I talked to a DGI friend of mine last night about Y2K, and I think he's finally coming around. He pointed something out to me, though, that I hadn't considered myself:

***The first group to notice an effect from rising concern or panic on the public's part about Y2K will be the banks***

Of course all of us on this forum have heard the stories about a big rise in the sales of prepackaged survival food, and the rise in sales of gold coins. A key sign--and one I'm sure the government is going to track--is the ratio of bank deposits to the outstanding loans of banks.

A lot of people I know who are considering personal preparation but haven't started yet have one thing in common: if they decide in favor of some kind of personal preparation, that preparation would be taking their money out of the bank. It's the old story of "follow the money." The public will vote on whether Y2K is serious with their pocketbook. I would bet that right now, the government doesn't think remediation and failures are the biggest problems with Y2K. The government's biggest worry right now is whether or not people are going to take their money out of the banks.

Or...have people already started taking their money out and the banks are starting to notice? Does it just SEEM this way to me, or have I been noticing during the past two or three weeks a diverse and seemingly unrelated group of government and banking experts go out of their way to make soothing comments about not taking money out of banks and that Y2K will be OK?

A few days ago I thought maybe these soothing words from banking and the government might be due to concern about what public reaction will be to early Y2K glitches in insurance, the hospitality business, convention business, car registrations, and one year drug prescriptions come January 1, 1999. Either these things, or maybe the fiscal year rollovers that will happen at the end of January of 1999 by businesses such as Wal-mart, Kmart, Target, J.C. Penny, Home Depot, Lowe's and Barnes & Noble.

Or...are banks ALREADY seeing their deposits to outstanding loans ratio dropping? OK, maybe I do have a question here and not just a comment. Where can we find information on the ratio of bank deposits to outstanding loans? Is it released quarterly, monthly? Does the fact that the savings rate in the US turned NEGATIVE last month for the first time since 1933 mean that people are now taking their money out of banks faster than they're putting it in?

Those of us preparing for Y2K need to keep any eye on this ratio. It might give us a month or two warning on when banks runs will take place. And of course a decline in this ratio would mean a kind of concern on the public's part that would shortly send the stock market way down.

So.....is there any information available about this on a monthly basis? Is there a web site? Where can we find it?

-- Kevin (mixesmusic@worlnet.att.net), November 05, 1998

Answers

I have spoken with several people who say they will take money out of the bank next year sometime. I imagine many people have this mentality. I suspect banks might already be noticing unusually high withdrawals. The fact the the bankers are even saying it won't be a problem is reason enough to panic. I don't think we will have any warning about bank runs.

-- Anti-chainsaw (Tree@hugger.com), November 05, 1998.

>Does the fact that the savings rate in the US turned NEGATIVE last month for the first time since 1933 mean that people are now taking their money out of banks faster than they're putting it in?<

This was my conclusion also! Also, the stock prices of food/grain sector companies made the highest % gains about a week or two ago. Meooowww.

-- Creature (aninal@zoo.net), November 05, 1998.

That's why you should take any ready money out now, in small bills and stuff it in a mattress or other safe investments. Don't want for the run to happen because you will be limited to how much you will be able to withdraw.

-- Redwood Logger (Homelite@chopchop.com), November 05, 1998.

The last few days I have noticed on the local Nashville news reports, that say this is the lowest savings rates for Americans in history. They used some factor and said that it was (I think) -2.

It was attributed to people being maxed out on their credit cards and continuing to spend above their means. Nothing was mentioned about Y2K. One other interesting point, I noticed on the GDP growth report released recently, was that it was in food, fuel and clothing. Is this a trend? I wonder. . .

Just following the money.

Best regards,

Anna

-- Anna McKay Ginn (annaginn@aol.com), November 05, 1998.

