huge confidence game.

    The ongoing war on cash all over the world has been widely publicized & is there for anyone to see. There has been a long history of bank runs for cash both here & abroad when things get dicey. We have seen all manner of “bail in” legislation (worldwide) to legalize theft of depositor funds should “they” deem it necessary. We haven’t seen bank runs in the US for awhile & due to most everyone using various forms of electronic payment, the possibility or even thoughts of a run on cash are not on the general populations radar. I believe we all suffer a degree of normalcy bias.This is probably a good thing as I don’t think it would take that large a % of people making a switch to cash to bring things to a screeching halt. I imagine if we do get into some form of a dollar panic, people like me will be ostracized & pointed out as the cause of the problem. My stance on cash has cost me nothing & is not based on paranoia, just a prudent reaction to the realities all around me.

    Then we have had the sanctioned theft of peoples cash all over this country. Forfeitures they call them, yeah, at the end of a gun barrel. This has been a great way for them (law enforcement) to boost their own cash hoard & at the same time give people a real reason to not carry/use cash. Something to keep in mind while traveling. Here’s a link to a very brief article on this topic. I urge people to get up to speed on this topic.

    Another thing I’ve noticed. My local bank generally doesn’t have that much cash. My wife handles retail cash deposits & obtains cash for petty. More than once, she has had a problem getting the cash she needs. Hmmm.

  12. walter map
    May 5, 2016 at 8:49 am

    Last year’s fashion was hyperinflation. I guess styles have changed.

    A currency panic is functionally similar to a bank run, which happens when the system goes illiquid. For that you hold currency. A currency panic due to illiquidity can be treated with inflation, which can run to hyperinflation when bouncing to the opposite extreme. For that you hold gold or similar commodities.

    Either way your money isn’t safe and your bipolar paranoias are getting played.

    If you want safe you want to rein in the banksters and enforce regulations on the financial system, otherwise the banksters will continue to play games designed to ensure to world’s wealth consolidates under their control, including yours. All of it. It’s what they do, and they’ve been at it for centuries.

    The best way to accomplish that is to get rid of the banksters and make the financial system more directly responsible to the people it purports to serve, rather than serve the interests of corporatists. North Dakota did that.

    How the Nation’s Only State-Owned Bank Became the Envy of Wall Street


    Public Banks: Bank of North Dakota – Institute for Local Self-Reliance


    It may also be helpful to consider what Jefferson had to say about it.

    “If the American people ever allow private banks to control the issue of their currency… the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered… The end of democracy and the defeat of the American Revolution will occur when government falls into the hands of [private] lending institutions and moneyed incorporations.”
    President Thomas Jefferson (letter to the Secretary of the Treasury Albert Gallatin, 1802)

    Puerto Rico also has a state-run bank, which was targeted by Wall St. and is now in deep trouble. All of which goes to show that even proper socialists can be proper capitalists, proper capitalists support socialism, and in any case one has to be careful about corporatist predators until such time as they can be brought to heel, if ever.

    I fully expect to get flamed by corporatists and ideologues about this. All part of the game.

    • May 5, 2016 at 8:55 am

      Germany has lots of state-owned banks (Landesbanken). With disastrous consequences and taxpayer bailouts that are ongoing! Decades of bad loans to support local politicians and voters, and a million other sins… very, very costly for the taxpayer (the owners!).

      • walter map
        May 5, 2016 at 9:55 am

        “very, very costly for the taxpayer (the owners!).”

        The owners have no control. That was taken away by private bankers. I did mention that you have to be careful of corporatist predators, which is what successful public banks do. You could have mentioned that also.

        The international banking cartel has a long, distinguished, and extremely well-documented history of predation and corruption, including, but hardly limited to, their targeting of the Landesbanken in their own back yard. The decisive role of this cartel in every major dysfunction in the world for the last hundred years is taken for granted by every politician, intelligence officer, and policy analyst in the world.

        If you want these problems to get under control you will have to deal with that cartel. Avoidance and diffusion of culpability communicates a lack of credibility and ulterior motivations.

      • Chicken
        May 5, 2016 at 4:15 pm

        No disclosures from author.

    • Faithful R
      May 5, 2016 at 10:25 pm

      Puerto Rico was gutted by Goldman Sachs. But they invited them in…..only way to really change all this is to cut them off. Each and every one of us should take out our money, don’t use much credit and starve the beast. The slow down alone will destroy many of the corporations. They can’t live on fumes forever. But we are fast becoming the serfs that Jefferson warned about in your quote above. We don’t have much time to make good choices. Every day is a big deal.

      • Bigfoot
        May 6, 2016 at 7:15 am

        Jefferson made his living off of SERFS. They were called SLAVES. They funded his lavish lifestyle which. He once wrote to George Washington that he derived a 4% financial return on “his slaves.” He owned slaves until his death, who were then auctioned off to the highest bidder. Yeah, he said a lot of pertinent things but he was a hypocrite to the tenth power. He led a lavish lifestyle way beyond his means. I’ve grown weary of all the people that throw the Jefferson quotes out there, even though many of them are logical. I dislike how much real history has been swept under the rug. Nothing personal.

        Just thro

          May 6, 2016 at 1:00 pm

          When Jefferson said “All men are created Equal” he was referring to EUROPEAN men. It was totally understood by him, and his contemporaries, that SLAVES were NOT men. Nobody, absolutely nobody, considered “slaves” as men or citizens. They were farm tools.

