I ask because since our money is backed in value (a precious resource like gold and oil) and doesn’t leave the country, doesn’t it also mean that our wealth remains intact as a nation regardless of whether or not the bank has it? (Ie, us citizens have it, so it doesn’t matter if it’s in a bank or not- the wealth is held by a U.S. citizen).
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The problem with everyone taking all their money out of the bank at the same times is mostly that bank no longer has everyone’s money.
They lend it out to other people and did other things with it.
If the bank lends you money to buy a house, they lend you the money that someone else put into the bank.
They expect that only a small number of people will want to take their money out of the banks at the same time so they only keep a fraction of the money that people deposited around in a form that they can hand out.
This is called fractional reserve banking.
If enough people try to get their money out of the bank at the same time the bank will run out of their reserve money very quickly.
The worst part about it is that people will see when the bank is coming close to running out because others took their money out. Nobody wants to be the guy who couldn’t get the money out so once the danger of the money running out becomes apparent everyone will want to be at the top of the queue.
People fearing that the bank will run out is what guarantees that the bank will run out of money.
Watch *It’s a Wonderful Life* with Jimmy Stewart for a fictional example of how this would go down.
In practice banks are big and the accounts of individuals tend to be insured via the government so that even if the bank goes bankrupt, the people will still get their money back from the government up to a certain limit.
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