A Question for Bankers and Economists

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There has been much stated about people closing out their bank accounts later this year. What do bankers and economists feel would be the minimum amount for patriotic citizens to leave in their accounts to keep the banks, economy, nation afloat? If you are not in either of these professions, perhaps you could ask someone who is (your local banker) and post answers here. We're all in the "boat" together; let's not be responsible for sinking it! Granny Holly

-- Holly Allen (Holly3325@juno.com), February 09, 1999


Would a 3% total overall cash withdrawal rate in the next 10 mos. sink the system?
Based on a figure I've seen that the banks have an in actual cash reserves-to-deposits of about 1.5%, I'd say the FDIC insured ones would prefer you to leave in approx. 99.9 to 100%...just to be safe...for your own good.

Relax, the gov. tell us what to think & when to think it.

-- Charles R. (chuck_roast@trans.net), February 09, 1999.

Holly, I started seeing your posts this past summer. Glad to see you're still kickin' around on the BB's.

IMHO your answer would come from examining the estimated amount of cash in domestic circulation to cover any withdrawals. This number has been quoted as low as 1.2% and as high as 10%. Lets go with 5% being in the middle, which brings me to the conclusion that you could withdraw approximately 5% of your funds, leaving the balance in your account and if every one did the same, we might not have any bank collapse problems, that is unless there were massive nationwide defaults on loans due to y2k induced bankruptcies and overall poor business. Then, we're toast anyways.

Doesn't matter which avenue you go down, as each one provides several new directional problems.

-- (got-it-along-time@ago.com), February 09, 1999.

Hi Holly,

There's nothing patriotic about financial stupidity. I work in the banking industry, so hopefully I'm qualified to give you a little information regarding cash levels in the system.

Currently, there's less than $50 billion in cash and coin in the US banking system. That's in contrast to nearly $3,700 billion in insured deposits. Even factoring in the $200 billion that the Federal Reserve intends to inject into the economy in late 1999, that still leaves you with only enough cash to cover less than 7% of current deposits. And this is assuming that all $200 billion of the Fed's excess cash stays in US banks (which most likely WON'T happen).

So 5% is probably a good guess of the cash/deposits ratio in the last quarter of 1999 (if we make it that long without bank runs). Therefore, if 5% of the deposits in the US banking system are sought in cash, you will have a liquidity crunch which will effectively shut down the system.

So you have to depend on 95+% participation by the US population in order to avert banking problems. When's the last time 95% of US citizens agreed on anything? The odds are that the banking system is going to experience serious, probably fatal, difficulties in late 1999 or early 2000.

It won't be the fault of those "unpatriotic" citizens who take THEIR money out of the banks, Holly. The blame will lie solely with the inherent frailty of the fractional reserve banking system. The system absolutely depends on the CONfidence of the public; if anything happens to shake that confidence (such as Y2K-related failures), then the system will fail. It's that simple. No amount of appeal to "patriotism" will make any difference when people begin to sense that they MIGHT lose their assets.

If you want YOUR money (and it is YOUR money, after all), the best bet is to physically hold it yourself. Millions of "patriots" will ignore this simple strategy and watch the "unpatriotic" hordes line up outside the banks to get THEIR money in late 1999. By the time they realize that patriotism and stupidity don't have to go hand-in-hand, it will be too late. The cash will be gone...

-- Nabi Davidson (nabi7@yahoo.com), February 09, 1999.

Whatever you decide to do, you need to begin doing it soon so that the Fed/Treasury can get a feel for the situation and attempt to respond. It would be bad to withdraw all of your money at once within a short period of time. It would also be bad to wait until December to enact your plan. I'm not suggesting what to do. I'm just suggesting that whatever you do, start now and do it gradually.

-- Puddintame (dit@dot.com), February 09, 1999.

If you believe, as I do, that there is a very high probability of the banking system going down in late 1999 or early 2000, it's not unpatriotic to withdraw all your funds, it's prudent.

-- cody varian (cody@y2ksurvive.com), February 09, 1999.

What's with the patriotic stuff? It's your money!! The banks care so much about you that they have instituted rules and regulations to make it hard for you to get what is yours! WAKE UP PEOPLE! This is what frustrates me to no end! Your money in the bank is not what keeps this country afloat! YOUR TAX DOLLARS is what keeps this country afloat. Aren't we still paying on a huge deficit? It's a false economy and the sooner you people realize it, the farther ahead you will be.

-- I;veHadIt (I'veHadIt@gone.com), February 10, 1999.

After "crashing the banking system" what would the country be like? Sure I want my money and will get it. But how much good is it to have a bunch of paper money? OK, better than having none... I think... but...

Methinks we are between a rock and a hard place.

Is there any cure for what ails fractional reserve banking, which isn't worse than the disease? Just talk about that, leaving Y2k out of it for now. Ideas.

-- Debbie Spence (dbspence@usa.net), February 10, 1999.

OK, the most immediate value for your paper money would be to reserve some cash, but convert the rest into tangible assets, things you can use now or eat or barter. However, my question still stands.

If you can say that x, y or z is a better economic system than our present one, fine, I'll go along with that if it seems so. But the transition will be a doozy.

-- Debbie Spence (dbspence@usa.net), February 10, 1999.


Well, they could raise their reserve levels, but that would contract the economy and crash the stock market.

But suppose raising reserve levels did succeed, the cash supply would quickly run out, contracting the economy and crashing the stock market.

Hmmm, the funny money system seems to have painted itself into some sort of crazed, greed-induced, recklessly short-sighted corner. Oh well, live and learn...

-- Nathan (nospam@all.co,), February 10, 1999.

Nathan -

If they printed enough funny money to meet the demand, then we would have runaway inflation, no? (Anyway, I have heard that money is being printed 24x7 as it is.)

Just watching in wide-eyed wonder. As someone quipped, "Y2k - a good chance to reformat America's hard drive" Yes but what do you want us to boot it with?

-- Debbie Spence (dbspence@usa.net), February 10, 1999.

You people are (I can think of all kinds of superlatives)! You have confirmed what a "little voice" already told me regarding my own financial concerns. In addition, during the Great Depression, my dear step-dad lost $3,000 in the banking system. He didn't get it back. I have this "feeling" that anything left there 1/1/00 will also disappear. Better to have it "converted" into food, water, etc.! Thank you, friends; Lord help us all! Granny Holly

-- Holly Allen (Holly3325@juno.com), February 10, 1999.

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