There has been a lot of conjecture as to why the IMF and several central banks are simultaneously announcing a massive sell off of their gold stocks. The timing and reasons officially given are very curious and have made little sense. Why now? And why at the same time???

For example, London bullion sales were recently pre-announced with much fan-fare causing an immediate drop in gold prices. From a business point of view, that would be like Bill Gates announcing that next week he will dump all his shares of Microsoft stock. "Billionaire Bill" would quickly become "Millionaire Bill".

Later, the IMF offers up some lame excuse for their gold sales that it will be used to help third world nations get out of debt. So what else is new?? Third world countries have been in debt since the beginning of time. The IMF is pissin' in the ocean. The goldbugs jumped on a story that the central bankers needed to lower the price of gold because they were facing a major default in the gold lease trade. High rollers had leased central bank gold at low rates, sold it at market rates and invested the proceeds in the stock market. If the stock market tanked and gold rose, they would be unable to pay back the banks. The resulting defaults would derail the world's financial system and might even topple some governments. It sounds credible, but I have a simpler, more rational explanation.

The central banker's greatest Y2K fear is a major contraction in liquidity. To the financially uneducated, this means that there will not be enough cash floating around in wallets and bank accounts if even a small portion of U.S. currency is pulled out of the market and squirreled away in mattresses around the country / world by Y2K spooked citizens. They know that if this happens, a Pandora's box of terrifying events will be triggered.

The hoarding of cash will almost certainly lead to bank runs. There just aren't enough greenbacks in circulation to go around. It's like a game of musical chairs, except that there are 100 depositors and one chair!! No matter how many extra billions of dollars the Fed prints and makes available to bankers at low rates, local bankers will be loathe to borrow and cut into their profits on the "chance" that there will be a run on their bank. The logistics of rapidly distributing this much cash to the thousands of banks after the first runs begin will be too great and take too long to stem the tide. Once the first bank closes its doors, the news will spread like cold germs in an over-crowded daycare center. Lines will begin forming at banks around the country the next morning. Mandatory withdrawal limits and nationwide bank closures will follow within 48 hours.

Reacting to the hemorrhaging of cash from their vaults, banks will be forced to close their credit windows and begin calling in all callable loans. Cash flow for marginal small and medium businesses will dry up immediately forcing many out of business within days. Even the healthier businesses will be seriously financially stressed resulting in a possible recession or depression.

Banks will have to sell securities to maintain mandated reserve requirements causing a serious drop in the stock market. Bank customers facing both locked bank doors and a falling stock market will sell as much stock as possible to raise cash, prompting a complete market crash.

The flow of cash, the lifeblood of any economy, will be reduced to a trickle. The market for all luxury and non-essential items will dry up over night. GM and Microsoft will see sales drop to nearly zero. The price of necessities such as food and gas skyrocket as all available cash competes for these commodities.

The unavailability of currency will prompt alternate forms of payment: gold, silver, and barter. If taken to an extreme, the U.S. fiat currency may well lose all value among the populace. The federal government, unable to collect taxes from a cashless citizenry or raise funds by printing worthless currency, will default on its public debt and later declare bankruptcy.

The central bankers know the picture is bleak. Their solution is genius:

Flood the market with as much cheap gold as possible. Y2K Doomers are the target. They are the ones who are most likely to hoard a significant amount of cash. Fortunately for the Greenspan's of the world, doomers also place a high survival value on gold. Entice them to pull their cash out of the mattress with cheap gold. This keeps the cash on the street !!! And avoids the risk of massive inflation resulting from printing up too much money.

And if it solves that little gold lease problem at the same time, so much the better.

-- Hawthorne (99@00.com), August 11, 1999

Answers

Well, this is yet one more speculation on top of many, many others. If you go to www.gold-eagle.com and click on Forum, lurk there long enough and you will have about a dozen alternative explanations on the gold selling. One thing is for sure: there must be a method to the madness, these people are not stupid.

Hawthorne, I don't think that your speculative theory holds up. In the first place, there are just not that many Y2K aware people that are going to make that kind of difference -- we are just too small in number. Secondly, anyone who goes into a Y2K "diversified" portfolio of cash and precious metals is surely going to acquire all of these via electronic money, not completely go to cash, then use some (or all) of the cash to go to precious metals, thus replenishing the cash supply to banks.

-- Jack (jsprat@eld.net), August 11, 1999.

No they are not selling gold to prevent bank runs. THIS IS WHY THEIR SELLING GOLD

-- Y2K Professional (Y2KPROFESSIONAL@aol.com), August 11, 1999.

Sorr y TRY AGAIN

-- Y2K Professional (Y2Kprofessional@aol.com), August 11, 1999.

It is difficult to find an essay with more bad economic ideas (and wild-eyed speculation.)

"The central banker's greatest Y2K fear is a major contraction in liquidity."