          This is why, for census and voting purposes, Slaves were considered 3/5 Men.

          So, stop getting all upset. That was the reality of their time. The Declaration of Independence, and the Constitution, were written BY White people for White people and there was never any consideration of the “Indian” and the “Slave” as being party to this. It was never, ever, intended that Indians of Slaves would be citizens, own land, vote, or own guns. The Bill of Rights did not apply to “non-Men”.

          If you don’t understand history, all of it, then don’t discuss it. Slavery of Africans was as normal of Slavery of Whites by the Barbary Pirates of North Africa (who raided the southern coast of France for white women). Everybody practiced slavery…the Africans, (whom the Spanish bought the slaves from and shipped to the Caribbean and Mexico after the Hispanics exterminated the native Indians in the silver mines.), the Chinese (who castrated all male slaves to prevent race mixing which they found abhorrent), imported thousands of slaves from the Arabic slave traders.

          The Arabians used African slaves as labor and White European Women (Slaves from Eastern Europe) as concubines as gifts from ruler to ruler. White women always had a higher value than slaves from the Southern areas.

          12 Million slaves were purchased from African tribal chiefs off the Ivory Coast and shipped to Mexico/Central America by Spanish/Hispanic slavers. 11.5 million ended up there and only .5 million ended up in the American colonies after Anthony Jackson won his law suit, against the State of Virginia, allowing him to own the first African Slaves.

          Anthony Jackson, a Virginian Plantation Owner, and first disgusting Slave Owner……was a Black Man.


          Please don’t discuss what you don’t know.

        • Bigfoot
          May 6, 2016 at 4:05 pm


          I’m quite aware of our history & it’s awfully damned presumptuous of you to ASSUME what I do or don’t know. That in & of itself speaks volumes. Thanks for teaching me absolutely nothing with your little dissertation on the slave trade!

          Yeah, I get that it was OK & normal for the times & that people have treated others as property for centuries, duh huh. THE POINT WAS all these quotes about freedom, equality, & debt attributed to Jefferson & thrown out often on forums came from somebody (Jefferson) who SURVIVED OFF THE LABOR OF HIS SLAVES as did many others. This is known history. I also mentioned that a lot of his quotes were/are pertinent.

          You ranted on about slavery but DID NOT ADDRESS MY POINT AT ALL! Feel free to elaborate on how Jefferson made a living. I’m having to respond to my own post since there was no reply button on yours.

  13. Nicko
    May 5, 2016 at 8:57 am

    The thesis of this…essay is hilariously out of touch. Dollar crisis? Look around the world, the dollar is the only thing holding it together, it is impossible to crash the dollar.

    • May 5, 2016 at 10:24 am

      Nicko, I think you totally misread the article.

      It’s not that the dollar will crash. The OPPOSITE! The article says there will not be enough dollars! It will gain in value because the other payment methods will fail, and everyone wants to get dollars and hoard dollars.

      This is an article about what happens when our credit-based payment system fails in a panic.

      • Mark
        May 5, 2016 at 12:11 pm

        Been through all this and much more WAR.
        Cash in your hands, loaded guns and LOTS OF LUCK are your best friends. Even with cash you have to be very careful, hungry people will go after you if they see you eat every day. So adjust yourself to diet regime even if you have loads of cash for food and water.
        Keep low profile TRUST NOBODY.
        Gold is your best enemy during such times. Try buying something with gold and you will not see next morning.
        This is what happens when credit based payment system fails.

  14. Jack
    May 5, 2016 at 9:27 am

    Watch the future of the European Union (better than Mad Max):

    • TheDona
      May 5, 2016 at 10:32 am

      Jack: THAT. WAS. AWESOME!!! Having to clean coffee off of my keyboard now from spitting it out in laughter.

      • Jack
        May 5, 2016 at 2:08 pm

        Dona, you didn’t know that punk rockers are big in Turkey :-)

    • Ptb
      May 5, 2016 at 10:42 am

      If only the US Congress could resolve things in the same manner

    • Intosh
      May 5, 2016 at 11:53 am

      “You’ll realize in your [political] life that at a certain point seduction is over and force is actually being requested.”

      — Don Draper

  15. Ptb
    May 5, 2016 at 10:28 am

    Bonners sky is always falling.

    • walter map
      May 5, 2016 at 11:50 am

      Once again, Bonner has put his keen and penetrating mind to the task and, as usual, come to the wrong conclusion. That’s because it’s characteristic of freshwater types to avoid root causes and are unable to get the premisses right because certain realities contradict the Mises worldview. Bonner, like so many others, is persuaded that ‘government’ is the problem, while never conceding any understanding of who runs the government, and how, and why.

      Must be those darn teacher’s unions again.

      • Vern
        May 5, 2016 at 12:16 pm

        You are on fire today, Walter! Many thanks…

  16. Mike R.
    May 5, 2016 at 11:33 am

    This sort of scenario almost broke out in 2008-09 and was stopped by Bernanke’s lead action at the Fed. I know people were pulling cash out of automated tellers daily or going for cash at the branches. They kept supplying the cash which is what you have to do to stem the panic. Otherwise, if cash isn’t available or restricted, the panic baloons. So last time, the cash panic wasn’t quite strong enough to take all the cash on hand from the banks and start the panic. We’ll probably never know how much they had in reserve around the country to feed to the branches and teller machines.