The low savings rates at banks is mostly due to the fact that many people spend more than they make having nothing left over to put in the bank as evidenced by the ever-increasing mountain of personal debt. Another major reason is the low interest rates banks pay on investments. For those folks who do have money to invest, they naturally prefer the 15% - 20% return they receive from mutual funds to the 3% - 5% they would receive from a short term CD. Banks have been facing this struggle for years. Banks can actually borrow money from the Fed to fuel their loans at a cheaper rate than they can get if they had to try to attract deposits from the general public by offering competitive interest rates. They do need to maintain federally mandated reserve ratios (the deposit to loan ratios), but apparently, banks are not having a problem meeting these ratios. If they were, you'd be seeing interest rates climb in a competition for deposits among banks. Today, many banks don't even make efforts to attract the deposits (based on the lack of promotions and low interest rates). They are more interested in the fees generated by the checking accounts (which do not impact their reserve ratio because the funds are considered too liquid to be considered reserve).

When Y2K awareness fully kicks in, banks will notice greater cash demand at the teller windows and ATM's. Perhaps some people will even stop having their paychecks deposited electronically every other week in anticipation of Y2K problems in the ACH network (Automated Clearinghouse) that delivers the transactions.

While this may be very noticeable to banks, I would think that it would take a while to show up in the press. My guess is that the desire for cash will hit the stock market first and hardest. Today, the stability of cash flowing into mutual funds is largely responsible for fueling the bull market and giving the market the ability to withstand the world's economic problems. But if the mutual funds start to deflate as people cash out next year, it could take the market with it. Now that would show up on the front pages. And it would naturally cause others to jump on the bandwagon (or more appropriately, jump off the "market" bandwagon) in an effort to protect their life savings from the danger of a threatened market. The stock market is influenced largely by the general public's perception of "confidence" in the future of our economy. That confidence is expressed and evidenced by spending and investing. Winess how our leaders have been begging people to continue spending in order to prop up the stock market in the current world economic crisis. They believe that as long as people spend, everything will be OK. But as people grow concerned over the safety of their money due to Y2K, they may not spend (except for on generators, water storage containers, storable food, etc) nor save. That indeed may be enough to deflate the economy of this country and perhaps the rest of the world.

In the end, fear and panic could do more damage than the Y2K event could do alone.

I'm a new comer to this forum, sorry if I've just stated the obvious.

-- David (David@BankPacman.com), November 05, 1998.

I have been watching another indicator. I have been calculating the premium paid for $1000 face value of pre-1965 "junk silver coins". Each dollar of junk silver coins has .72 oz. of silver. $1000 of coins have 720 oz. Look daily in the Wall Street Journal or the New York Times. If hte price of a bag of coins is $4421 and silver is $4.91, then the premium beyond the value of the silver is 885.8. This is $4421-720*4.91.

This premium was almost zero 6 months ago. Now it is over $800. Junk silver coins are recommended for Y2K investment. There is a heavy demand for these coins right now. I find this a good indicator of people's approach to Y2K.

-- David Holladay (davidh@brailleplanet.org), November 05, 1998.

David & David: Good points.

Consider too Christmas sales levels as a symptom - more next year than this. But the savings rate may also be a symptom. The money (since July) pulled from savings probably did not go into the stock markets. Certainly not overseas markets either. Christmas sales now are now showing that much "new" money.

So where "is" it?

-- Robert A. Cook, P.E. (Kennesaw, GA) (cook.r@csaatl.com), November 05, 1998.

Bankruptcy filing increased again, at a slower rate, but an increase. This in a 'booming' economy? Boyoboy, just wait till the other shoe drops.

-- Uncle Deedah (oncebitten@twiceshy.com), November 05, 1998.

Great thread.

"The low savings rates at banks is mostly due to the fact that many people spend more than they make having nothing left over to put in the bank as evidenced by the ever-increasing mountain of personal debt"...

we've mortgaged away our future at so many levels...I think we'll fall hard long before y2k and it will only disrupt the remediation efforts of the worlds banks, corps, etc.

I don't like to think about a coming depression but it's pretty clear that the money manipulators can't keep up the illusion much longer.

Currently, I'm watching Alan Greenspan on CNBC talking about "a broad, unbundling of risks". This is going to be a very bad day.

Mike ==============================================================

-- Michael Taylor (mtdesign3@aol.com), November 05, 1998.