Wrong. The central banker's greatest fear is hyper-inflation. As a lendor of last resort, a central bank can create liquidity in the financial system.

"To the financially uneducated, this means that there will not be enough cash floating around in wallets and bank accounts."

Wrong. A liquidity squeeze occurs when lendors are unwilling to make loans, not when there is a shortage of currency. Many businesses handle very little currency. Perhaps you've heard of "checks." The amount of currency available is far smaller than the amount of money (pick your definition... M1, M2, M3, etc.)

"If even a small portion of U.S. currency is pulled out of the market and squirreled away in mattresses around the country / world by Y2K spooked citizens. They know that if this happens, a Pandora's box of terrifying events will be triggered."

Wrong. Currency is not the only form of money. Other instruments can be made into legal tender rather easily. Even if people attempt to stockpile cash (quite a feat for average American consumer), they cannot hold cash for long without defaulting on debt obligations.

"The hoarding of cash will almost certainly lead to bank runs. There just aren't enough greenbacks in circulation to go around."

Wrong. As noted above, it is difficult to hold cash for long when one is heavily in debt. In fact, most Americans live from paycheck to paycheck and have little ability to amass a store of currency. In addition, if currency shortages loomed, there are many measures the government could take to ensure liquidity.

"No matter how many extra billions of dollars the Fed prints and makes available to bankers at low rates, local bankers will be loathe to borrow and cut into their profits on the "chance" that there will be a run on their bank."

Wrong. "Local" bankers will have adequate currency supplies... and, if needed, they will strongly encourage customers to use quasi- currency like personal checks, money orders, cashier's checks, etc. If you decide to cash out a million dollar savings account, do you bring large suitcases for the currency? No. The bank issues you a cashier's check.

"The logistics of rapidly distributing this much cash to the thousands of banks after the first runs begin will be too great and take too long to stem the tide. Once the first bank closes its doors, the news will spread like cold germs in an over-crowded daycare center. Lines will begin forming at banks around the country the next morning. Mandatory withdrawal limits and nationwide bank closures will follow within 48 hours."

Wild speculation. Withdrawal limits are just one tool of many the Federal Reserve system can use to stem a banking panic... although the general public seems rather sanguine about the system. With over 99% of banks Y2K ready, where's the panic? If the lights go out, who expects the local bank to be open? Where could you spend your money if we have a general infrastructure failure? So, we need enough Y2K problems to panic everyone, but not enough to cause the system to shutdown?

"Reacting to the hemorrhaging of cash from their vaults, banks will be forced to close their credit windows and begin calling in all callable loans. Cash flow for marginal small and medium businesses will dry up immediately forcing many out of business within days."

Wrong. Calling loans does not ease a currency crunch. Most businesses do not have much cash on hand. Again, modern commerce is largely conducted through checks and electronic payments. Most businesses do not operate on a "few days" margin. If this was true, even a severe winter storm would cause many businesses to fail. Sorry, but it just doesn't happen. Oh, and another trick the Fed can use is to ease reserve requirements to allow banks to avoid calling loans.

"Even the healthier businesses will be seriously financially stressed resulting in a possible recession or depression."

"Banks will have to sell securities to maintain mandated reserve requirements causing a serious drop in the stock market. Bank customers facing both locked bank doors and a falling stock market will sell as much stock as possible to raise cash, prompting a complete market crash."

Wrong. As noted above, the Fed sets (and can change) reserve requirements. First, the Fed will not knowingly crash the system. Second, reserves are not held directly by the banks nor are they held in equities.

"(b)(1) Section 19(c)(1) of the Federal Reserve Act, as amended by the Monetary Control Act of 1980 (title I of Pub. L. 96-221) provides that federal may be satisfied by the maintenance of vault cash or balances in a Federal Reserve bank. Depository institutions that are not members of the Federal Reserve System may also satisfy by maintaining a balance in another depository institution that maintains required reserve balances at a Federal Reserve bank, in a Federal Home Loan bank, or in the National Credit Union Administration Central Liquidity Facility if the balances maintained by such institutions are subsequently passed through to the Federal Reserve bank."

Furthermore: " (b) Form and location of reserves. (1) A depository institution, a U.S. branch or agency of a foreign bank, and an Edge or agreement corporation shall hold reserves in the form of vault cash, a balance maintained directly with the Federal Reserve Bank in the Federal Reserve District in which it is located, or a pass- through account. Reserves held in the form of a pass-through account shall be considered to be a balance maintained with a Federal Reserve Bank."

"The flow of cash, the lifeblood of any economy, will be reduced to a trickle."

Wrong. The flow of money, goods and services depends very little on currency.

"The unavailability of currency will prompt alternate forms of payment: gold, silver, and barter. If taken to an extreme, the U.S. fiat currency may well lose all value among the populace. The federal government, unable to collect taxes from a cashless citizenry or raise funds by printing worthless currency, will default on its public debt and later declare bankruptcy."

