Koskinen says withdrawing money *can't* cause bank runs!

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Amazing! According to an article in USA Today, John Koskinen says the government can print dollar bills faster than we can take them out of banks. So, I guess this means we shouldn't feel guilty about taking our money out of the bank?

Title of the article, the link, and the quote about banks:

"We shouldn't be left in the dark"


[begin snip]

As far as the money supply, banks are the most heavily regulated industry in the country, says John Koskinen, chair of the President's Council on Year 2000 Conversion in Washington, D.C. They get ratings of 97% to 98% compliance in every survey he's seen.

"I joke with bankers that it's a testimony to the joys of federal regulation," Koskinen says. The Federal Reserve is prepared to put $50 billion into circulation "just in case people want a couple of dollars. We can print more bills faster than they can take them out."

[end snip]

As a responsible citizen of the U.S., though, I must point out that, in my opinion, bank runs are possible, and Koskinen did not not mean what he said. This article in USA Today is a major piece of disinformation and contains other errors. For example, it also says this about microprocessors...

[begin snip]

But research by the Gartner Group, a Stamford, Conn.-based analyst firm, found that only one out of 100,000 freestanding microcontroller chips were likely to fail.

[end snip]

Perhaps the key word here is "freestanding." In any case, when I started reading about Y2K last year, the estimated failure rate for chips was 3% to 5%. Even the National Guard at this link...


...says that "an estimated 0.2 to 1 percent are not Y2K compliant". The figure of "one out of 100,000" mentioned in the article in USA Today expressed as a percentage is 0.001 %.

Another misleading item in the USA Today article is the claim that banks "get ratings of 97% to 98% compliance" in every survey Koskinen has seen. The key phrase here must be "every survey he's seen."

Compare the 97/98% figure with this news article that was on Yahoo! the other day. Title, link, and two excerpts:

"Over 30% of Banks Admit Missing Y2K Deadline, Contradicting Government Assurances"


[begin article]

PALM BEACH GARDENS, Fla. -- (BUSINESS WIRE)--Feb. 10, 1999--Among banks and S&Ls responding to a Weiss Y2K readiness survey mailed Dec. 30, 1998, a suprisingly large percentage -- 32% -- admit that they missed a critical Y2K deadline.

These institutions report that they did not complete remediation and testing of internal mission-critical systems by Dec. 31, 1998. Furthermore, 20% do not anticipate completion until March. This implies a failure to comply with the federal requirement that "testing of internal mission-critical systems should be substantially complete" by Dec. 31, 1998. (a)

This finding directly contradicts recent assurances from banking regulators that only 4% of banking institutions have been rated "unsatisfactory" or "needs improvement."

"I don't understand how the authorities can give 'satisfactory' Y2K compliance ratings to institutions that have apparently missed a critical compliance deadline," commented Martin Weiss, PhD., chairman of Weiss Ratings, Inc. "I personally believe the authorities are either using outdated information in their pronouncements or simply sugar-coating the truth. In the long run, I feel this can only damage their credibility and create the conditions for the very consumer panic everyone wants to avoid."

To date, 909 banks and S&Ls have responded to the Weiss survey. Among these, only 620 (68%) stated that they had completed the required Y2K fixes on all internal mission-critical systems by Dec. 31, while 289 (32%) reported that they had missed the deadline. Among these, 184 institutions (20% of the respondents) stated that they did not anticipate completing the fixes until after Feb. 28.

Final results of the Weiss survey with additional analysis will be released in early March.

"Furthermore," Weiss adds, "we must assume that, on average, institutions that did not respond to our survey are more likely to be late in fixing their Y2K problems than those that that did."


Weiss Ratings Inc. issues financial safety grades on over 16,000 banks, S&Ls, insurers, HMOs, Blue Cross/Blue Shield plans, and security brokerage firms.

(a) The Federal Financial Institutions Examination Council (FFIEC), which coordinates various banking regulators, including the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of Comptroller of the Currency, clarified this requirement in an Aug. 28, 1998 email to bank CEOs, entitled "Year 2000 Questions And Answers," stating: "The FDIC expects each financial insitution to meet the following key milestones in the Year 2000 testing process by the date indicated: ...Dec. 31, 1998 -- testing of internal mission-critical systems should be substantially complete."