    Big picture, loss of faith in a major currency could be the starting domino in a series of crashes. This is why I belive other main CB’s are helping to prop up Japan to extent possible; or at least trying to not overly mess with their approach.

  17. NotSoSure
    May 5, 2016 at 12:30 pm

    I have hidden plenty of fresh crisp US/Swiss currencies. If Gold goes up, I have that too and I’ll finally be able to use the dollar to wipe my behind, but in the intermediate shortage, I should be sitting pretty.

    • walter map
      May 5, 2016 at 2:36 pm

      Unfortunately you’re taking an ongoing loss on all your liquid holdings. It’s just not a long-term solution. It’s damage control.

      Under normal conditions you’d be making a bit on deposits from your contribution to capital formation. And I’m not seeing any policy actions leading towards the restoration of normalcy. There’s nothing normal about feeding the pirates.

      • NotSoSure
        May 5, 2016 at 5:52 pm

        Desperate times, desperate measures. We are certainly not living in normal times.

  18. James McFadden
    May 5, 2016 at 12:47 pm

    Then again … with defaults on loans to the investor class, and with deflation of assets primarily owned by the investor class, perhaps the evaporation of those asset-inflated profits and usurious debts might be a good thing – a debt jubilee. It was a Ponzi scheme anyway – Fed policies to protect the investor class were never sustainable. I would not mind if my house declined in value by a factor of 2 or 3 or 4 if my kids might be able to afford to buy a house in the future. I think it is time to awaken from the neoliberal dream that value can be created out of market manipulation – that money grows on Fed trees that only the investor class can access – that debt peonage is destined by the invisible hand of the freely manipulated markets – that bank profits are more important than people’s lives – that growth can be sustained forever on a finite planet because we all know that interest rates compound – that somehow the investor class can keep their ill-gotten gains and continue to grow the debt of the 99% forever — and that the 99% will not complain because the investor class invokes TINA. Why should humanity remain indebted to the 0.001% investor class forever? A debt jubilee is possible – and inevitable. The only issue is when – and the timing will be determined by how much pain we are willing to suffer. It need not be destructive. We just need to insist on a transition where people are placed ahead of profits, where distribution of goods and services is established to protect people, and where people can continue to live and work during the transition without fear of destitution. The investor class, with their nearly complete control of media, will try to scare us into accepting more austerity – but we aren’t buying it anymore. And as far as what to do with the investor class, and their lackey bootlickers in political office, I guess that will depend on how they react to our demands — because we will defend ourselves. A non-violent acceptance of the transition would allow them to go on living in luxury – but take away their ability to extract all our wealth while simultaneously destroying the environment. But if they react as Orwell penned: “imagine a boot stamping on a human face – forever” – then we have a right to defend ourselves. They need to realize that when we start fighting back in the class war they have waged on us, and waged with extreme intensity for the last 40 years, that we will win – that they are outnumbered. I think Michael Parenti got it right: “ruling elites pursue policies that take from the needy and give to the greedy” and “The real burden to society is not the poor but the corporate rich. We simply no longer can afford them.” And “Those of us designated as ‘extreme leftists’ actually want rather moderate and civil things: a clean environment, a fair tax structure, use of social production for social needs, expansion of public sector production, serious cuts in a bloated military budget, affordable housing, decently paying jobs, equal justice for all, and the like. There is nothing morally extreme about such things. They are ‘extreme’ only in the sense of being extremely at odds with the dominant interests of the status quo.”

    • Intosh
      May 5, 2016 at 1:24 pm

      Maybe one day, the angry mob of the needy will drag the Alan Greenspans and Ben Bernankes and other disciples of Milton Friedman and Ayn Rand and their cronies, out to the streets and prosecute them for gross negligence and crime against humanity. But for now, these people are actually celebrated — “we” are giving them awards and medals. For now, most still live in the Matrix…

    • May 5, 2016 at 1:42 pm

      Reading this “debt jubilee” nonsense is getting tiring.

      It proposes a giant wealth transfer (theft) from creditors to debtors. If it is funded by money printing, the wealth transfer (theft) is from “everyone” to debtors.

      Debtors need to service their debts or default. Creditors need to take their losses; they got paid to take losses via the interest they’re charging.

      One entity’s debt is another’s asset. Debt capital is a great thing, if it is used for productive purposes.

      • walter map
        May 5, 2016 at 2:59 pm

        “Debt capital is a great thing, if it is used for productive purposes.”

        Exactly. It’s financially pointless, even destructive, if there’s no ROI. Taking out a loan to buy a car to get to work can be a positive use of debt. So is debt to buy a home, if it means building your own equity instead of building your landlord’s. Taking out a loan to throw a big wedding reception or to take an expensive vacation is negative. Unfortunately the banking system makes no such distinction when marketing loans and simply encourages debt, good and bad alike.

        A “debt jubilee” is a simple-minded approach to a complex problem that replaces one problem with multiple bigger problems. Bankruptcy is a cleaner approach to resolving unmanageable debt because it minimizes destructive side effects. Your interlocutor could benefit from some instruction in the value of basic financial concepts.

