Fair enough.

> I think the fed can bail them out. I also think that requires printing money so inflation will be high.

If things go that way, I don't think it has to result in inflation. The thing is that, when a bank collapses, some money disappears (because of fractional reserve banking). If the Fed prints exactly the right amount of money to counterbalance that, it doesn't have to be inflationary. (The Fed could mess it up, of course...)

The money doesn't disappear when the bank collapses. It disappears if the loans that defaulted and caused the bank to collapse are written off instead of being assumed by some other party. If the borrower's inability to pay is only temporary, the loan probably won't be written off; it will just be restructured, and the money won't disappear.

So, you're right, but I think my overall point still stands.

You're missing my point. I'm not arguing that the loan defaults are independent of the bank failures; obviously they're not.

I'm arguing that the loan defaults, and the consequent bank failures, by themselves don't cause money to disappear. For money to disappear, the defaulted loans have to be written off, instead of restructured. If they're only restructured--i.e., the borrower negotiates a new payment plan with the new lender (whoever takes over the bank's assets when the bank fails)--then the money doesn't disappear. And, as I said, since the borrower's inability to pay is only temporary, caused by an external event, I expect most of the loans to be restructured, not written off.

That depends on the bank's cash flow position and their reserve assets. It's quite possible that the bank might not be able to sustain, say, a couple of months of loans not being repaid even if the loans are ultimately going to be restructured.

Of course, one obvious way to forestall this would be to extend short-term credit to the bank itself. IIRC this was done during the 2008 crisis. I have not seen talk yet of that being done now, but I would not be surprised if it were.

That's not what you're describing:

> All banks are currently reporting negative earnings. Most banks rely on credit, and revenue from said credit. If that breaks down (because people can’t pay). They collapse.

That isn't a bank run; it's not having a hedge against credit default risk.

A bank run would be all of the depositors trying to withdraw cash at the same time. But there's no reason for them to do that because their deposits are insured; even if the bank fails, their money won't go away.

> I think the fed can bail them out. I also think that requires printing money so inflation will be high.

The Fed is already printing money; they restarted quantitative easing along with the latest rate cut. I agree that this will cause inflation--in fact, if the printed money ends up, in effect, guaranteeing people's insured deposits, it will most likely cause more inflation than the previous rounds of QE did, since that money will likely be spent (whereas in those previous rounds of QE most of the printed money just sat in the banks' accounts at the Fed, since the banks were unwilling to lend it out).