This statement presupposes a rocket trip to the 12th century. It suggests we will have not only a complete social and economic meltdown, but that the government will effectively dissolve. While a tantalizing thought, this will not happen. The real risk in this worst-case scenario is a totalitarian regime replacing the current republic... similar to the rise of facism after the fall of the Weimar Republic.

"Flood the market with as much cheap gold as possible. Y2K Doomers are the target. They are the ones who are most likely to hoard a significant amount of cash. Fortunately for the Greenspan's of the world, doomers also place a high survival value on gold. Entice them to pull their cash out of the mattress with cheap gold. This keeps the cash on the street !!! And avoids the risk of massive inflation resulting from printing up too much money. "

Beyond wrong. The Y2K pessimists have been aware of the problem throughout the late 90s. There's been no upward movement in gold prices. Despite the gloomy Y2K predictions (and widespread marketing efforts by gold dealers) the price has remained flat. There simply is not enough purchasing power in the Y2K pessimist community to move gold prices. It is also nonsensical to "entice" a small group of people to circulate currency when you can print an extra 50 billion by running the presses.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), August 12, 1999.

There are tons of complicated theories..I read them and get a headache trying to understand them. As to bank runs, Forget all other complex ideas and take heed to this. As we get closer to y2k, the apprehension factor will start to build. Then at some point(possibly Dan Rather quotes a well known economist's dire predictions) and it's all over. I'm afraid all our worst fears will surely come true.

-- citizen (lost@sea.com), August 12, 1999.

DDecker you prove on a daily basis what a cluless banking shill you are - enumeration my ass!!!

The game is up, the financial house of cards is teetering, ready to be pushed over when the cabal feels the time is right, the central bankers worldwide know this, they are now perpetrating the biggest scam ever (other than fiat money) as the cabal drive the price of gold down down down so that their cronies can buy buy buy at firesale prices...

meanwhile they keep the markets ticking over, bail out Tiger, throw this fiat funny money at it - JUST enough to keep the circus going so they can steal some more, bankrupt some assets thew want, complete their mega-mergers so that they will be WELL POSITIONED in the post collapse era...

buy gold, buy now, buy cheap - don't listen to ddecker - he is perpetrating gubbmint and cabal propagandaof the most obscene kind...

you're loss if you listen to him...

-- Andy (2000EOD@prodigy.net), August 12, 1999.

"It is difficult to find an essay with more bad economic ideas..."

Mr Decker

Watch out when you hold up a harsh mirror to others that you do not yourself walk in front of it.

In my view, the Federal Reserve and Government in general have only three things to offer the public in its quest for real money:

1. $50-$200 billion of paper currency, mostly in large denominations.

2. Government debt instruments, i.e., promises to draw upon future tax revenues.

3. The gold in Ft. Knox or under the N.Y. Federal Reserve Bank.

After they run through the first category, they will attempt to relieve account-holders' anxieties with infusions of the second type of "money", which will be heavily discounted in actual trade.

The third will never leave its storage except under a new regime of re-monetized gold, and not till all the other tricks that can be conceived of have been tried.

-- Mr Gresham (wh@t.century.is.it?), August 12, 1999.

Hawthorne, Mr. D and others

One problem with the US greenback is that the rest of the world is going to want some. Even if the US system holds together there are alot of counties that will not be so lucky. What are they going to want? The ruble? NO. They are going to want a "secure" currency and that will be the dollar or gold - silver. Alot of folks aren't so worried about keeping the cash in the mattress.

Funny I am reading a book on the international drug trade, The Underground Empire. They deal in real cash, heavy volume and it is very fluid. The Dollars that they control alone would be a considerable dent world wide.

What is going to happen to the confidence in the US Dollar in the international arena? If runs start in parts of the world will it snowball and what can the US do about it? Should it do something?

I am kind of throwing this out as a speculative thing. As I am not a US citizen it is kind of an objective musing. One would think in this case that easy access to gold and silver would be a good thing. Paper would be lighter though :o)

-- Brian (imager@home.com), August 12, 1999.

Ah, "Conspiracy Andy," it's all a "plot" by the handful of people running the world. Let's see... they're not happy running the world now, so they want to destroy it, buy it on the cheap, and then buy it back at firesale prices. What's next in your comic book version of the world? Don't tell me... all of these "leaders" are Jewish? Masons? Pod people? Tell me, Andy, what do you think of Lyndon LaRouche?

Oh, and to the others: We will not see a return to the gold standard. We will not run out of currency, if only for the simple reasons it must recirculate to be of any use and it can be printed in rather large quantities. The banking system is largely Y2K ready and the vast majority of people are not worrying about savings accounts or demand deposits.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), August 12, 1999.

If Decker isn't worried about infrastructure and if he isn't worried about financial panic, why does he continue coming to this forum?

