"FRB In Panic of Y2K"

Early this January I posted a message to the Gold Forum about the FRB increasing by 30% the amount of cash available to the public in anticipation of the looming Millennial Menace. At that time I felt the Fed grossly underestimated the Y2K danger - and suggested the Fed would subsequently be back several times this year to further expand liquidity in the hands of the general public. Low and behold the Fed announced last week another draconian increase in Y2K cash liquidity.

The recent FRB announcement clearly shows beyond a shadow of doubt the Fed is not doing its homework in regard the potential ramifications of the Millennial Menace, and therefore grossly underestimates its danger. On the other hand the Fed's recently embarrassing and seemingly mis-calculation may be interpreted as the U.S. Central Bank purposely misleading the public. Read on, and you decide!

Gold Forum Posting Week of January 11, 1999

FRB Foresees A Run On Cash Come The Millennium Bug 31 Dec 1999:

The following was announced on the nationally syndicated TV program "MONEYLINE" on Friday, 20 November 1998 -----

"In anticipation of a cash shortage related to the forth-coming event called the Y2K Computer Bug, the Federal Reserve Board has taken the precaution to ensure there will be enough ready cash on hand in the banking system. Therefore, the FRB will add an additional $50 BILLION into the system -- representing about 30% more cash liquidity than is currently in the system. This is equivalent to approximately $500 per US household."

The prophetic announcement was made without any particular fanfare just another 'biz' news item. Frankly, I am flabbergasted by a number of thoughts which leap to mind.

Firstly, the US government officially and publicly recognizes the existence of the MILLENNIUM MENACE. Secondly, the government's remedy is far TOO insufficient in magnitude and scope. Specifically, the amount of ready cash is far TOO little. And finally, cash alone definitely will NOT protect each family from the potential dangers of the Y2K Bug: namely, the additional NEED FOR FOOD AND PHYSICAL PROTECTION.

Think of it, $500 per US family household this would be funny if it were not so pathetically dangerous. An average U.S. household has four members. Now how many days can an average U.S. family survive with a measly 500 bucks? Maybe 10 to 14 at most under normal conditions. This is pittance.

It seems eminently clear and logical that any half-way intelligent household head will want at least $5,000 to $10,000 on hand, AND IN CASH WHEN NEW YEAR'S EVE 1999 CRASHES AROUND US. Cautiously prudent household heads will be DEAD SOBER WHEN THE CLOCK CHIMES THE 12 th GONG.

Attention Mr. Alan Greenspan, $500 per household AIN'T GOING TO CUT THE MUSTARD!!! You damn well know that!!!

I will go on record to predict the illustrious US government will periodically make a series of escalating announcements during the next 13 months to the effect, " in anticipation of the growing concern regarding the Y2K Bug, the FRB has decided to AGAIN increase the ready cash on hand in the banking system by an accumulated total of $60 BILLION. by an accumulated total of $120 BILLION. by an accumulated total of $240 BILLION etc etc.. "

It's now 15 January 2000: "The FRB has just announced that dire liquidity circumstances throughout the US and the rest of the world demand an additional $500 BILLION in ready cash be added to the US banking system to alleviate the grave situation.

Meanwhile, one can only imagine what might be the nightmarish problems of food-shortages and law-enforcement. Remember, recent Internet reports mention the UK is ALREADY drawing up plans of implementing Martial Law in the event the Y2K SITUATION gets out of hand.

$500 per U.S. household is TOO BLOODY LOW!!!

Come 31 December 1999, cautiously prudent household heads will be DEAD SOBER WHEN THE CLOCK CHIMES MID-NIGHT.

Fast-forward three months to Early April

Following is a verbatim copy of an April 8, 1999 Internet article by Reuters journalist Isabelle Clary.

"Fed ups available cash by $200 billion for Y2K"

"NEW YORK, April 8 (Reuters) - 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 this week.

``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.''

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."

Based on the Fed's TWO announcements, one may tabulate the cash liquidity provided to each American family.

Early 1998 Available cash per US family = $375 Liquidity added $0

Nov 1998 Available cash per US family = $500 Liquidity added $50B

April 1999 Available cash per US family = $1000 Liquidity added $200B

Dec 1999 Available cash per US family = $1,750 Liquidity added $300B

All the above is indicative of the Fed's growing panic regarding the potential impact of the Y2K Bug. Therefore, we should all prepare our family's readiness regarding available cash needs, food and water supplies BEFORE ALL BECOME TOO SCARCE.

