BANK RUNS: The "Mother" of all analysis. : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Please connect to the following link now:


Actually, it is a very benign, conservative tool, simply because it does NOT take into account the rest of the world. But the rest of the world DOES exist, and the US dollar is the world's most important currency (70% of transactions) and the 'store of value' currency abroad (people save and treasure US dollars throughout the world).

This means that the rest of the world will also stress demand for US dollars, as much as US citizens at least. The above mentioned tool does NOT take this into account, so it is conservative. Furthermore, it includes 1993 US Census Bureau and US Federal Reserve data. Current figures are far higher of course.

The cash scarcity problem is FAR more serious than what many people think, including Anita.

Also, please be advised that:

(1) "Your" bank doesn't matter. No individual bank matters, large or small. It's the international banking system that we are talking about here.

(2) Gallup Poll, page 14: 47% of Americans consider it likely that people will panic and withdraw all their funds prior to year's end. This involves 48 million US households.

(3) Gallup Poll, page 16: 20% of respondents believe that the entire banking system will be forced to shut down by computer problems come Jan. 1, 2000.

(4) Rest of the world also plays. Cash demands produced by other currencies throughout the world in the event of bank runs there. That is, people in Japan or Brazil may very well decide to cash in their local currencies seeking US dollars at their whatever rate of exchange as US dollars are the "store of value" currency. The only way out of that essential part of the US dollar cash problem is massive, unbearable devaluations everywhere, which would mean instant default of the rest-of-the-world foreign debt, meaning a US banking industry crack a la 1929. Don't even dream of it !!!

Take care

-- George (, July 04, 1999


George: People disconnect from the possibility of bank runs. They say they'll withdraw *some extra cash* later this year. What they don't understand is Fractional Reserve Lending and its ramifications. They ASSUME the money will be there and that there will be ample time to make withdrawals. But WTSHTF, people will panic and rush to take out all that they can. Bank employees will panic at the crowds. There will NOT be sufficient cash. Frustrations will result in violence.

I see Japan and then Germany experiencing bank runs. This will cause other nations to panic, which will swell into the United States. There are too many fragile variables propping up the world's stock markets, and all it takes is ONE UNEXPECTED DISASTER to trigger panic. It's happened before, and it'll happen again. Economic cycles repeat. What goes up must come down.

-- Randolph (, July 04, 1999.

thanks George - an excellent and to the point post. My $$$ are already where I can reach 'em.

peace, Dan

-- Dan G (, July 04, 1999.


I'm gonna ramble for a bit...

Agree 100% with your analysis, however, if their is a flight to quality to the US dollar, from abroad, won't this vastly strengthen the dollar in the immediate short term - on the computers, short term - but obviously there is simply not the cash available - what if Clinton steps in at this point and declares a national bank holiday to ***prevent*** any runs, with very limited cash withdrawls allowed or perhaps even a mandatory electronic system ONLY (Credit/debit cards only to be used for all commerce) - as we all know the 200 billion the fed allegedly has won't cut it. So maybe we could have a bank holiday ***before*** rollover, while the systems still function, with precious metals going ballistic...

So that leaves PM's - specifically Gold and Silver - they will go ballistic... what do you think?

it's all too frightening to think of...

My question to you George is, if you don't mind telling us, what are you doing personally to 1) protect yourself and your assets (if any :) ), and 2)profit from the situation, appalling though it may be. After all, we are all hoping for a bump in the road, a Banking collapse will be a catastrophe, OTOH we expect it to happen so we may as well position ourselves to benefit from the known event - so are you of the opinion that physical possesion of precious metals is the way to go?

A penny for your thoughts :)

-- Andy (, July 05, 1999.

Thank you for the link, I will be sending it to loved ones.

I am also interested in your opinion of the best way to handle assets at this time.

-- Mommacares (, July 05, 1999.