-- John Doe (jhnd@puzzled.huh), August 12, 1999.

John Doe, I think there will be Y2K-related disruptions. Furthermore, I think Y2K problems will contribute to a domestic recession. One occasion, I find thoughtful people who wish to discuss Y2K. Some actually consider the facts in an objective manner... instead of working backwards from the conclusion Y2K will be the end of the world. While I am looking for decent threads, I occasionally stumble upon a mess like Hawthorne's post. Rather than let it stand unchallenged, I weigh in. This way, the average forum reader has a chance to see both sides of an issue. Personally, I think the place is well served this balance... and a depth of thought not found in your argument.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), August 12, 1999.

Mr. Decker

Thanks for your response, although your argument is as full of holes as swiss cheese. I wish I could respond to them all, but I have chosen a choice few:

"Wrong. The central banker's greatest fear is hyper-inflation. As a lendor of last resort, a central bank can create liquidity in the financial system. "

Mr. Decker you are wrong. A central banker has just as much to fear from illiquidity as inflation. Just because inflation has been one of their primary concerns these last few decades doesn't mean illiquidity is off the table. I invite you to study what happened to our nation's economy during the 30's!!! Since the Fed controls the money supply, they can just as easily increase it as reduce it. The point is they are both dangerous to an economy. You are trying to deflect the issue.

"If even a small portion of U.S. currency is pulled out of the market and squirreled away in mattresses around the country / world by Y2K spooked citizens. They know that if this happens, a Pandora's box of terrifying events will be triggered.

"Wrong. Currency is not the only form of money. Other instruments can be made into legal tender rather easily. Even if people attempt to stockpile cash (quite a feat for average American consumer), they cannot hold cash for long without defaulting on debt obligations."

Decker, what you have said is true, however it is completely irrelevant to my comment!!! Have you ever heard of the multiplier effect?? If significant amounts of cash are pulled out of the system, it will have an incredible leverage effect on the economy. How many times is every dollar in the system reloaned? This is Econ 101 stuff. If $XXX,000,000,000 is pulled off the street, the economic impact will be felt. Bank reserves will be adjusted. Banks will scramble to cover themselves. Credit will tighten. A liquidity squeeze will ensue.

"The hoarding of cash will almost certainly lead to bank runs. There just aren't enough greenbacks in circulation to go around.

"Wrong. As noted above, it is difficult to hold cash for long when one is heavily in debt. In fact, most Americans live from paycheck to paycheck and have little ability to amass a store of currency. In addition, if currency shortages loomed, there are many measures the government could take to ensure liquidity."

Again Decker, irrelevant!!! Debt is irrelevant. Does having a mortgage keep YOU from having funds in your checking account??? If most Americans have such a hard time finding two dimes to rub together, who's buying all those SUV's??? People do have access to funds, even if borrowed!! And they will pull it from their checking and savings accounts. They will sell stock to generate funds as well.

My original point still stands: Withdrawing lots of cash out = bank runs.

"No matter how many extra billions of dollars the Fed prints and makes available to bankers at low rates, local bankers will be loathe to borrow and cut into their profits on the "chance" that there will be a run on their bank."

"Wrong. "Local" bankers will have adequate currency supplies... and, if needed, they will strongly encourage customers to use quasi- currency like personal checks, money orders, cashier's checks, etc. If you decide to cash out a million dollar savings account, do you bring large suitcases for the currency? No. The bank issues you a cashier's check."

Decker, how do you know there will be adequate currency supplies? Are you speculating? Does anyone know?? I doubt it. But I do know that there is only enough cash to convert 1% to 2% of deposits to currency! And who in their right mind is going to accept quasi- currency as insurance against bank closures?? I can see it now.

Doomer: I'd like to cash this check for $2000. Bank: I'm sorry Sir. We are all out of cash. Would a cashier's check do? Doomer: Well, alright. But give it to me in ones, fives, tens, and twenties. Bank: Yes sir. Oh, by the way, we have a $1.50 service charge per cashier's check! How many ones will you be needing????

I wish I had time to respond to the rest. Maybe later.

-- Hawthorne (99@00.com), August 12, 1999.

The only y2k-related disruption I consistently see is that raving banking shill double-decker....

hope you're getting well paid with blood money...

better spend those thirteen pieces ddecker before you realise that you can't ...

-- Andy (2000EOD@prodigy.net), August 12, 1999.

Hawthorne,

why even bother to respond to this brain-dead banking shill?

it's quite obvious what his agenda is, and he's making a very bad job of it...

-- Andy (2000EOD@prodigy.net), August 12, 1999.

Mr. Hawthorne,

With all due respect, you have been handed your hat. You may be bright enough to realize I have some knowledge of economics. Simple mistakes (like you suggesting banks hold reserve requirements in equities) suggest your knowledge of economics is... incomplete at best.

