In Victor Porlier's recent article he mentions the possibility of bank runs if 30 million households each withdraw an average of $8500 in cash.

Will it make any difference if these households withdraw their cash uniformly, in equal amounts, over the next 11 months (e.g. 8500/11 = $773/month), or if they all do it on one day, say, Oct. 1, 1999?

If the amount of paper cash is relatively fixed at 244 Billion, then to first order it shouldn't matter between either option above. In either case, the bank runs out of cash on hand. What happens then?

Wouldn't the Fed. step in before this happens to close the banks, and/or limit cash withdrawals? Assuming that this happens, say, on Sept. 1, 1999, what happens then? Or, would it happen sooner if the bank's cash reserves drops from 7% down to, say, 3 %. What is the lower limit of cash reserve that allows a bank to stay in business?

I guess that below the cutoff, say 3%, the bank is prevented by the Fed from making any more loans. What effect would this have on our economy?

Related to this, let's assume Japan has serious problems starting April 1, 1999. Do you think the average Japanese household will

(a) take their money out of their banks and buy US T-bonds? or

(b) sell their existing US T-bonds and stash the cash under their mattress?

-- Bob Watson (janebob99@aol.com), January 27, 1999

Answers

My thought is that they will turn on the printing presses. The federal reserve is already aware of growing concern in the public. So, the risk may be more of a "hyper-inflation" situation than that of not having enough cash.

-- j nitsuj (j_nitsuj@hotmail.com), January 27, 1999.

I thought the US printing presses were running at full capacity printing up the extra $50 billion (or is it $100 billion) reserve?

-- Bob Watson (janebob99@aol.com), January 27, 1999.

I understand that the money is being printed already, too.I'm not sure of the figure either, but even if it were 200 billion, it might not be nearly enough when Joe Sixpack "gets it" and trots on down to the S&L or First National. Of course, that is assuming he has any money in the bank to start with... perhaps it's in the stock market, or in bonds. Makes for a very interesting picture. Germany, 1920... better oil my wheelbarrow...

-- Why2K? (who@knows.com), January 27, 1999.

Careful on your way home from the bank, you might get held up. They'll dump the money out and make off with the wheelbarrow. (one of the better urban legends)

-- Debbie Spence (dbspence@usa.net), January 27, 1999.

Hee-hee... tnx, hadn't heard that one before, Debbie :)

-- Why2K? (who@knows.com), January 27, 1999.

it already has. I am done

-- joe (gotit@already.com), January 27, 1999.

I wrote about this at wired.com late Dec. There will be no hyperinflation based on the hypothetical above.

-- Declan McCullagh (declan@well.com), January 28, 1999.

Gee, no one's answered the question :-( I keep hoping that *someone's* crystal ball is working better than mine...

-- Tricia the Canuck (jayles@telusplanet.net), January 28, 1999.

AFAIK the wheelbarrow thing really happened in hyperinflationary post- WWI Germany. Given that a postage stamp inflated to 40,000,000,000 marks before that had run its course, it's quite probable that the contents of the wheelbarrow was more useful for use as as toilet paper than for buying toilet paper -- or even stamps.

As for bank runs, the best way to make sure they don't happen is to maintain the ability to give anyone back their money if they ask for it. Are the authorities stupid? Quite possibly yes, but I still suspect that they have a warehouse full of notes that will become $1000, $10000, $100000 bills ("emergency currency" or somesuch) should there ever be a need to issue them. (Certainly there's no way they can print enough $50 bills in time!)

-- Nigel Arnot (nra@maxwell.ph.kcl.ac.uk), January 28, 1999.

I've noticed a lot of really ragged money lately. I was given a $2 dollar bill last week. I haven't seen one of those in years. I think the fed is keeping a lot of the old bills in circulation just for this purpose.

-- Dave (dave22@concentric.net), January 28, 1999.

According to Gary North's best guess, the Y2K collapse of our banking system will cause massive deflation, since much of our current "money" is in the form of computer blips. Start saving your change and small bills. They could be worth a lot some day soon.

-- Pearlie Sweetcake (storestuff@home.now), January 28, 1999.

I don't think that anyone can really say when a panic will occur. That's the thing about panic. It's usually a surprise; even to ourselves. Things that I watch for are:

1) The day the most of the press says that the problem is unavoidable,

2) A major falure in infrustructure.

Take care.

-- Reporter (foo@foo.bar), January 28, 1999.

Gee, no one's answered the question

The bank runs will begin on 1999-10-19.

-- Blue Himalayan (bh@k2.y), January 28, 1999.

No, Blue, that's when the stock market crashes, remember?

Bank runs begin Friday, Aug. 20 (payday), at 12:00, a couple days before the GPS rollover.

Bank runs END Friday, Aug. 20 at 12:15, when customers are apprised of the new $20/day limit on withdrawals. Too much hassle and time.

-- lisa (lisaalksdjfh@alkdjfh.skdfsd), January 28, 1999.

Lisa, that's a good one! You made one mistake though. When the bank run stops at 12:15, the stock market will collapse at 12:16!

-- Puddintame (dit@dot.com), January 28, 1999.