      • May 5, 2016 at 3:27 pm

        Default/repudiation is inevitable. What form it will take is the only unknown. Possibilities include re-denomination (the ‘New Dollar’), debt-forgiveness (haircuts), restructuring (bail-ins, wealth taxes), government currency issue (US Notes), DIP/debt-for-equity swaps (as after the USSR collapsed), command economy/rationing. This last is the most likely outcome, IMHO. I think the foreign country the United States will most resemble in 20 years is North Korea.

        It may appear otherwise but ALL the bankers understand Minsky and his financial instability hypothesis. They know that Ponzi financing has compounding costs … but they also believe these costs can be managed if interest rates are low/negative.

        A problem w/ economists battling their self-created monsters is they can only watch one part of the monster at a time.

      • d
        May 5, 2016 at 4:47 pm

        If china isn’t very careful.

        They will get their debt jubilee.

        In the form of the largest financial implosion the world has ever seen.

        I am sure they will enjoy it.

        That’s the only way the system will allow all the debt to evaporate.

        Intelligent, logical people, understand this. They are mainly right, and centrists.

        • walter map
          May 5, 2016 at 7:32 pm

          What happens when state-owned corporations default, leaving state-owned banks holding the bag? And what happens when the state-owned banks simply write off the losses, denominated in state-issued debt created out of thin air? What happens to the state workers who weren’t doing anything and were getting paid in worthless fiat anyway and end up on welfare?

          Seems rather circular. Could be one of those if-a-tree-falls-in-the-forest scenarios. I wonder if it’s worth wondering about, not that anybody’s paying me for it.

        • d
          May 6, 2016 at 1:50 am

          What always happens in china, when this happens, as it has before, many times in history.

          The people discover, the States/Emperors Paper Money, is only good for toilet paper. This is followed by Massive Hyperinflation.

          The People become hungry, and angry, this is generally followed by, a

          BIG CIVIL WAR. And the return of a metal based currency.

          china invented paper Money Printing, Bond’s, and every devious evil that goes with them.

          The greeks/Athenians, internationalized Western Sovereign default, they didnt invent it..

          china is also the poster child of Excessive Money Printing in History.

          china is the poster global child of Civil War in History also.

          At the root of all of those chinese Civil wars since money printing, has been a debased currency, moneytised debt, and financial implosion.

          china refuses to admit, or learn, from its own history.

          As does the money printing world.

          People scream, we have computers, and the internet, this time its different. It isn’t People deny reality,

          The answer is not to be found in Keynesian theory’s, or the leftist London school of Economics. Or Leftist tax the rich, fantasy dreams, of debt Jubilees.

          It is in the history book’s, when you go back far enough, and read around the Propaganda.

          It is simple, Keep the credit ratio as low as physically possible, to allow capitalist business to function, or society pays the price..

  19. michael
    May 5, 2016 at 1:56 pm

    I absolutely agree with that sentiment. The last bailout was essentially a “debt Jubilee” for the bankers paid for by the rest of us. I like what Bill Bonner has to say here because much of the “debt” are in derivitives that will likely not be paid. At some point, god knows when, all the fluff is going to come out of this market. Everyone is going to be scrambing for something off value. The debt numbers are stupid, trillions. Even a five year old can figure there is not enough collateral to support those fictious numbers.

  20. Brian Richards
    May 5, 2016 at 2:05 pm

    I’m not sure Mr. Bonner’s article is rational. Certainly, one could imagine numerous scenarios of impending doom, but we all have very active brains, and very basic, primitive emotions. Mr. Bonner’s hypothesis is interesting, (and very appealing, I must say) but probably not likely. But I don’t disagree with the strategy of intelligent diversification in one’s asset allocation. One lesson I have learned in my long life is that no matter how “intuitive” or “logical”, or “likely” some event may seem to be, don’t become wedded to it. My brain and thought processes (just like most human beings) tend to be contrary indicators. Good luck to everyone.

  21. May 5, 2016 at 2:06 pm

    @Bonner sez:

    “In a gold-backed monetary system prices fall. But the money is still there. Money becomes more valuable.”

    In an oil-backed monetary system (like we have today) prices fall. But the money is still there. Money becomes more valuable …

    … because each dollar, euro or yen represents that last, desperate bit of gasoline, when you have to drive or go crazy.

    • Ptb
      May 5, 2016 at 2:20 pm

      When the US was on a gold std in the 1930s money was so strongly hoarded that many cities created scrip in order to do business.

      • walter map
        May 5, 2016 at 3:14 pm

        Bonner doesn’t understand economics and finance nearly so well as he thinks he does. Whether the system is gold-backed or fiat is quite beside the point. What is relevant is how the system is regulated and maintained.

        Ultimately the value of any medium of exchange is a function of the quality and social equity of the underlying economic system. Forex arbitrage profits from distortions in economic quality and social inequity. In the LIBOR scandal such distortions were deliberately engineered so as to cheat the system.

        Financial engineering to juice stock prices is just the tip of the iceberg. The financial industrial complex should be prosecuted for disseminating misinformation and disinformation for private gain.

        • May 5, 2016 at 3:34 pm

          There are too many cheaters, regulation is for ‘the guy behind the tree’. The cheaters cancel each other out … not exactly the best case scenario.

