Fed adds $200 billion to circulation for Y2K

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Fed adds $200 billion to circulation for Y2K

By Reuters

Special to CNET News.com

April 9, 1999, 6:40 a.m. PT

The Federal Reserve will provide U.S. banks with an additional $200 billion in cash to cover any surge of year-end withdrawals by customers worried about the year 2000 computer problem, Chicago Fed President Michael Moskow said.

"As a precaution, the Fed will increase the currency in circulation and in our vaults to about $700 billion by late 1999," Moskow said in text prepared for an economic lecture at Middlebury College, in Middlebury, Vermont.

"The Fed has acted to ensure that more than sufficient cash will be available throughout 1999 and 2000," Moskow added.

Currency in circulation is the cash Americans carry in their wallets for daily spending and that currently amounts to about $518 billion, according to the latest Fed's data.

The additional $200-billion cash will boost the volume of U.S. dollars available for or in circulation to about $700 billion. The Fed also keeps cash in its vaults in the event of a sudden demand for the U.S. currency.

The Fed is increasing currency in circulation as the year 2000 nears to avoid panic runs on banks if people fear computer programs will mistake the years 1900 and 2000--the Y2K or "millennium bug" problem--and erase existing balances on their bank accounts.

"I don't know whether people will be wondering whether their ATMs [automated teller machine] will work or not and withdraw a lot of money before December 31," said deputy chief economist Carol Stone at Nomura Securities International.

"But it's prudent for the Fed to prepare for this, by making available to banks extra hard cash in case people do feel that way," Stone added. "After all, some people think the world will end on January 1, 2000, and others may think their money will disappear."

Ed Yardeni, chief economist for Deutsche Bank in New York, said the additional money should not bring on inflation because the money isn't going directly into the banking system. "It shouldn't have a net impact on the money supply. It depends on whether Y2K will be a problem or not. If not, people who take money out of their banks will most likely put it all back in," he said.

The Fed is the government agency that distributes to commercial banks the dollar notes and coins they need to meet their customers' demand.

Moskow stressed the importance for U.S. banks and financial markets to eliminate the millennium bug from their computer programs and said the Fed's own "most important internal systems are ready for Y2K."

"The Federal Reserve has a vast experience in handling disruptions such as national disasters," Moskow added while pointing out that the vast majority of U.S. banks and thrifts or 7,600 institutions are also in compliance with the program.

News.com's Erich Luening contributed to this story.

Story Copyright ) 1999 Reuters Limited. All rights reserved.

-- Gayla Dunbar (privacy@please.com), April 09, 1999


Points for discussion ?? 1. Either Ed Yardeni (1)has been dropped on his head or (2)somebody gave him a fully stocked bunker and some mind altering drugs and told him (with a wink) to play along. HOW can you increase cash in circulation by 40% and not cause inflation ??!!

2. The Fed is not a government agency. It is privately held by several US and international banking organizations.

4. What is the Fed's "Vast Experience" ?
They assisted Russia and Mexico into bankruptcy!

3. The "Vast Majority" (out of 7600) are in compliance with what ???
a) handling disruptions
b) handling national disasters
c) Y2K

4. How can people read this garbage and believe it ?

Note:Yes I'm a right-wing conspiracy/doomsayer/non- believing/hoarder !

-- WebRNot (webrnot@ncap13k.com), April 09, 1999.

A couple things to keep in mind. The majority of US bills are held outside the USA. It does occur to me that a lot of foreign nationals may want to hold US dollars. Second, what happened to the $50B figure from 4 months ago?

-- RD. ->H (drherr@erols.com), April 09, 1999.


I'm assuming that the $200B figure is the current $150B the Fed has warehoused plus the extra $50B being printed this year. In past media stories, only the $50B figure has been emphasized. The increase of the amount now being reported may show that the Fed is getting a bit nervous...

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

Link please.

-- @ (@@@.@), April 09, 1999.

t hanks

-- @ (@@@.@), April 09, 1999.

If Japan is making $340 billion available with half the population of the U.S., I doubt that our $200 billion will last very long.

-- @ (@@@.@), April 09, 1999.

We've been through this many times before. Increasing the amount of currency in circulation does _not_ increase the money supply, which is a combination of currency and demand deposits. You have $1000 in the bank, you have $1000. The Fed prints enough money so that you can have it in cash, you still have $1000. You can buy $1000 worth of beans either way. No increase in the money supply, no inflation. In fact, getting one's money out of the bank in cash is deflationary, because the bank no longer has your deposit as a basis to make loans.

-- Ned (entaylor@cloudnet.com), April 09, 1999.

Your assumptions are quite misguided. Federal Reserve Notes are issued by the Federal Reserve to the US in exchange for US Securities. Thus, incurring interest from the moment of issuance. Read the book "The Money Machine" at your local library for more information.

Note: Just a thought from a radical right-wing, paranoid, hoarding, gloom & doom, conspiracy nut !

-- WebRNot (webrnot@ncap13k.com), April 09, 1999.

First... this ain't no change... Is the same as has been all along. 550B in circulation.... $200B in reserve.... 50B extra... no change, no big deal.. Second... Putting into circulation is NOT an increase in money supply and is NOT inflationary.. It's the same money whether in your pocket or in the bank... Clear enough??

-- Y2Krazy (y2krazy@noname.com), April 10, 1999.

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