Kevin, I think one of the indicators is already being established. The Fed originally said they were going to print an extra $50 Billion in cash to have on hand for next year, now they have raised it to an extra $100 Billion. My guess is they see less cash flow already. (I've already started putting cash "aside" as have many others.) But don't forget: you can't eat cash. (I'm reading "Alas, Babylon") All the cash in the world can't buy supplies that don't exist. Make sure you put some of your money into food, toiletries, etc.

-- Gayla Dunbar (privacy@please.com), November 05, 1998.

Im assuming that Venture Capitalists in Silicon Valley, you know, those guys hard-wired into and pulling the money strings within the high-technology company infrastructure, will be early warning indicators.

A good source VC is the Red Herring Online at: http:// www.redherring.com/. Still searching for others.

Diane

-- Diane J. Squire (sacredspaces@yahoo.com), November 05, 1998.

Well, maybe not. Its too early in my searching to tell, but venture capitalists may well try to keep the lid on the Y2K news. -- Diane

http://www.redherring.com/insider/1998/0724/analysts.html ANALYST UPDATE: BULLISH IN THE EYE OF THE BEHOLDER

By Peter D. Henig Red Herring Online July 24, 1998

Were earnings really that good, or did analysts just have a soft spot for PC makers? We think it's the latter, but we'll give them the benefit of the doubt. ...

We can't handle the truth

Did Wall Street really want the true scoop out of Computer Associates after the company reported respectable earnings for the second quarter? We doubt it.

Yet that didn't stop CA from going ahead and digging their own grave. The company launched a shocker on analysts during the post-earnings conference call, giving guidance that Asia and the Year 2000 problem will have an impact on earnings going forward, with Y2K diverting IT spending and delaying mainframe hardware deployment.

Needless to say, Wall Street wasn't thrilled.

No fewer than six firms downgraded Computer Associates, including Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley Dean Witter, Donaldson Lufkin Jenrette, and NationsBanc Montgomery Securities.

"Six -- is that all? I thought it was more," said analyst Paul Dravis of Montgomery Securities. "Basically, management gave guidance that there would potentially be slower customer spending for their mainframe business, so it looks like it's going to be tough for the next two-three quarters."

Christopher Galvin of Hambrecht & Quist heard the same thing. "Management not only had a cautionary tone in regard to the mainframe business, they also said they might not have as much success as in the past in closing large-scale deals."

Mr. Dravis also pointed out, however, that this looks like a company- specific problem and that two other companies he follows in the same space, Compuware (CPWR) and BMC Software (BMCS), "remain excellent, excellent companies for investors." Montgomery has a Buy recommendation on each.

And in a related case of "I said it, but I didn't mean it" analysis, Charles Phillips of Morgan Stanley lowered his rating on Computer Associates from Strong Buy to Neutral, only to raise it again the next day from Neutral back to Outperform. But what do you really think, Mr. Phillips? Oh, never mind.

-- Diane J. Squire (sacredspaces@yahoo.com), November 05, 1998.

I don't think as of yet, there is a major concern or panic in the general population at large (please note: population at large does not exclude skinny people). It is still to come.

Take for example the stock market. The DOW peaked around 9300 and then dropped to around 7500 a month or two ago. I firmly believe the bottom will fall out of it in the next 12 months however no one I know is listening. As a matter of fact for the next short while I probably look stupid to some of them now as the DOW has recovered to about 8800. If Y2K had really sunk in, stock prices would not be anywhere near where they are today.

Even the analysts on television are completely baffled at the moment. I heard one make a statement yesterday along the lines of......."I can't understand why, with the current market volatility and collapsing markets overseas, why the investors are just sitting there doing nothing"...........He went on to say that they are wary enough not to put any new money into the markets, but that is was a mystery as to why they weren't cashing out.

Is the public paralyzed or what?? Why are people hanging onto stocks that are trading at completely useless price to earnings ratio's?

It's like there is some type of unwritten rule in effect that if no one panics, they'll all excape unscathed. Of course, I think once the reality hits, there will be major losses all around.

When do you think the straw that breaks the camels back will appear? In the next few months or not until later? Ideas anyone?

-- Craig (craig@ccinet.ab.ca), November 05, 1998.

Drat Craig, just as I was thinking I was exempt from being a member of the public at large....but since I'm exempt from the 7% Canadian scruples tax....