          Remember when finance was arguing for consolidation, in order to ‘become more competitive internationally’? It was really consolidating in order to manipulate global markets without penalty.

  22. davi
    May 5, 2016 at 2:23 pm

    If you hear them planning to ditch the $100 bill in the states…call your congressman. They probably all want to for their bail in possibilities. The $100 bill also makes up a large portion of the cash available….70% or more. That would make any cash runs exponentially worse.

    • nick kelly
      May 5, 2016 at 2:36 pm

      Bit of trivia: After 2008 the US mint had to farm out some printing of the 100 to Switzerland. The specialized printing could not be revved up fast enough.

      • Chicken
        May 5, 2016 at 4:58 pm

        Outsource money printing to the Swiss and build new schools in Afghanistan so they can blow them up as opposed to creating employment and building new schools somewhere in middle America. My, how things haven’t changed.

        World’s largest employer is who?

      • Agnes
        May 5, 2016 at 7:53 pm

        When I went to the bank upon which my paycheck is drawn to cash it, I always say they can give me whatever bills they want. Usually they give me hundreds an the last bit in twenties. Last week…no hundreds…interesting, no?

        I could not find the article from about three years ago showing that jp morgan had moved all its derivitives exposure to the bank segment that has actual depositors and has fdic insurance. But I did find this:

        Too Big To Fail Bank Derivatives Exposure

        JPMorgan Chase
        Total Assets: $2.6 trillion
        Total Exposure To Derivatives: $63 trillion

        Total Assets: $1.8 trillion
        Total Exposure To Derivatives: $60 trillion

        Goldman Sachs
        Total Assets: $856 billion
        Total Exposure To Derivatives: $57 trillion

        Bank Of America
        Total Assets: $2 trillion
        Total Exposure To Derivatives: $54 trillion

        Morgan Stanley
        Total Assets: $801 billion
        Total Exposure To Derivatives: $38 trillion

        Wells Fargo
        Total Assets: $1.7 trillion
        Total Exposure To Derivatives: $5 trillion

        source: occ.gov

        Those numbers are old and prolly too small now.

        • d
          May 7, 2016 at 1:00 am

          Look up fractional reserve banking.

          Then look up how money is created. In the modern and Australian system.

          The banks lend money they do not have, by creating credit in customers accounts.


          Is the most untrustworthy bank in Australia. Their bank checks used by lawyers to settle housing transaction get dishonoured.

          They are also regularly involved in illegal foreign currency movements Particularly from PNG, which is why their bank checks get dishonored.

          Which is why many Lawyers will not touch them.

          The read that


          Banks create MONEY from AIR in AUSTRALIA thats how now money gets created.

          In Australia. The reserve simply prints cash the amount of cash in Australia is way less than the amount of money in the Australian system, as banks in Australia create money from air. By lending..

        • d
          May 7, 2016 at 2:12 am

          For starters.

          Add all those derivative number together, then cut them in half.

          Then you have the value (APP) of the credit side of the derivative pile.

          Then replace the word “Derivative”, with the words “insurance policy’s”.

          Then think of the number of insurance policy’s, that are actual ever required to meet a full claim, as a % of total policy’s written.

          Then you get a better concept of it.

          The derivative issue is VERY big and not well understood, so a very easy anti bank issue, to make a huge, hysterical, baseless noise, over.

          Many, Notes/Bonds/Instruments, have multiple Derivatives/insurance policy’s, written against them, for various issues.

          The last one I was involved with, I had to think back a long while, as we didn’t call them derivatives, we called them insurance policy’s, then.

          Had 5 policy’s, totaling 10 x the value of the Instrument. + 10 credits for – 1 debit.

          Depending on the circumstance only 2 or less would ever be required to pay something.

          Then those ten policy’s, will have counter policy’s taken against them. Insurance company just like bookmakers (Which is all insurers really are) take counter party to everything (lay off their loosing action).

          Now we have 20 policy’s 10 + 10 – against 1 instrument of which 4 may be required to pay something.

          But all 20 will be in that total derivatives liability pile you list.

          The problem with Derivative insurance, is a lot of them are underwritten (guaranteed) by people who do not have the capital to sustain a call.

          They have gambled, as insurance company’s and underwriters do, they wont have to pay, but will collect a fee. For nothing.

          Which is why they are an issue in banks with retail deposits, in times of great financial stress.

          As the banks have liquidity, so will be aggressively demanded of, on their Debt derivatives, by their creditors.

          But will have non receipt (payment) issues with other entity’s, that that are not banks, that have liability’s to them, on their credit derivatives when they make demands of them.

          I do not like the way the current Derivatives market is played. It is a rent and fee gathering, gambling exercise.

          Run by trading houses, insurers, and underwriters.

          Huge amounts of fee are being generated, at the consumers expense.

          Today it is almost Impossible to get a loan for anything, with taking compulsory insurance, that is then re-insured. Both policy’s at the debtors expense.

          Then, put them in the balance sheet, the wright way, and they move a lot of profit, beyond the reach of shareholders and tax gatherers. And fill a lot of pockets, with fee generating based bonuses.

          This is why the derivatives market is so opaque.

          You can not take the total numbers in that list and claim it as bank derivative exposure.

          That’s a hysterically hyped joke.

          With out the data that show’s, what they are against, where, when, and how.

