$$$: The Latest Figures - Straight from the Federal Reserve Bank

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Okay, here are the latest numbers, straight from the Federal Reserve. These are the May, 1999 figures in Billions of US $:

Total Bank Reserves TBR 44.674 Monetary Base M3 6126.3 Currency Component CC 479.782 Institutional Money Market Component IM 538.297 Retail Money Market Component RM 784.037

So, using the formula: RR=TBR/(M3-CC-IM-RM) gives us RR=44.674 / 4324.184 = 0.01033

So what? This means that actual cash constitutes only 1.033% of all US money. Adding $50 billion dollars in TBR (while subtracting it from M3) would give us: RR= (44.674 + 50) / (4324.184 - 50) = 0.02215

So, even with the Fed's emergency Y2K measures, we would still be looking at only 2.215% cash. Correct me if I'm wrong, but this personally doesn't bode well for me. What are the latest polls? Close to 50% of Americans are *currently* planning to withdraw significant amounts. What will the same polls (i.e. reality) say this December?

How many cash-intensive fast-food managers, etc. will likewise conclude, "This 2000 'bug' thing doesn't look good - I think I'll just deposit half my take until things settle down - I have to make payroll (15%-20%), and I know these kids will always take cash pay."

For a clear digest of all this, plus links to the Fed datasheets, plus an excellent 15-minute Real Audio explanation, go to:


Zach Anderson [ figure.8m.com/y2k.htm ]

-- Zach Anderson (z@figure.8m.com), June 18, 1999


Zach - Great link list there. It's not just the recent pools either. See the poll links at http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=000sX8 for three in a row. All bad news for banks. We need a new acronym. EOBAWI = End of Banking as We Know It

-- Ken Seger (kenseger@earthlink.net), June 18, 1999.

"Correct me if I'm wrong..." O.K. Since you asked...

1. "Close to 50% of Americans..." Your logic would suggest that 50% of all American children plan on withdrawing their 'substantial' currency. Think households. There are about 102 million households.

2. The $50 billion 'y2k' addition by the Fed will be added to the $200 billion of currency kept in 'reserve.'

This $250 billion of currency is not in circulation but available to augment currency in circulation now.

$250 billion/102 million households = $2,450 per household over and above the currency now in circulation.

I'm not trying to make you feel better, I'm just offering the facts. I like facts. I think facts are very useful.

-- Sgt. Friday (weekdays@4.PM), June 18, 1999.

Sgt. Friday,

One thing you may be missing here is that the normal rate of cash withdrawls/deposits is very low compared to reserves (cash in the vaults). Currency is recycled through the retail cash counter back to the banks. Cash in the banks possession is considered a 'reserve' and part of the profile of the banks' loan operations. They are not allowed to go below a certain percentage without liquidating loans to raise the cash component.

Consider that cash withdrawn from the system will most likely be held and not spent. This reduces the cash flow in the retail system. So banks will not be receiving that cash back (in essence about 45 billion is what the banks are required to maintain in vaults by the regulators and so 45 billion must be maintained there regardless of the cash withdrawn by depositors or withheld by customers). Consider also that no bank can afford to have no cash available even at one branch so they will need to be very cash heavy even if there are heavy withdrawls.

So even though it sounds like there is this big pile of cash sitting there to be had it is much smaller than it looks. Over two thirds of the total cash outstanding is held outside of this country. Of the remaining 150 billion approx 50 billion must be maintained in the bank vaults as good against loans. The FED has said they will have an extra 50 billion available on top of the 150 billion that they hold in reserve against bank panics so that's a total of 100 billion in circulation in the States and 200 billion held by the FED = 300 billion max cash available.

According to the recently released Gallop survey taken in the March 1 through 14 time frame 62% of the respondants said they would take some or all of their money out. I have calculated a figure based on the breakdown of the duration and estimate 65 billion at this time is needed to saticfy the current level of projected withdrawls.

65 billion doesn't sound like alot compared to 300 billion but it is a tremendous amount and he FEDs know that this is no end figure, that it will only go up from here as people get more tense. Should one bank not be able to provide cash on demand then the risk of bank runs jumps exponentially.

Let me tell you that the people with the most money in the system are the most risk adverse. They do not cotton to the idea of being without their resources. These are older folks who are closer o the stories of the great depression. It is not the cash accounts we should be concerned about it is the total investment in bonds. Should even a percent of that money want to become cash then we are burnt toast.

-- -.- (dit@dot.dash), June 18, 1999.

Guys, guys, guys... do you live inside a jar of mayonnaise or something?

It's a GLOBALIZED economy remember?

The rest of the world also plays Private Friday. Cash requirements need to be worked out on a GLOBAL basis and for many different currencies. Not only US dollars need to be printed AND distributed as people demand them within the USA and abroad. Y2K cash requirements means other currencies too (Euros, Yens, etc.). If these other currencies and/or US dollars (true enough are not available in ANY ONE of the world's markets upon demand, we will all witness bank runs anywhere that happens, including the United States of America AND the rest of the world. Which is just as bad, whether you know it or not, whether you like it or not, simply because it would lead to "cross-defaults" within the international banking community. This is what Allan Greenspan fears, and he has said so in exactly those words. Read it at Garynorth.com, whether you like him or not. Y2K doesn't care. Just read the quotes.