If I might correct a few added errors. Central bankers can easily address liquidity issues... as the Federal Reserve did during the LTCM crisis. Central banks are the lender of last resort by definition. Inflation, however, is a much bigger hydra. Ask Alan Greenspan what he'd prefer dealing with... hyper-inflation or a liquidity squeeze. Care to wager on the answer?

By the way, I am writing an academic article on the economics of the Great Depression... although much has been written already. I'd advise you to examine the role of the "gold standard" and how it limited the options of central banks during the 1930s. Also examine the economic performance during the economies like Sweden or Japan. They had a much easier time of it than us. Why?

Your inexperience in economics causes you to use the term "cash" rather than differentiating between currency and money. Currency is a small subset of money. A "run" on currency is different than a "run" on money. The multiplier effect can have a wicked inverse, however, my point is simple. How long can currency or money stay "out" of the system. Money serves a medium of exchange. Are you suggesting people will withdraw money just to bury it in mason jars in the backyard? As I pointed out already, the Federal Reserve controls reserve requirements. The Fed will make weathering any crisis priority one... it will not "crash" the system by imposing unrealistic expectations during a banking panic.

Of course debt is relevant. Most debt is secured by real property. Do you plan on allowing the bank to foreclose rather than pay your mortgage? By the way, you can't spend money you don't have. If banks tighten credit, there will be fewer SUVs sold. But you cannot withdraw money you don't have. Most Americans have very little liquid wealth. Most of their net worth is tied up in the equity in their home, in retirement funds and other assets. If the market crashes, who wants to sell at a huge loss?

If you want data on currency supplies, just ask. And the U.S. government has the power to make quasi-currency legal tender. Do you think the Federal Reserve and the U.S. Treasury plan to sleep during the first few months of the rollover?

I felt a little twinge during my first post. I really don't enjoy correcting really bad economic thinking... and I have no desire to hurt your feelings. Please read what I have written and feel free to ask some questions. But if you continue to post information that is quite simply wrong... I'll point it out, though it won't be fun for either of us.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), August 12, 1999.

Gold

More Gold

-- Goldfinger (shiny@au.com), August 12, 1999.

See what I mean Hawthorne, shill, condescending at that, through and through.

Transparent as glass too.

-- Andy (2000EOD@prodigy.net), August 12, 1999.

Mr. Decker:

By the way, you can't spend money you don't have. If banks tighten credit, there will be fewer SUVs sold. But you cannot withdraw money you don't have. Most Americans have very little liquid wealth. Most of their net worth is tied up in the equity in their home, in retirement funds and other assets.

I'm surprised that such an economic expert hasn't heard of three ways that people can get money that they "don't have": home equity loans, 401-K loans, and margin loans.

The first of these types of loans allows people to cash out much or all of the equity in their homes. Sometimes they even allow 125% loans, which means you can borrow MORE than the equity in your home.

Then we come to 401-K plan loans. A 401-K plan, in case you're not familiar with it, is a type of retirement plan sponsored by companies, which often allows people to take out loans up to 50 percent of the value of the securities in their account.

Finally, we have margin loans. In case you're not familiar with this sort of loan, it is a loan that is secured by securities held at your broker. Again, you can borrow up to 50 percent of the value of the securities.

So you see, Mr. Decker, that it is entirely possible for people to take money out of the bank that they "don't have". I hope I have clarified this complex subject for you.

-- Steve Heller (stheller@koyote.com), August 12, 1999.

Mr.Decker,

I have been reading this forum for 18 months and you are the kookiest S.O.B. that I have ran across when it comes to the markets. You are so unimformed. Maybe you should read a book that was written by a genius by the name of Ayn Rand. "Atlas Shrugged" I don't think you have the intelligence to read and understand. But, please try if you want to understand human psycholgy and the power structure. In the mean time, I hope that I will witness your death and others like you IF the sh*t hits the fan. I will laugh at you as you beg for help. Your type has destroyed this country. You will soon pay...I hope?

-- Y2K Professional formerly you no who (Y2KProfessional@aol.com), August 12, 1999.

Mr Decker:

Your efforts to inform preschool flunkouts are comical but probably not worth the effort. I doubt many people who could understand what you're talking about could also hang around this forum very long, unless they have a very strange sense of the absurd.

Ever wonder how some of these people could read such large books as they claim and *still* have no feel for spelling or punctuation? Either they don't care how they look in public, or they don't know. And you're trying to teach these people economics? Hehehehe

-- Flint (flintc@mindspring.com), August 12, 1999.

Mr. Decker

1. Are you reading the same thread I am?? Where do I say "banks hold reserve requirements in equities"??????? I clearly said "banks will have to sell securities to maintain mandated reserve requirements". You misquote me then critique the misquote. Where was that thread on the Twenty Techniques of Disinformation?