          JPMorgan Chase, Citibank, Goldman Sachs, The are undoubtedly international trading houses and finance entity’s not BANK’S.

          Bank Of Americ, Morgan Stanley, Wells Fargo, are also much more in the definition of trading houses as opposed to BANK’S.

          Although all provide retail banking services.

          Is there a danger in derivatives. yes

          Anti bank, class warriors, are hyping that danger off the planet, because they can, and want to.

          As the industry will not bow to them and their demands.

          And why should it.

  23. TheDona
    May 5, 2016 at 4:43 pm

    Here something that happened to a 15 year colleague in my industry 2 weeks ago regarding banking: He is from Brazil, his wife is from Peru; they have business with Spain, China, and a few other countries and obviously travel a lot. His business credit card was declined and when he called they said there was a freeze on his business account with no explanation. He went down and quizzed practically everyone in the bank and none could offer an explanation. They offered him as an interim “best we can do” a cashiers check for 5% of his account. Not enough to cover his employees or vendors. He went to BOA to open new account and they said 5 day wait to clear the cashiers check. After several more meetings with Chase they said they had already mailed him the (large) balance. He has still not received it nor has he received an explanation. Frightening, no?

    I think keeping some extra bucks in the safe is a prudent idea for all of us.

  24. Bob
    May 5, 2016 at 5:10 pm

    Didn’t bill bonner lose his shirt in Irish real estate?

    • May 5, 2016 at 5:31 pm

      It seems he’s also losing his shirt on his high-altitude hard-to-get-to ranch in Argentina, though it is apparently a magnificently beautiful location and great for tourists, once they can figure out how to get there, according to his funny musings about it.

  25. Paul
    May 5, 2016 at 7:27 pm

    Question: what is the better option, pay off a mortgage with available cash now, or hoard cash and pay it off when the banks are really hurting?

    • Intosh
      May 5, 2016 at 11:38 pm

      I was wondering about this as well!

  26. micromacroman
    May 5, 2016 at 7:54 pm

    I am concerned that everyone cant see the forest for the trees.
    I suspect that guys like “Walter Map” are just getting an education here, and slowly figuring out the micro-macro-economics. People of a certain age can remember the 1934 Glass-Steagall act. It recognized that the finance industry was a 3-legged stool. 1) Banks, 2)Insurance 3) Stocks…..The law separated the legs on the stool. Made them separate, and unable to invest in each other per-se. This protected the the “whole” from a collapse in any of the others. In 1999 we passed the “graham-Leach-Blilly” act in republican congress & signed by Dem Bill Clinton. This repealed glass-steagall, gave rise to the mortgage crisis, the aig insurance crisis, all the derivitaves, hedge funds, global economy, china, imf—–the gloves were off. So when the financial system collapsed in 2008, we suddenly saw investment companies like Goldman-Sachs & others IMMEDIATELY classified as “banks” and bailed out. The big risk was that their would not be enough $$ to pay for the trillions of dollars of annuities and other “guaranteed” income & insurance product sold over the previous 45 yrs. Their was even talk in march 2009 that government would take over ALL private annuity and retirement (401’s etc). But the fed reserve was able to “re-inflate” the stock market to salvage the insurance & investment companies returns. This is where the real “inflation” has occured in the last 7-yrs. People thought all that suppossed printed $$ would result in massive inflation…It did, just in the stock market only. this was possible, by-passing the traditional bank-makes-loan-creates money of the past fed reserve…..now just bank get money, puts in stock market, gets great return. No need to make risky loans. This is all made possible by the repeal of glass-steagal, the rise of electronic money—-able to now by-pass the real economy……Oh and by-the-way is you are old enough to remember the “DEBATE” about the graham-leach bill back in 1999…..IT was all about American being able to compete with european banks in the new global economy. America was hampered by “antiquated” banking laws that European banks were not subject toooooo….I remember, do you ???

  27. Thomas Malthus
    May 5, 2016 at 8:24 pm

    When a scenario like this is realized — it means the global economy has imploded — and I very much doubt that having a mattress full of USD is going to be of much use.

    This would be more a guns and ammo and canned food situation.

  28. Apple
    May 5, 2016 at 9:49 pm

    This article is apparently based on the notion of a widespread catastrophic collapse in asset values.

    I haven’t read the above comments so maybe the fact that 80% of Americans have less than $2000 liquid assets has been mentioned.

    But get real. We have debit and deposits are FDIC insured and Treasury will print all the electronic cash people need to cover their monthy salary deposits. Yes a premium will be given to cash, but this is not 1971.

    So what if over time parasitic big banks that do nothing for the average joe collapse? Gee they’ll sure miss that 21% credit card interest payment!

    As has been alluded to, the whole loans makes deposits (cash) by banks is corrupt so to say there are verbotin banking ‘rules’ that if breached will alter the space-time continuum and plunge us all into a mad-max existance is far-fetched. That will happen when the flow of REAL STUFF is impeded (ala Trump nukes China).

    There is relatively little physical cash BECAUSE it is used less frequently than alternatives. This negates your thesis.

    Controls will be put into place and beyond short run mattress stuffing, the absence of physical cash (today) means next to nothing if you have a debit card or check book.

    Oh, and they can always print more cash!!

    Read up on the velocity of money! Even a single dollar bill is enough to support the entire US economy if it moves fast enough! (this will be a quantum dollar bill of course!)