[end of article]

So, to summarize, even though John Koskinen says we can't cause a bank run, he didn't mean it, in my opinion. More likely, he wants you to believe there can't be a bank run, so that you won't worry about your money in the bank and thus won't bother trying to take it out.

But print out this article from USA Today. If you decide that Y2K is serious enough to warrant removing some or all of your money from your bank, you can show your banker this article and explain you have it on good authority that extra cash can quickly be printed up to deal with cash withdrawals.

-- Kevin (mixesmusic@worldnet.att.net), February 15, 1999


Kevin, you da man, man!

Another thread in the weave of the disinfo campaign. "Go ahead, take yer money out. We'll just print more!" ROTFLMAO!

The thing here is that they know that the vast majority of readers see these things in disconnected little bits; most folks aren't paying attention to "the big picture." Attack the preparers by making them look like the problem, throw in a few comments about the fundie-right survivalists, make the upscale liberals feel guilty, "joke with the bankers," throw in phrases like "freestanding" and "every survey I've seen," and effectively lie about how much cash there is in the system. These folks are scared. SCARED! I tell ye!

I can't WAIT to see what Gary North is gonna say about this one!

-- pshannon (pshannon@inch.com), February 15, 1999.

I am curious, How fast can they print bills? Regardless, I believe that it's better to take out smaller amounts of money sooner and more often than waiting until Nov. or Dec. when nobody has time to react. Just put it in your safe deposit box where it should be safer than in your freezer or somewhere. (This is not a recommendation to keep cash in the safe deposit box after December. I'm not going to speculate on that.)

Another issue, does anyone know how complicated it would be to put $500 and $1000 notes back into circulation?

-- Puddintame (dit@dot.com), February 15, 1999.

Of course you shouldn't feel guilty for taking your money out of the bank. It's your money and you can and should do whatever the hell you want with it, modulo any contractual arrangement with the bank.

But it doesn't mean that bank runs will be debilitating. Check out http://w ww.y2kculture.com/finance/19990114.selgin.html.

-- Declan McCullagh (declan@y2kculture.com), February 15, 1999.

Puddintime: Small bills only with $50.00 bills being the limit. Why would you put money in a safe deposit box? Surely there's a place in your home to stash some money. Cut a whole in the wall and put in a false electrical socket and hide your money there. There's plenty of ways to hide money, you sound like a clever person. It may also be illegal for you put large sums of money in a deposit box at the bank, check it out.

-- bardou (bardou@baloney.com), February 15, 1999.

Bardou, The reason I was asking about the $500 and $1000 bills being put back into circulation is not because I wanted any of them. That would be the last thing I'd want. But if the Treasury has some constraints on how many notes it can print between now and December, then might it not decide to print and circulate big bills. That would certainly affect the psychology of withdrawals. Who wants to withdraw $2,000 and get two $1,000 notes with the explanation that all small bills are gone. Many people would think twice about getting a piece of paper that they could't use. The only thing I could use a $1,000 bill for would be to pay my mortgage. My mortagage company is 3000 miles away.

-- Puddintame (dit@dot.com), February 15, 1999.


Your referenced article (Gunning for Greenbacks) quotes from George Selgin, the associate professor of economics at the University of Georgia, as follows:

Every Christmas the demand for currency spikes and the Fed usually handles it with no problems at all. The public will find they can go shopping and they've got cash. Life will go on.

Is this quote intended to compare the annual cash demands at Christmas with the cash demands that depositors withdrawing their funds for Y2K reasons might impose on the system?

Is the esteemed associate professor's position that cash withdrawals for Y2K purposes will be no greater than those during a typical Christmas? Is he saying that the Fed will be able to handle Y2K cash requirements as easily as they handle them during an average Christmas shopping season?

-- Nabi Davidson (nabi7@yahoo.com), February 15, 1999.

Good job Kevin.

Perhaps a back-up strategy for the Feds is to contract with every Kinko's across the country to be ready to help "print" enough money, in case they can't keep up with demand.

What IS the Feds back-up strategy to the $ backing strategy anyway?


-- Diane J. Squire (sacredspaces@yahoo.com), February 15, 1999.

LOL! I wonder if koskinen realizes he's effectively just offered to have the U.S. government underwrite the Russian mob?

somebody really needs to talk to k's doctor about adjusting his prozac dosage...sheesh!


-- Arlin H. Adams (ahadams@ix.netcom.com), February 15, 1999.

