It Will Be Bank Runs That Will Ultimately Doom Europe

Most people think it was the stock market "Crash of 1929" that was responsible for the Great Depression.  But, although the "crash" created the negative environment that ultimately set up the conditions for it, the effects of that crash were  primarily localized to the United States.  What really caused a world-wide economic collapse in the 1930's was a U.S./European run on banks with huge numbers of depositors closing out their accounts; all starting with a run on a fairly small non-governmental bank: the Bank of the United States in New York City.  From there, it spread across America and, eventually, to Europe. These runs caused the banks to collapse because banks (even today) never have enough funds to cover even a moderate number of depositors closing out their accounts.  The bulk of a bank's money is loaned out to borrowers; their primary source of income;  at least back then.

In the last few weeks, Greek depositors have been yanking their money out of Greek banks and their banking system is being overly stressed.  The European Central Bank is attempting to shore it up by providing liquidity (infusing cash); as much as 100 billion Eurodollars this week alone.  But, "what if" the run becomes contagious and the depositors in Spain, Italy and even France start closing their accounts?  Then, the world has one big problem.  It literally could be 1930-1931 all over again.  This time starting in Europe and probably spreading to the U.S.  The real worry should be whether or not the world's Central Banks can abate or contain the runs enough to avoid a complete system collapse; with the world's bank depositors losing much of their wealth in the process.