    • Agnes
      May 6, 2016 at 1:49 am

      Suppose I know someone who sells eggs and there has been an event which causes my bank to RE-post the sign they had up in 2008 that said “all deposits INCLUDING CASH” are subject to a 3 day waiting period”. Do you think they are happier with a check? or with cash? Or with my homemade rosemary tortillas? This is no thesis. Currencies not linked to commodities have a limited lifespan.

    • Bigfoot
      May 6, 2016 at 8:35 am

      “There is relatively little physical cash BECAUSE it is used less frequently than alternatives. This negates your thesis.”

      From my vantage point the physical shortage of cash as reported in the article actually supports the thesis. Nobody is talking mad max Trump nuking China scenarios here. Bonner is a salesman & fear does sell but that doesn’t negate the theory in & of itself. We all agree we’ve been led to a situation of mainly utilizing electronic cash. The Greeks lined up at atms for cash & were limited to approximately $62. I don’t think it was a huge problem (I wasn’t there) as ELECTRONIC CASH WAS STILL WORKING. Our population is 30X larger & could make a difference. The theory laid out here is that the debt/credit cycle is has broken down & ELECTRONIC CASH HAS MALFUNCTIONED or been curtailed. The credit/debt cycle is starting to break down as anyone paying attention can see.

      Your viewpoint is based on a functioning electronic flow of funds which you believe either can’t or won’t be curtailed. I have no idea what the odds of a systemic malfunction of electronic money is but I know it’s not zero. Apparently you give it zero chance & that’s fine.

      From a completely different perspective, it has been pointed out how vulnerable our overall electric grid is to a systemic breakdown or a cyber attack. Odds on this happening, dunno but certainly not zero. Ever been in a grid down situation? I have & cash rules!

      You really think the average joes credit card debt is going to disappear because the issuing institution has gone under?? Good luck with that. Contingency planning. This is all we are talking about when you come right down to it & it cost you nothing.

  29. BRF
    May 5, 2016 at 10:36 pm

    interesting thesis. the bankers know what the situation is and are prepared to shift to another money system having run the current one into the ground by creating too much of the stuff, mostly digitally, money equaling debt. Debts that can’t be paid won’t be paid and the system will crash. At some point after, when default and debt has been played out the bankers will flood the system with money again. The backing to money will change, gold or SDRs or whatever, but in the meantime the bankers will have foreclosed on entire nations extending conditionalities with new money. With each shift in money issuance the bankers obtain more control over the entire human structure on this planet.

  30. Old Codger
    May 5, 2016 at 11:21 pm

    A bank usually finances its loans from a combination of deposits, and the sale of corporate bonds.

    If they suddenly decide to “create money out of thin air” to finance further loans, over and above that figure, the then its balance sheet should show VASTLY greater amount in loans than deposits and bonds combined.

    They do not! (at least not in Australia)

    • Agnes
      May 6, 2016 at 2:41 am

      Old Codger — I think Australia uses the three bucket method of assessing its assets– tier 1 tier 2 and tier 3–but that does not mean they are marked to market (assets are “loans” to purveyors of paper for all practical purposes)…do banks in Australia have to use GAAP or the shilly shally methods ONLY banks amongst all businesses are permitted to use in the U.S.? BAPCPA of 2005 was supposed to trade tougher Bankruptcy laws for a mark-to-market rules for banks…..but the part for the banks was delayed and delayed and I remember quite clearly hearing a major bank one week post Lehman brothers crisis give a negative quarterly earnings report AND THE FOLLOWING WEEK a glowingly positive one(after the crisis got congress to belay that part of the law—at Snow’s urging I think I recall).

    • d
      May 6, 2016 at 3:56 am

      “They do not! (at least not in Australia)”

      You better look again at those sheets other than credit union and savings bank’s, anz has

      This is a little easier to read but there is still a lot missing, in any market movement the 12.139 billion on security’s, is illiquid and not worth half of that.

      More loans than deposits, 106.3 v 90.6 BILLION $

      The derivatives balance, almost, but again in any stress they will all become liability’s.

      So in any stress, losses on, derivatives app 6, security’s app 4, bad loans app 25, and worthless good will 3.4, loans over deposits 16, at least a 54.4 billion dollar hole, before depositors start asking for their money.

      And anz (nz) is a good balance sheet.

      The Aussie one simply dosent add up,


      To much time to find the more detailed statements, but the Aussie operation is 6 times the size of the NZ one, and the ratios will be similar

      which means the group would be looking at around a 350 Billion dollar + hole, in any serious stress.

      Thats a conservative number, what happens if you get a 40-50 % drop in security’s values, a larger derivatives loss, combined with heavy depositors demand. 500 + B, easy. Remember a lot of those assets on the sheet are illiquid and at high market, not stress market levels.

      What about all the off balance sheet liability’s??

      US and European one’s are much worse. As they run much higher ratios than the conservative ANZAC banks.

      But the basic point, loans out weigh deposits even at ANZ NZ.


      All bank loans on House’s and most other things, are air, that is how money is created in Australia.

      The Bank moves the digits around to put credit in the buyers account, They dont have the money or need it.

      Then the banks do the same between the lawyers Banks, then the Banks do a Daily/Weekly/monthly settlement between their FED/CB accounts, any Bank that dosent have enough digits, gets some digits short term from the FED/CB.


