IF GREECE DEFAULTS….(COMMENT).

IF GREECE DEFAULTS….(COMMENT). I posted a couple days ago that bank runs were infrequent in the United States since the introduction of federal deposit insurance but that runs on an institution by counterparties were still to be feared. Nick commented that he had read in the Economist that “if Greece withdraws from the Euro that there will undoubtedly be a huge run on savings before they are converted to drachma….” Robert Jenkins had an article in the Financial Times (November 8) which elaborated on what might happen if Greece left the Euro. 1. There are rumors of default and the Greeks withdraw euros from the banks before the devaluation turns euros into cheaper “new drachmas”. Anybody who can moves their deposits abroad. Banks close. 2. Greek inflation. 3. Arguments over whether debts should be repaid in euros or new drachmas. 4. The same thing happens to the next most vulnerable country—say Portugal or even Italy. He continues through steps 5 and 6, but you don’t want to know.