An interesting snippet from the Contrarian on seraphima's thread


Since the May highs in the popular averages, the market has not yet deteriorated to the pont where a meltdown in July is highly likely; I now rate the odds of a meltdown in late July at less than 40%. In fact, stocks are currently essentially neutral; "Timer's Trend" has been whipsawing, and is now on a June 17 BUY signal [June 28 update: Now on a June 23 SELL signal. /Nick]. (If you had tried to trade these whipsaw signals, you would have lost money.) Stocks usually rise around important holidays, so new highs are again possible in the widely-watched averages just before or shortly after the Independence Day long weekend. Meanwhile, the underlying technical support (by such measures as the advance/decline line, "bellwether" brokerage and utility stocks, and the bond market) continues to deteriotate. Yes, something will snap; when is the question. The extremely-drawn-out nature of this market top (remember: Most stocks have been in "bear mode" since April 1998) certainly makes one wonder, what's going on here? This sucker should have crashed long ago - certainly in the fall of 1998, if it weren't for the Fed's reflation efforts - and yet another window of opportunity in July 1999 appears about to pass by with the crash postponed yet again.

The reason? I think we may be seeing the early effects of the Fed's preparations for sliding through the Y2K crossover. The Fed has expanded the monetary base at an increasing rate over the past year, currently exceeding 15%. That's well above the "typical" 3% to 5%-per- year rate that's considered noninflationary for the long term; yet inflation is "nowhere in sight", according to the pundits. (Personally, I think it's worse than the government statistics show, though.)

Under what conditions could the Fed expand the money supply almost with impunity with no obvious inflationary effect? Only if there's an offsetting intensely deflationary force.... and I feel there is. We have the ongoing asset deflation in the Asian countries, of course, which seems to have stabilized for the time being.... and this is some of the deflationary impact. But what's most intensely deflationary in this country, I think, is the sequestering (the government calls it "hoarding") of extra cash by the public in preparation for Y2K. (Why would the government commission a Gallup poll on the public's intentions toward Y2K and banking if it didn't plan to use the results?)

For each extra dollar in cash you squirrel away for Y2K, up to $100 in electronic money disappears from the fractional-reserve banking system, an extremely deflationary consequence of your action. For the banks to have the cash to give you, they must sell assets (typically, Treasury securities) or borrow from the Fed. Thus the monetary base expands; but since cash is being removed from the banking system, the broadest measures of the money supply do not expand in proportion, and inflation remains relatively benign.

It's unlikely that everybody setting aside extra cash will wait until December to do so; certainly, some squirrelling-away is taking place now, as it is much easier for people to set aside a little extra each week than it is to wait until the last minute, in December, to pull it all out of the bank and risk having withdrawals restricted. (Besides, the majority of people are in hock up to their eyeballs and don't have much cash in the bank to begin with; weekly set-asides are the only way they will have cash on hand at year's end.)

Sshhhh.... this is Alan's secret; he doesn't want you to know this. But Greenspan's background is as a mainframe computer programmer, so he certainly understands the two-digit-year problem; and he certainly understands fractional-reserve banking and systemic risk, so he knows how to prepare as best he can for the change in public psychology that will occur at the Y2K boundary.

But a corollary of a rapidly-expanding money supply is that it will keep a stock-market bubble inflated, if not still expanding (thus the efforts to occasionally "jawbone" the market downward); conversely, the bond market will (probably erroneously) see massive inflation ahead and get spooked.

So, a likely scenario for the next few months is: A stock market where the popular averages don't change much while individual sectors heat up (think "dot-com" here), then fade away; and the bond market sags as interest rates rise. You could see the expansion rate of the monetary base increase to 30% per year or more, which would certainly be alarming to most people, but not to those who understand that extra Y2K cash is being pulled out of the system.

Then, as we get into late October, or more likely November or December, and it becomes clear to the public that the Y2K remediation has failed (not that every effort has failed, for most organizations will mostly succeed; only that the overall effort will have failed due to systemic spread of the failures), the happy-face Y2K spin put out by the PR people and the mainstream media will lose its effectiveness and the odds of financial panic will increase sharply. Then is when we're most likely to see the meltdown, if an accident has not triggered it earlier. (This remains a very-high-risk stock market; a financial accident that escapes the Fed's controlling clutches could blow it away at any time.)

At any rate, since April interest-bearing cash has handily outperformed the market averages, and certainly the "average" mutual fund, so you're being well-paid to patiently wait.

-- Andy (, July 05, 1999.