This scheme reminds me of the astronomical inflation rates of the German mark in the Weimar Republic after WW 1.

-- Tom Carey (tomcarey@mindspring.com), February 15, 1999.

RE the Weimar: are these new notes being added to the money supply, or are they replacing electronic money already in circulation? My understanding is that it's the latter.


-- E. Coli (nunayo@beeswax.com), February 15, 1999.

At normal work schedule, (three shifts per day, five days per week) the Bureau of Engraving and Printing has a capacity of about 24 billion notes per year combined output from both the Ft. Worth and Washington plants. By going to seven days per week, this output can be boosted to about 34 billion notes per year. Thje "average" note denomination is about 11$, so the maximum output is about 379 billion dollars per year at the usual note mix, which is now mostly ones and twentys. But most of this output (about 25 billion dollars) is for replacement purposes. It is also true that of all the monay that is printed and released into circulation, most of if winds up going overseas, and no one really knows how much money is in circulation (or mattressed) in th U.S. Estimates range from about 50 billion dollars to about 400 billion dollars.

There are only three things that the Bureau of Printing and Engraving can do to increase output. These include: 1)There are two spare presses that can be installed. This would permit increasing the output by about 7 percent. 2) Increasing the "average" note denomination. Right now its about 11 dollars per note. (more fives and tens and less ones) 3) Reduce the replacement rate.

All of this information was valid up until about last September, at which time I lost contact with an ex-production engineer at the Bureau.

From all of this it should be clear that we cannot have hyper inflation, unless the government resorts to monopoly money.

Twenty eight percent of the notes printed are twenties, because of the high ATM demand.

-- dave (wootendave@hotmail.com), February 15, 1999.

Dave, very interesting post. Do you know what kind of procedure it would take to put $500 or $1000 notes into circulation?

-- Puddintame (dit@dot.com), February 15, 1999.

E., I believe you are right. It would not be an increase in the money supply, just a conversion of money from one form to another.

-- Puddintame (dit@dot.com), February 15, 1999.

Where in the heck are ya gonna spend a $1000 bill? Not Mickey D's, thats for sure!

-- Uncle Deedah (oncebitten@twiceshy.com), February 15, 1999.

Even if the Fed could print additional $'s 24x7 how could they get that money into circulation fast enough to make a difference?

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

-- Michael Taylor (mtdesign3@aol.com), February 15, 1999.


I have a problem with the article you wrote that's at this link...


Nabi is right to question this quote from George Selgin:

"Every Christmas the demand for currency spikes and the Fed usually handles it with no problems at all. The public will find they can go shopping and they've got cash. Life will go on."

Declan, did you even take a look at month-by-month statistics on the amount of currency in circulation before allowing this article to be published?

First of all, here are the statistics I'm talking about:


Currency component of Money Stock

Not seasonally adjusted

Billions of Dollars

Source: H.6 Release -- Federal Reserve Board of Governors

Declan, here are some relevant monthly currency figures from the above site, again in billions of dollars:

January 1997 -- 395.414

October 1997 -- 417.231

November 1997 -- 422.348

December 1997 -- 428.876

January 1998 -- 426.266

October 1998 -- 452.635

November 1998 -- 457.498

December 1998 -- 464.142

January 1999 -- 462.385

What I see from these figures, first of all, is that currency in circulation grew by 30.852 billion between January, 1997 and January, 1998...and that currency in circulation grew by 36.119 billion between January, 1998 and January, 1999.

The biggest *monthly* increase in these figures (the Christmas factor) is a 6.644 billion increase between November, 1998 and December, 1998.

OK, now if currency in circulation grew at that rapid 6.644 billion clip per month for 12 months, the one year total increase would be 79.728 billion.

Declan, do the math. They say that only one-third of all currency in circulation is within the United States at any given time. If the Gallup Poll for December, 1998 comes true and 16% of the U.S. population were to remove *all* of their money from banks, that annual increase of 79.728 billion of currency in circulation would be a mere drop in the bucket compared with the demands that would be placed on the system.

At the very least, it would seem to require rationing of cash. Did you look at currency supply figures before allowing professor George Selgin's comments to be published?

-- Kevin (mixesmusic@worldnet.att.net), February 16, 1999.

Another link to Koskinen's comments on printing greenbacks:


-- Kevin (mixesmusic@worldnet.att.net), February 16, 1999.

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