U.S Post Office and Y2K COUNTDOWN

Please take very careful note of the following as it causes grave concern about what the U.S. government's real thoughts might be. Last week I went to the post office in a MAJOR U.S. city to mail my income tax returns. While in line my attention was arrested by a neon-lighted sign high on the wall behind the counter of the U.S. post office. Its very large letters simply said: "Time left before Y2K Day." Below this were the neon-lighted number of Months, Days, Minutes and Seconds. For obvious reasons the Months and Days numbers did NOT change, and the Minutes only after each 60 second period. HOWEVER, the Seconds number was rolling like hell! It was nerve wracking to watch. In fact it was anxiety building.

I truly wonder why an agency of the U.S. Federal Government would put up an animated neon-lighted sign to register the Y2K COUNTDOWN displayed in a manner, calculated to generate anxiety and apprehension about the Y2K Bug problem.

I leave you with just one thought provoking question: What do you think will happen to the stock market as we close in on New Year's Eve???!!!

H. Teetmyer

Link at

http://www.greenspun.com/bboard/q-and-a-post-new.tcl?topic=TimeBomb%202000%20%28Y2000%29

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I must admit that I've wondered this myself too - why in the post offices, anyone else notice this? What's going on here :))

-- Andy (2000EOD@prodigy.net), April 15, 1999

Answers

Don't worry about it, Andy. Some brain-dead widget in USPS PR thought it would be "cute." So they spent some of that recent penny rate-raise to put up a few thousand goofy neon clocks. Typical, eh?

Hallyx

"Never ascribe to venality that which can more easilly be explained by stupidity."

-- Halyx (Hallyx@aol.com), April 15, 1999.

Or Occam's Razor :)

I'm sorry Hallyx, my conspiracy antennae are at full twitch at the moment, Im still convinced that Janet and Michael are the same uh, person... :) [did you notice they are never seen in public at the same time, not a lot of people know that...]

-- Andy (2000EOD@prodigy.net), April 15, 1999.

Andy: Yes, I saw it on Monday at the gold-eagle site, and remember that part about the post offices but didn't think much of it. As we both have been posting for months on end, the banking system rests on confidence. It is hard to imagine how this game will continue without confidence, which is just as much a threat to the existing unconstitutional fiat system as any potential code that is broken. People may not wait, to see if their banks computers will keep accurate track of thier money. People instead may go and get it, just to be safe. If even a small percentage do, we are talking single digit percentages here, then it's Game Over. But I know I am preaching to the choir here so will shut up and go get some coffee.

BTW, did you cite gold-eagle as the source of this article?

-- Rob Michaels (sonofdust@com.net), April 15, 1999.

FWIW, look closer at the Year 2000 countdown clock in your local post office. It is a promotion for the "Celebrate the Century" commemorative stamp series, celebrating each decade of the 20th century with the release of a new set of commemorative stamps every few months this year.

On the other hand, I had lunch last week with a friend who works at the Federal Reserve, where I once worked. He is not a GI, but he told me plainly that the Feds fully expect a number of bank runs. They expect to be able to rush cash reserves to each bank. As he was saying this, however, I was thinking "this solution will only work if banks runs are isolated. If the herd truly panics, the problem would be too widespread." My friend did not seem concerned.

-- Codejockey (codejockey@geek.com), April 15, 1999.

The solution to bank runs is a bank holiday. Maybe that's why the feds aren't worried about the banks runs they expect.

-- shy ann (shy@really.shy), April 15, 1999.

1) They are not as dumb as they seem.

2) This is a PR release designed to placate the masses.

3) The cash will never be released to the public if a panic develops.

4) two thirds of the claimed 500+ billion is overseas, only 140 billion actually in circulation in the USA

5) 42 or so billion is already sitting in bank vaults

6) So we are left with only 100+ billion in actual circulation

7) The Fed has said that they routinely hold 150 billion in cash as a reserve against 'panic'

8) They have only indicated that they will print up 50 Billion more to add to the current reserves at the Fed branches vaults

9) The cash accounts are currently running at about 3 trillion, bonds at 20 trillion (corp and government) and stox at current value about 12 trillion

Connecting the dots .. I'd get out now before you ever see a line at a bank branch or hear of it on the radio or TV.

IMHO

-- David (C.D@I.N), April 15, 1999.

Dear Reader,

Where does one begin? Later, I plan to post a detailed article discussing liquidity, currency, money (M1, M2, etc.), bank runs, etc. There is a great deal of misunderstanding about the nature of both currency and money. (Yes, Virginia, they are different.) What your article discusses is a change in the amount of available currency. Checking accounts and short term savings accounts are already counted in the M1 money supply. I imagine most people will simply trade some checking or savings deposits for currency. This is not an increase in liquidity, just a change from demand depost accounts (DDAs) to currency.