The stock market now appears to be driven by an excess of money from retirement accounts and insurance/pension funds chasing the same number of companies and the (relatively) same overall economic worth of the countries involved.

That is, if the economy has been growing at 2-4% for ten years, and that's good enough for a guess - then the stock market should be worth (in total, some gainers, some losers) about 42% more than ten years ago. The real value of the companies involved has not tripled - only their perceived value becuase more people and funds are chasing the same stocks.

Pick a different baseline, pick a different growth rate, you'll of course get a different answer.

So anything past the real economic gains of the combined countries involved is speculation. And may (will ?) vanish.

-- Robert A. Cook, P.E. (Kennesaw, GA) (cook.r@csaatl.com), November 05, 1998.

hello..I work for a big bank ..I have been on the teller line for almost twenty years , I travel from branch to branch ..I see a lot of the same customers at the various locations and pretty well know what there transactions are each week.. I have only had one customer asked about Y2k..I asked her how she knew about it and she said something about she heard it on the 700 club! She wanted to know what the largest denomation bills she could get..Anyhow, I have not seen anything unusual ..yet.. But I have my eyes open ..

-- rooster (logcabin@erinet.com), November 05, 1998.

Very interesting information everyone. Diane, thanks for the insight from Computer Associates. I think we're in for more of the same . . . non-stop reports of the cost to fix Y2K and the future economic impact of those costs. But will that provide the needed "wake-up" call. I doubt it. Perhaps we could ask the captain of the Titanic why he didn't slow down when he was warned there were icebergs up ahead. He perceived the ship to be unsinkable. About six month's ago, didn't our leaders (Mr. Bill in particular) state that our current economic prosperity is recession-proof ("unsinkable")?

Remember, many of the folks on the ship continued to eat, drink and be merry even as the ship was sinking . . . even after they had been told it was going to sink!

I'm not convinced ANY warning or event short of an extended power grid failure or stock market collapse will get people's attention.

Just ask Noah how hard he tried to convince folks to flee the coming flood. Or ask Cassandra.

Does anyone ever wonder if it's just coincidence that there is so much recent interest in both the Titanic and Noah's Ark? Perhaps we are being warned.

That's it for analogies -- aren't you glad? I need to get back to the kitchen to turn up the heat a little on my kettle of frog stew. I'm certain he doesn't know he's the main dish yet.

-- David (David@BankPacman.com), November 06, 1998.

Hi. Just a lil post here. Someone above asked why people in the market have not "cashed out" Good question. About 3-4 mos. ago, our Pastor (thank God for His courage) stepped to the pulpit to say the the market was going to fail. He instructed us if any had any stocks, etc...to get OUT!!!! He went onto say that most people will NOT listen, and they didnt. I told a family member of mine about this and she has tied up ALL her elderly aunts money in the market>>>>her response and I assume all to be similar judging from cnn market reports "I MUST stay in now, it is the LONG HAUL" poor auntie......I just cant for the life of me believe the Handwriting on the Wall (street, no pun intended) and NOT MANY are heeding. When it fails, and IT WILL< there shall be the suicides etc all over $$$. I thank God I dont have any $$$. But if I did, I wouldve gotten out the moment our Pator warned us to.

-- consumer alert (private@aol.com), November 07, 1998.

>Does anyone ever wonder if it's just coincidence that there is so much recent interest in both the Titanic and Noah's Ark? Perhaps we are being warned.<

I believe it is more than just a coincidence, David. We've had seven years of plenty, and peace, from 1992 to 1998. Six months ago the economy was in such great shape that it was almost too good to be true.

It was too good to be true.

More to the point.....I had an "ah-hah" a few weeks ago, a moment of realization about the Titanic. When the Titanic first hit the iceburg, *anyone* on that luxury liner--rich, poor, male or female-- could have headed for the lifeboats and escaped as soon as the first lifeboat was launched.

It was only later, when it was obvious the Titanic was sinking, that escape was limited to wealthy women and to children.

Folks, we've already hit the iceburg. We hit it in the summer or fall of 1997 when the time ran out to start a Y2K project and have it finished by December of 1999.....

-- Kevin (mixesmusic@worldnet.att.net), November 07, 1998.