"It's the GLOBALIZED economy, stupid" There is just not enough time or printing presses available to handle this situation, let alone hyperinflation considerations.

In the absence of cash, barter, gold and silver will take its place.

Is it that hard to understand?

Take care.

-- George (jvilches@sminter.com.ar), June 18, 1999.

This is just a stupid addition but half of the US cash in circulation does not reside within the US boarders. Many people in foreign countries who have currency problems(russia/Asia) are holding US dollars usually in the $100 category. This is one of the reasons that when the $100 was changed, the old currency was to remain in circulation.

Just a thought

-- Ned P Zimmer (ned@nednet.com), June 18, 1999.

Dead right Ned, dead right...

-- George (jvilches@sminter.com.ar), June 18, 1999.

I was talking to one of my clients yesterday who is the MIS director for a local credit union. After ordering all the appropriate licenses for all the software they had upgrade to bring their desktops up to compliance, we started talking about the article about the possible shortage of armored cars to transport the extra cash at the end of the year.

According to the estimates they were working on, they projected needing $2,000,000 in cash... and the problem wasn't getting it there, it was where the hell to put it. Their vault simply isn't large enough to hold that much cash... they still haven't figured out what to do on that one... plus they anticipate losing a lot of income... ie., interest earnings on that $2,000,000 withdrawn... not a good year to be a banker....

He really believes the money is safer in the bank, but they are up against a rock and a hard place... getting their systems compliant was the easy part, surviving the cash withdrawals is the kicker...

-- Carl (clilly@goentre.com), June 18, 1999.

Using Sgt's extra 200 Billion that I somehow misplaced (anyone have documentation on this?), let's modify the equation:

Reserve ratio RR = (44.674 + 250) / (4324.184 - 250) = 0.07233

Were still at just 7.233% - note: this is a BEST case calculation because the extra $200B probably should NOT be subtracted from the M3, but I'm giving Sgt a whole $200B slush fund to play with.

Like the Michael Jackson "double album", nice try, but it's still not very convincing.

Also, on households vs citizenry, larger households will tend to withdraw more cash, having more mouths to feed, etc. So, total population is a more accurate barometer.

Milwaukee Journal Sentinel, January 26, 1999 - "One in five plans to set aside a large amount of cash..."

ZDNet, February, 1999 - Have you considered withdrawing money from a bank or financial institution?" 61.45% yes. Of those, 24.1% plan to withdraw over 90% and 41.4% plan to withdraw over 50%.

Let's use the ZDnet one just for illustration. Now I know this is not an exact science here, but of the 41.4% crowd, 17.3% plan to withdraw 50% to 90%, so let's say an average of 70%. Let's say the 24.1% crowd withdraw an average of 95% and the remaining 58.6% withdraw only 10%.

.6145 x [ (.173 x .70) + (.241 x .95) + (.586 x .10) ] = 0.251

That's 25.1%. Sorry, we only have 7.23% (max) to dish out.

Think 25.1% is too high? Let's say the 58.6% crowd change their minds and withdraw zero, the 24.1% "doomer" crowd leave 10% in the banks, and the 17.3% "rational" crowd withdraw only the nominal 50%.

.6145 x [ (.173 x .50) + (.241 x .90) + (.586 x .00) ] = 0.186

So, we're looking at somewhere in the (Feb, 99) 18.6% to 24.1% range vs the Fed's best (Dec, 99) efforts at 7.2% ... Sort of a "gap" there, looks like - just an illusion, I'm sure.

Still not convinced? Well, the one factor I haven't brought up is the looks on the faces of YOUR household if you fumble.

Seriously, folks. Why gamble? The stakes are too high.

Zach Anderson [ figure.8m.com/y2k.htm ]

-- Zach Anderson (z@figure.8m.com), June 18, 1999.

Typo correction:

So, we're looking at somewhere in the (Feb, 99) 18.6% to 25.1% range vs the Fed's best (Dec, 99) efforts at 7.2% ... Sort of a "gap" there, looks like - just an illusion, I'm sure.

-- Zach Anderson (z@figure.8m.com), June 18, 1999.

Dr. Mark A. Ludwig has a FREE 81-page book online covering this complex issue [Somehow I knew a discussion forum would be limited]. Here is the intro from his webpage:

Just when America is facing an unparalleled confidence crisis in her leadership, politicians and bureaucrats have decided it's best if you didn't know all the details and ramifications of the year 2000 computer problem, otherwise known as Y2K. These professional liars are using their power and prestiege to tell blatant lies with the intention of misinforming you so that you'll behave just the way they want you to. Confidence Game exposes the key deceptions and lies that are being told by America's powerful. It shows you just how this confidence game is going to explode in their faces, and just what they're likely to do when it does. This book is too important to limit its circulation by selling it, so we're giving it away free in Acrobat PDF format. Get it today right here, right now!


-- Zach Anderson (z@figure.8m.com), June 18, 1999.

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