ANDY: Thank you for posting these points of view. Greenspan ceratinly "knows what he is doing" and the idea of significant deflationary forces simply overpowering traditional inflationary ones is a plausable explanation for the "sureal" economic goings-on we are experiencing.

-- Dave Walden (, July 05, 1999.

The big run will begin in Japan, with their Postal Money system. In the past, rates were higher. Now, the rates are near ZERO. An EXTENSIVE quantity of money went in. It comes due in January 2000. We are talking billions and billions and billions. It will NOT be rolled over at the new substantially lower rates.

It will be the mother of all bank runs as the masses all try to be the first ones out.

And it has NOTHING to do with Y2K at all.

-- Paul Milne (, July 05, 1999.

Paul - anyone - just how does this Postal Money work, and what are the implications of this "rollover" - I'm confused (nothing new...)

-- Andy (, July 05, 1999.

Still have yet to get a good answer to my question (in above thread). Newlurker tried, but didn't understand current banking laws.

It's going to get really messy out there folks.

-- Ken Seger (, July 05, 1999.


you might not be able to get your money out for 90 days but you can write a check to a bullion dealer and pick up your gold eagles a day or two later... avoids the structuring laws too... no good in a bank run situation however.

check out seraphimas post and read the last two Contrarian newsletters - your questions may be answered...

-- Andy (, July 05, 1999.

Ken Senger,

The answer to your question is that there is no foreseen way by which the (international) banking system can survive. So everything indicates (remember Galileo Galilei?) that the banking system will default, not because Gary North or others may want it, but rather because it has painted itself into a corner, IT-wise, technical-wise, fiduciary-wise. Something's got to give Ken, simply because, on top of it all, money is the most coward animal alive on the surface of planet Earth.

No matter how many "plastic" solutions are suggested, no matter how many cashier's checks are issued, the minute that any of the huncky- dory make-believe monetary underpinnings are fiddled around with, people will seek physical possesssion of "money" in its three roles, i.e., a means to pay, a means to carry accounts, a means to store value. Any and all of the suggestions you and others have considered will fail sooner or later (probably on the spot), directly or indirectly, here or abroad, simply because the "model" has grown to such size and delicate complexity that it has a 'life of its own'. It drives us and not the other way around. And the "model" is very feeble, very weak, in many of its vital fronts. Foreign countries play too, as you've pointed out more than once Ken, and we can't just "bomb" the problem away, right?


If the US dollar skyrockets (as you rightly suggest) this will mean that the rest-of-the-world economies bankrupt as they cannot import dollar denominated goods and services (70% of world transactions), nor can they pay back current loans. The international foreign debt is suddenly unpayable if the US dollar goes high enough. Currencies and trade, rates and debt go hand in hand. Lots of tie-ins.

Conclusion: the international banking system would default, debt would never be collected as WKI.

The minute Clinton declares a bank holiday (as you also suggested as another possibility), instaneous bank runs will take place EVERYWHERE.

As far as precious metals is concerned, under current circumstances they have yet to bottom out because of certain "games" (short selling) that banks have gotten into because of funding needs. I expect gold to drop at least below $250/220 the ounce.

As far as what am I doing personally, that's easy: THINKING, with my eyes wide open, and on my toes (best sneakers in town), ready to run, dash, take losses, stop, run, take profits, dash again, turn on my heels, run the opposite way, etc.

Wellcome to the 21st. century guys/gals, with constantly changing scenarios in a world of uncertainty. Was the 20th. century any better?

Take care in

-- George (, July 05, 1999.

A defective machine, no matter how smoothly it may appear to run, for a time, will eventually self-destruct. The "monetary machine" is defective -- fiat money and fractional reserves being two biggies.

Withdraw early and withdraw often.

-- A (, July 05, 1999.


suggest you listen to georgie. sounds like the boy has his head screwed on pretty straight. i know i for one plan to take his advice and sit/stand, crawl/walk, laugh/cry, pee/poop, love/hate, eat/be eaten. and i'm not even going to spread these actions out over the rest of the year. i'm going to do them all by this evening...before it is too

-- corrine l (, July 05, 1999.



-- corrine l (, July 05, 1999.

Good work, George!

Sorry you couldn't take the day off from work, C1.

-- Mr Gresham (, July 06, 1999.

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