Most people and firms will continue to use checks. To pay a large corporation's bills with cash would be a logistical nightmare. Quasi- currency in the form of checks will continue to circulate.

Banks also have the ability (with other financial institutions) to issue other currency-like instruments (cashier's checks, money orders, traveler's checks).

For example, were the local ATM not working, and the bank short on currency, I might simply request cashier's checks in the amount of my few outstanding bills... at no charge to me, of course.

As long as merchants or creditors accept checks (as a rule, most do not like to accept currency), quasi-currency like checks and cashier's checks will add to general liquidity.

Money circulates. The reason most people have currency is not to bury it in mason jars. Rather, one pays bills, purchases goods and services and tips generously. Almost immediately, people who have drawn currency will begin returning currency to circulation. If you pay a merchant in cash, the merchant will deposit the cash somewhere... chances are the local bank. Why? Because the merchant has bills as well and want to write checks to it's creditors. Unless people learn how to live without spending money, the money will return to the financial system, even in the hardest of times.

Finally, the government has broad powers to govern the financial structure and what is legal tender. From a bank holiday to forcing creditors to accept checks, the government can take direct action to preserve financial stability (just as it can tip the apple cart with foolish policies).

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), April 15, 1999.

Anyone looked into military script? I have heard they have billions of dollars of this funny money stored in case of emergencies.

Also, people are withdrawing cash. Had drinks last night with a client whose girlfriend is a teller at B of A. She said lots of older people are taking thousands of dollars in cash out of their bank accounts. She was worried that there would be more robberies of these people in their homes come the end of this year and the beginning of next year. I have also noticed y2k comments don't go over well with my usually bright and cheery tellers at my bank. One addmitted, "you know we have people taking their money out of the bank because of this y2k thing."

-- Bill (y2khippo@yahoo.com), April 15, 1999.

I notice my bank statements are still using a two digit year. This is almost May. Whaz up with dat? If this is how well the US banks are doing, how are the ones on Italy, Russia, Indonesia, etc. faring?

-- a (a@a.a), April 15, 1999.

There was a guy with the handle of Glen on the Kitco Gold discussion who posted the Feds quarterly reserve holding changes in the last week. Their gold stock went from 0 last quarter to $540 billion this quarter.

They say there is no reason for Americans to have gold.... ?

-- Noel Goyette (ngoyette@csc.com), April 15, 1999.

I HAVE ALREADY TAKEN $100000.00 IN CASH FROM THE BANK. THERE WAS NO PROBLEM WITH THEM AT ALL. I ALSO HAVE TWO FRIENDS THAT HAVE DONE THE SAME. I AM LUCKY TO HAVE A LARGE VAULT THAT WE STORE COMPANY RECORDS IN TO KEEP IT SAFE. PROPER PAPERS WERE FILED WITH THE IRS.

-- BOB (BOB@KOYOTE.COM), April 15, 1999.

Decker's point about gov's powers is sadly germane, as we have often discussed on the forum. Whether gold, cash or cigarettes, Feds can decree who/what will be accepted as legal tender if you-know-what hits the you-know-what. Doesn't mean prudent steps as discussed here aren't germane, just be ready to be nimble and flexible.

-- BigDog (BigDog@duffer.com), April 15, 1999.

Rob,

Gave the name Teetmyer but the wrong link.

This is the link for anyone interested, the sight is worth a regular visit...

http://www.gold-eagle.com/editorials_99/teetmyer041399.html

-- Andy (2000EOD@prodigy.net), April 15, 1999.

Andy: Looks like they posted another since your visit earlier today. Here is the latest Y2K article from gold-eagle's site. As with most of them, this one is worth a read.

http://www.gold-eagle.com/editorials_99/mcintosh041599.html

Here is just one paragrapgh that is related to this threads topic:

"If the polls are true, 15% of Americans will strip their bank accounts in December 1999. This equals a full blown banking panic. Probably about the same number will hit the grocery and hardware stores and strip them bare. This equals a full blown supply and distribution breakdown. The American government will then institute emergency measures that will then cause the other 85% of the population to panic. Terrorists will view the increasing chaos with the eye of an predator. A few selective strikes will cause a general feeling of hysteria in the land and across the globe-assuming we aren't already at war in the Mid-East or over Kosovo by then. This will equal a full blown social crisis. And then we will enter the millennium, subject to solar flares disrupting our technology, Y2k disrupting our technology and terrorists disrupting our technology. Sure looks like a lot of technology will be disrupted to me."

-- Rob Michaels (sonofdust@com.net), April 15, 1999.