Fed Vice Chairman Warns: Your Bank May Seize Your Money to Recapitalize ItselfMac Slavo But the purported recovery may not be everything that government officials and influential financial leaders have made it out to be. Recent comments delivered by Federal Reserve Vice Chairman Stanley Fischer suggest that not only are global and domestic economies still struggling, but the U.S. government itself is preparing financial contingency plans in anticipation of another widespread economic event. However,this time around, according to Fischer, thegovernment wont be bailing out financial institutionsin need of cash. Instead, failing banks will turn directly to their unsecured creditors when they need money. And within this context, that means you. The recession that began in the United States in December 2007 ended in June 2009. But the Great Recession is a near-worldwide phenomenon, with the consequences of which many advanced economies continue to struggle. Its depth and breadth appear to have changed the economic environment in many ways and to have left the road ahead unclear. [] Work on the use of the resolution mechanisms set out in the Dodd-Frank Act, based on the principle of a single point of entrythough less advanced than the work on capital and liquidity ratiosholds the promise of making it possible to resolve banks in difficulty at no direct cost to the taxpayer. As part of this approach, the United States is preparing a proposal to require systemically important banks to issue bail-inable long-term debt that will enable insolvent banks to recapitalize themselves in resolution without calling on government fundingthis cushion is known as a gone concern buffer. Full text and video available at FederalReserve.gov Though Fischer doesnt detail exactly what bail-inable long term debt actually is, one only needs to look to Europe, namely Cyprus, to understand what he means. When the Cypriot banking system collapsed because of an inability to service its debt in 2013, the government forced bank depositors to cover the debts. This led to banks forcibly seizing funds from depositor accounts in order to pay their debts. According to the Fed Vice Chairman, the U.S. government is now proposing similar rules, following in the footsteps of Europe and Japan, who have already prepared suchmeasures. The bottom line is that financial, economic and monetary policymakers in the United States are fearful that another crisis, perhaps even worse than what we saw in 2008, is going to be playing out in the very near future. Otherwise, why would theyfind it necessary to take the drastic step offorcing bank depositors to act as a backstop for their financial institutions? But this time around, it wont be the government that bails them out directly. Instead, if you have an account with the bank, you are an unsecured creditor for that institution, just like the people of Cyprus were for their banks. And when that bank inevitably comes under pressure because of an inability to cover their debts, it is you who will become the bailout mechanism. Its not hard to imagine how this scenario might play out the next time around. At the first hint of another crisis were going to see panic that will make 2008 look like a picnic. First, stock markets will sell off en masse across the world as a scramble to not be the last one out takes hold of investors. This, in turn, will lead to liquidity problems at major financial institution across the country.As banks run out of cash to cover the tens of billions of dollars they need to service their existing debt, they will turn to the new policies described by Stanley Fischer. What this means is that one morning you could wake up and see ten or twenty percent of your funds transferred out of your account and exchanged for long-term debt (like a bond) with the promise that thebank will pay it back to you at a later date. The immediate result, as you might expect, will be widespread bank runs, just as we saw in Europe when Cypriot depositors got hit. But, there will be no cash to be had save a few hundred dollars here and there, as banks will limit ATM withdrawals and will likely shut their doors to customers. This, of course, wouldhave an effect similar to what we recently saw in Ferguson, except riots and looting will betaking place in every major city across the country. And though it may seem like an impossible scenario to envision in todays peaceful and stable America, the U.S. military and Department of Homeland Security doesnt think so. For the last several years they have been war-gaming and simulating widespread economic collapse scenarios and theyve been stockpiling everything from armored vehicles to riot gear in over 8,000 counties across the United States in preparation for the civil unrest that would explode from coast to coast. Tess Pennington, author of The Preppers Blueprint, warns that when a crisis like this hits and people lose everything they have, a persons anger rules their actions and their thoughts. When that anger takes over, the people will turn on each other and on their government. They defy government, because the government is the one that took those freedoms and rightsaway. The government knows this and they have prepared significant contingency plans for such an event. Now is the time to be ready. The government is. You should be too. Related Resources: 