2. Why don't YOU ask Alan Greenspan what he'd prefer dealing with... hyper-inflation or a BANK RUN. You seem to be avoiding some issues here. Inflation happens gradually over months, even years. Bank runs happen over hours. Just how fast will the Fed be able to distribute this cash to tapped out bankers across the country. I can see a new motto being painted on every armored car and van "CASH: WHEN IT ABSOLUTELY, POSITIVELY HAS TO BE THERE OVERNIGHT"

3. You seem to be bothered by my use of the word "cash" as a substitute for currency. This is insignificant and appears to be an attempt to discredit and distract. My dictionary gives "bills, coins and currency" as a definition for cash. If this post was placed on a forum dedicated to economists and academicians you would have more sympathy from me. This forum is open to the educated and uneducated alike. I use the term cash as it is commonly accepted in our language.

4. Yes, I am sure that the U.S. government has the power to make quasi-currency legal tender. This of course has nothing to do with bank runs. They can make toilet paper legal tender if they want to, but it doesn't mean the public will accept it. How many Susan B. Anthony's do you see in circulation these days????

Understand this: People don't like change. And they don't like risk. As the unknown of Y2K approaches, people are going to take out a little insurance. Some more than others. Currency is going to be taken out of banks in vast quantities according to many of the polls I've seen posted here. The likelihood of bank runs is high. Depositors are not going to accept chits, checks or IOU's. Expect bank closures. Expect violence. Take out as much money as you can safely keep at home.

And I agree with Andy. You are condescending.

-- Hawthorne (99@00.com), August 12, 1999.

Mr. Decker: No flames, just questions. I believe that bank reserve requirements with the Fed are less than 5%. While certainly the Fed could reduce the reserve requirements for additional liquidity, there isn't all that much to begin with (or could they go negative?).

I believe banks hold their surplus deposits (money not out on loans, or the minimum reserves held at the Fed) in investments such as Fannie-Mae mortgage-backed *securities*, or US Treasury Bonds, municipal and perhaps corporate bonds, etc.

If a substantial number of depositors wished to close their accounts (take their currency), would the resulting reverse-leverage not require the banks to sell their investments (marketable securities) in a declining market in order to maintain liquidity?

-- DaveW (dwood@southwind.net), August 12, 1999.

Flint,

you have your head so far up ddeckers ass when ddecker goes jogging all we see are you size 10's flapping in the wind (pun intended)

and furthermore

your attempt to out-condescend ddecker by calling all who contributed to ddeckers unravelling on this thread "preschool flunkouts"is typical of your own arrogant persona,

twins, the pair of you...

-- Andy (2000EOD@prodigy.net), August 12, 1999.

"There's been no upward movement in gold prices. Despite the gloomy Y2K predictions (and widespread marketing efforts by gold dealers) the price has remained flat."

For God's sake Decker, have you not been paying attention, man? Greenspan himself admitted to the ability of the central banks to hold down the price of gold. Circa June-July 1998 speech. It's been posted on this forum several times, and too many times to count on several other forums. Were you aware of the GOLD ANTI-TRUST ACTION lawsuit? It's got some on capitol hill buzzing.

http://www.gata.org/

Some critical portions of the economic-speak you are stating no longer applies in a corrupt and manipulated environment. WE ARE IN THE MIDDLE OF A WHOLE DIFFERENT BALL GAME NOW.

-- OR (orwelliator@biosys.net), August 12, 1999.

Ah, once more into the breach.

Consumers can apply for credit. This process facilitates a great deal of consumer spending. In fact, I'm not sure anyone remembers what "cash on the barrel head" means.

In uncertain economic times, lending institutions are more reluctant to make loans. This include home equity, retirement fund and margin loans. There are several ways to limit credit including tightening the loan criteria, raising fees, raising interest rates, increasing collateral requirments, etc.

A liquidity squeeze occurs when lenders are unwilling to make loans because of economic circumstances. This is one reason why the Federal Reserve is called the lender of "last resort." The Fed can use several tactics to encourage a flow of money into the marketplace.

Despite the Federal Reserve's ability to ease a liquidity crunch, there are market forces that limit loans in times of economic upheaval. This is one of the natural checks and balances of the free market. This is not to say, however, that people cannot liquidate assets. Here is another example of the limiting influence of the market. If you decide to sell your stock now, you may receive a premium price. If you wait and there is a frenzy of selling (also called a "correction") the value of your equities will drop. Now, do you want to sell your equities at 75% of their 1999 value? Maybe. But as prices drop, people become less willing to sell at an extreme loss. Lower prices also attract sellers. You may be willing to sell your stocks at 10% of their former value... but I assure you will find buyers. The buyers will be converting money into assets... as you convert assets into money. There must be a buyer and a seller for every transaction. You are not suggesting, Mr. Heller, that people will burn their money for heat or bury it in mason jars, are you? As long as people are willing to engage in commerce, money will flow.

