Is GOP Call for Run on the Banks Effort to Sabotage US Economy?
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After one Republican senator committed the extremely dangerous act of openly calling for a run on the banks, something that could literally bankrupt the nation and lead to massive economic collapse, one would expect the national party to ignore, disavow or directly oppose the idea. But the national party is so drunk with the lust to sabotage Barack Obama’s presidency, it has endorsed the idea.
Sen. Richard Burr (R-NC) told constituents that as the economic crisis began to make itself clear last fall:
On Friday night, I called my wife and I said, ‘Brooke, I am not coming home this weekend. I will call you on Monday. Tonight, I want you to go to the ATM machine, and I want you to draw out everything it will let you take. And I want you to tomorrow, and I want you to go Sunday.’ I was convinced on Friday night that if you put a plastic card in an ATM machine the last thing you were going to get was cash.
Burr’s anecdote, far from being a pithy folktale about a senator with a populist streak, is a resoundingly clear demonstration of a powerful public official who has very likely next to zero understanding of how such actions relate to the integrity of our banking system. A run on the banks, across the population, leads to thousands of bank failures, millions of jobs lost, mass economic chaos, and the unraveling of a financial system.
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We know this, because it happened repeatedly, through the natural course of random human behavior, based on such reflexive economic activity, until spurred by the Great Depression, we established the FDIC to guarantee deposits up to $100,000 and prevent future runs on the banks. In Argentina, such a situation occurred in 2001, when a run on the banks left the entire nation bankrupt, drawing the third largest economy in Latin America into an unrecoverable tailspin.
The British newspaper, The Independent, reported on 3 December 2001:
Argentina edged close to bankruptcy yesterday as people queued at cashpoint machines and bank tellers’ windows to withdraw money after a government decree restricting bank withdrawals and overseas transfers.
Passengers on planes and ships were frisked for illegal dollar stashes before leaving the country. The decree sparked fears of an imminent devaluation of the peso, wiping out savings overnight.
Flight of currency from the banks and the country, created a currency-trading crisis where the value of Argentinian money virtually disappeared. Argentina was a stable, functioning economy, but a banking scare, created by a financial-sector crisis, and not checked by responsible deposit insurance or firm regulations, caused the disappearance of unprecedented amounts of wealth.
It was in fact the run on the banks —the very action Sen. Burr proposed last fall and which he still defends as “common sense”— that caused Argentinians’ bank accounts to dry up overnight. Because banks invest or lend much of the money they take in, their cash-on-hand on any given day is far less than the total value of their customers deposits in sum. This means that while there will always be enough cash for regular patterns of withdrawal, there will not be enough, and should not be —given the nature of the modern banking system— to cover 100% simultaneous withdrawals by all customers.
That a sitting senator would not understand this speaks for itself. It is not necessary to try to qualify or categorize Sen. Burr’s qualifications to vote on any issue related to economics or finance. His experience and fitness are made clear by his repeated protestations. Calling for a run on the banks is like inciting a riot: it is a colossally stupid and irresponsible act, and his own party should call for him to face ethics sanctions for his repeated defense of his own misstep.
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