      But the basic point, loans out weigh deposits even at ANZ NZ.

  31. Régi Resende
    May 6, 2016 at 11:43 am

    This new crisis will end just like that! And it’s a silly look out out of personal preparation to have a stockpile of emergency fuel, food, water, etc. No use accounts outside the country, it will be worldwide. Here in Brazil we are beginning … people do not have more money because they are either unemployed or in debt, or with insufficient income. No more unsecured credit … that is the way we crash … the end of the line.

    • Bigfoot
      May 7, 2016 at 10:14 am

      If you can ever give us some boots on the ground type observations from your area, I & probably many others would appreciate that.

  32. Old codger
    May 6, 2016 at 3:04 pm

    Sorry, but my post has not been answered.

    Taking the Australian bank WESTPAC as an example, the balance sheet a couple of years ago had ‘Deposits’, together with ‘Bonds and Notes Outstanding’, as a total roughly in line with ‘Loans Outstanding’.

    As they should be!

    If a bank takes $100 in deposits, and sells another $100 as a Corporate Bond, that bank has to set aside about 10% ($20) as reserves. Including Shareholders funds and retained funds, usually as Government Bonds.

    The remaining $180 is ALL they have available to lend! They cannot make loans totalling $280, or $280 Million!

    I would appreciate a link if available.

  33. J P Frogbottom
    May 6, 2016 at 3:11 pm

    What is ‘missing’ here is the value of money. The value of debt as well.
    Raise interest rates by 300 basis points overnight (3%) and money from all the world over will be flocking to the US.

    We have a Chicken in charge of the FED who is afraid to normalize rates, even to BEGIN to normalize rates, save that whopping .25% goose last December. Foreign borrowers might be ‘hurt’ by increased rates. Too bad, the price of debt… Our indebted might be ‘hurt’ when interest on their credit cards goes up… too bad, the price of debt. Home borrowers might be hurt by higher mortgage rates, too bad, the price of DEBT. Stocks might go down, real estate falls, existing bond prices fall, as the cost of money increases, indebted marginal companies might go bankrupt, tons of bad things can happen!!! TOO BAD, the price of DEBT!!! We could go bankrupt, and then geezers like me get no social security, too bad, the price of DEBT!!

    Starting to see the end game now?

    DEBT markets are much larger than equity markets.

    • d
      May 7, 2016 at 2:17 am

      The chicken isnt in the FED.

      The HUGE chicken, is in the white house.

      How is the chicken in the white house going to pay the bill, when the interest rate rises????????

      Take back all the O bummer phones and sell them to somebody????????

      Dont resolve the problem, dont even hit the place where the problem is.

      Just hit on the only entity, try to do something about the problem.

      • Agnes
        May 7, 2016 at 6:26 pm

        d Thanks for your input about derivatives ….I did know that there is a multiplier effect….I am old enough to have calculated Standard Deviations with paper and pencil, and a curve that goes parabolic actually means something to me emotionally. Of course the ptb will not raise interest rates…but Mr. Market someday somewhere might have a say.

        • d
          May 8, 2016 at 4:07 am

          Mr Market will one day regain control.

          At the moment derivatives, are horrible things, which is why Buffet calls them Financial WMD. As they are being kept deliberately Opaque, to make a lot of people, a lot of, fees, bonuses, and commissions. And quiet possibly evade some large tax/shareholder liability’s.

          Interestingly. Buffet does trade in, and hold derivatives. ONLY when he is on the RECEIVING/credit end.

          That tells us a lot.

  34. Mandrake
    May 7, 2016 at 12:47 am

    The Bonner Theory is simply wrong. Discharging debt does not destroy paper money , only book keeping entries in a ledger ( digital ) … He suggests a money subsitute , will be worth more than ” real ‘ money .
    Government will simply declare a new value assigned , to each circulating measure of currency. == I.E. a Dime is now equal to a 100 bank note –
    —- There is PLENTY of Cash on hand now , smile :)

  35. Expat
    May 9, 2016 at 8:29 am

    They will keep the game going until the currency is worthless. Look at Venezuela today…US tomorrow. The new “Liberty Dollar” will be severely devalued..(i.e. Russia in the 1990’s.) So..
    Will you hand over your guns for a Government grocery ticket?
    Will you trade your gold coin for a can of chili?
    Will you stockpile your groceries knowing your neighbors will invade your home?
    Will you work as a “Security Thug” or stay unemployed?
    Will you try to leave the country or stay as a patriot under the rule of “Martial Law”?
    Decide now…while you can..

    • Thomas Malthus
      May 10, 2016 at 1:31 am

      And move to where?

      • Xpat
        May 10, 2016 at 9:31 am

        According to The Economist, the United States was the best place in the world to be born into back in 1988. Today, 2015 the United States is only tied for 16th place.
        So now you have 15 other places to go.

        • Thomas Malthus
          May 12, 2016 at 3:26 am

          When the collapse hits — there will be no ‘better’ place to go to.

          And pre-collapse it’s not as if you can just ‘go’ to the better places — the better the place the tougher/more expensive immigrating is.

          New Zealand for instance (where I moved to last year) won’t let you in if you are over 50 — and if you are under 50 but have any slightly serious health issues — you are out of luck.

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