Having waded through your copious resume, I did not notice any economics background. If your resume is accurate, you have spent most of your time in high tech. I will let someone like the "Cobol Dino" engage you in a debate over EPROMs and such. If you decide you want to go head-to-head in economics... drop me a note. Please be forewarned, however, just as you have expertise in technology, so have I in economics (although I try to write on a layperson's level for this forum.) Mr. Heller, how do you think I would do reprogramming a mainframe? I hold your economics ability in the same esteem.

Onto the others... Y2K Professional, spare me the John Galt idolatry and the idle chatter about witnessing my death. What kind of human being wishes for the death of another over a differing outlook on Y2K? Don't worry, you've answered the question.

Flint, good to see you and I hope you are doing well. I admit the economics class is going poorly. A rather poor lot of pupils, but it is too early to give up all hope.

Back to Mr. Hawthorne, glutton for punishment. What "securities" will these banks sell? Are you aware of the limitations placed on financial institutions when it comes to investing? Shall I provide some FRB regulations?

Speaking of misquotes... you clearly state in your original thread, "The central banker's greatest Y2K fear is a major contraction in liquidity." Now, is it liquidity or a bank run. They are different, you know.

Again, your comment about inflation reveals a profound lack of information. Hyperinflation can be measured in days, if not hours. "In 1918 a loaf of bread cost just over half a mark. By 1922 the cost had risen to 163 marks for a loaf of bread. By November of 1923 a loaf of bread cost 201,000 million marks." That, Mr. Hawthorne, is hyper-inflation. Lest you think hyper-inflation is limited to the Weimar Republic:

"1922 Germany 5,000% 1985 Bolivia >10,000% 1989 Argentina 3,100% 1990 Peru 7,500% 1993 Brazil 2,100% 1993 Ukraine 5,000%"

Bank runs can be stopped far more easily than hyperinflation. You have heard of the bank holidays of the 1930s? Admittedly a heavy sledge to use, but the banks can impose withdrawal limits, issue quasi-currency, limit hours, limit electronic transactions, etc. Again, I remind you that the "wealth" of most American families is tied up in assets. They can liquidate the assets... but only to buyers who are willing to offer the money.

You point on cash is well taken. For the purpose of this discussion, I'll consider "cash" to be currency... and money to include demand deposits and other forms of money, inclusive of currency.

Now, onto to bank runs. People may choose not to accept quasi- currency. They also may be turned away from the local bank (in a dire crisis.) If given the choice between quasi-currency and no currency... I think most people will take what they can get. If quasi-currency is made into legal tender... creditors must accept it as legal payment for debts. Here's a scenario. Your worst fears come to pass... Y2K is causing havoc and people are nervous. The Federal Reserve receives news of angry customers who want currency... and nothing else. The government passes an emergency statute making cashier's checks and money orders legal tender for a 90-day period. There are national press conferences to announce this decision. All businesses, including landlords, mortgage companies, utilities, etc. are required to accept these instruments as payment for debts. Of course, most people just continue writing personal checks as they have for years. The nervous nellies may draw down the currency reserves, but they still have to pay the bills. The currency recirculates and the quasi-currency including demand deposits fill the gap.

The polls on currency withdrawals are speculative. As I have mentioned, many Americans do not have substantial cash reserves. Ask the average forum member how much they can withdraw from the bank today. Particularly when we know the top ONE percent of the U.S. families control almost 50 percent of the wealth.

http://epn.org/prospect/22/22wolf.html

"Today, the average American family's wealth adds up to a comparatively meager $52,200, typically tied up in a home and some small investments." (1992)

Triva fact: "As of July 31, 1996, of the $405,498,621,203 in total currency in worldwide circulation, $246,890,577,200 is in the $100 denomination." USBPE

Yes, bank runs are possible. They always are. Social unrest and violence are possible. If you feel more comfortable with your money under the mattress... fine. You should acknowledge, however, the government and Federal Reserve have powerful tools to stem bank panics... and will use them, even at a high economic cost.

Dave, interesting question. Reserve requirements are low, but higher than the "salad days" of the S&L debacle. The Federal Reserve could not only waive reserve requirements, but provide de facto reserves by printing money. (This is an ugly scenario.) If enough people want their money out, this could put tremendous pressure on the banking system. It also begs the question... what do depositers plan to do with their money? There is little incentive to let it sit on the dresser. The Federal (and lending institutions) can intice depositers by offering higher returns. This is all part of the ebb and flow of the marketplace, Dave. Who is going to start paying all their bills in cash? Aren't you willing to tolerate some capital risk for a slight return and the convenience of demand deposits (backed by the FDIC?) Nice work, Dave, a real question... and feel to write anytime. My email is real.

Andy... what is this ongoing sexual obsession? Why are so many of your personal attacks sexually oriented. Frankly, I think these attacks reflect far more poorly on your than on your targets. Your diatribes sound rather homophobic.

