I decided to write two separate posts on them, starting with deflation as I believe that we are on our way into a deflationary cycle in the United States.

I’m going to go out on a limb and guess that most of you understand the basics of supply and demand. Everyone understands that supply and demand works on goods and services we buy all the time. What many people don’t understand is that money is subject to supply and demand as well.

If you haven’t read my introduction to currencies you should go read that now. Actually, deflation is neither good nor bad inherantly. But I said I’d talk more about what deflation and inflation are.

Most people hear the word deflation and panic because it sounds really darn scary.

A bank run (also known as a run on the bank) occurs when in a fractional-reserve banking system (where banks normally only keep a small proportion of their assets as cash), a large number of customers withdraw cash from deposit accounts with a financial institution at the same time because they believe that the financial institution is, or might become, insolvent; and keep the cash or transfer it into other assets, such as government bonds, precious metals or gemstones.

When they transfer funds to another institution it may be characterised as a capital flight.

But, one might ask, could some variation of the stamped-money idea play a temporary role in getting a slumping economy going again?

The great Yale economist, Irving Fisher, thought so and even helped write legislation that would allow the U. Treasury to issue stamped scrip or “stamped money.” In Fisher’s scheme, this money must be stamped every Wednesday.

The governor of the Bank of England, Mervyn King, stated in October 2010, "Of all the many ways of organising banking, the worst is the one we have today".

Earlier this year, his executive director for financial stability, Andrew Haldane described the "Doom Loop" created by banks being too big to fail with insufficient equity and liquidity.

The drawback, Keynes dutifully pointed out, is that a public desperate for a liquid store of wealth will find another vehicle to replace (stamped) money once its newly added “carrying cost” has diminished its appeal as a liquid asset.

This is a good argument against the introduction of stamped money as a permanent substitute for ordinary currency.

They have included a higher reserve requirement (requiring banks to keep more of their reserves as cash), government bailouts of banks, supervision and regulation of commercial banks, the organization of central banks that act as a lender of last resort, the protection of deposit insurance systems such as the U. Federal Deposit Insurance Corporation, Bank runs first appeared as part of cycles of credit expansion and its subsequent contraction.