Or, I'm losing steam. Of course central banks have some ability to influence gold prices. I'm too tired to do the global banking conspiracy dance, but I appreciate your point. If you want to discuss the gold issue at length, drop me a note. I'm still digging through the Lyndon LaRouche EIR stuff. I honestly didn't know much about LaRouche, but he is proving interesting.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), August 12, 1999.

ddeckerphopbic asshole, ddeckerphobic, 25 rules of disinsformation etc. pretty lame even for you ddecker, if you can't bring up the religious angle, bring up homophobia...

we can all see RIGHT through your condescending ass deedee

-- Andy (2000EOD@prodigy.net), August 13, 1999.

Mr. Decker:

You may be willing to sell your stocks at 10% of their former value... but I assure you will find buyers. The buyers will be converting money into assets... as you convert assets into money. There must be a buyer and a seller for every transaction. You are not suggesting, Mr. Heller, that people will burn their money for heat or bury it in mason jars, are you? As long as people are willing to engage in commerce, money will flow.

I notice that you didn't answer my explanation of ways that people can take more money out of the bank than they have in the bank. Was my explanation of loans too difficult for you to follow? Or do you merely not want to answer it?

If everyone who buys assets puts the same amount of money back into the banking system that people who are selling assets take out, then obviously there can never be any bank runs. Since bank runs have in fact occurred, obviously your logic is as flawed here as it is in other cases. The flaw, of course, is that some people who sell will take cash and not put it into the banks.

As for what people will do with the money that they take out of the banks, I imagine that some of them will keep it as cash, whether in Mason jars or otherwise. If very many of them decide to keep it as cash, then the banking system will collapse. Similarly, if business owners who take in a lot of cash every day decide not to deposit it because they fear a bank panic or for any other reason, the banks will run out of cash very quickly. This is a sort of run that is very difficult to stop, as it is merely a failure to deposit rather than an attempt to withdraw cash.

You may have a degree in economics, but you don't appear to know much about it. That's the charitable explanation; if in fact your knowledge is greater than you let on, then I'm afraid I'll have to conclude that your motive is not to seek the truth but to obscure it.

-- Steve Heller (stheller@koyote.com), August 13, 1999.

"I'll have to conclude that your motive is not to seek the truth but to obscure it."

Bingo.

Now we're getting somewhere.

-- Andy (2000EOD@prodigy.net), August 13, 1999.

Mr. Heller,

You succinct description of fractional reserve banking was not a news flash. When banks make a loan, on limited reserves, they "create" money. In fact, this process has created the vast majority of "money" long before the pessimists begin exploring home equity loans or margin accounts at the local brokerage.

I responded to your point. Let me make it very simple. Banks control the lending process. People do not "take" money out of the bank... the bank creates money by giving them a loan. The bank can choose NOT to loan money... or they can limit loan by making it more expensive. Or the Federal Reserve can contract the money supply by raising interest rates.

Yes, Mr. Heller, bank runs have occured. Banks have failed in America every year during this century. You misread my statement. I am not describing a self-contained computer logic model. I did not suggest everyone who buys an asset immediately deposits the money in the bank.

My point is, again, quite simple. In most transactions, a buyer exchanges money for a good or service. The transaction creates a monetary flow. [A lack of money usually prevents the transaction from occuring, unless you are waving a weapon.] The monetary flow stops when people decide not to buy goods or services. It is hard to live in our society without buying necessary goods and services or servicing debt. These economic pressures keep money in circulation. Business face these same economic pressures in terms of paying wages, rent, overhead, suppliers, etc.

Your version of a bank run is "how long can we hold our breath." My suggestion... not very long. If a business "holds it breath" long enough, it dies. Can the Federal Reserve keep the system intact while some businesses (and consumers) decide to "hold cash." It's an interesting question. I think the banking system has more of an ability to hold out than people and businesses.

You have not demonstrated enough economic knowledge to give your evaluation of my background any credibility. Like some IT pros, you may be a bright fellow. You also demonstrate the hubris common in the IT field (where every tech thinks he can run the company.) Simply put, I would decline challenging your expertise in computers... it's not my field. We can disagree on economics... and I would be willing to explain my position in greater detail. Perhaps you might extend me some degree of respect... as economics is my field. Up to you.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), August 13, 1999.

Mr. Decker:

I responded to your point. Let me make it very simple. Banks control the lending process. People do not "take" money out of the bank... the bank creates money by giving them a loan. The bank can choose NOT to loan money... or they can limit loan by making it more expensive. Or the Federal Reserve can contract the money supply by raising interest rates.

If banks choose not to lend money, how do they make money? And what about the people who have lines of credit already established, such as home-equity lines of credit? Are the banks going to cut those off too? Why would they do that? Remember, each individual bank is in business to make money, not to worry about bank runs. Which one of them is going to sacrifice business by not making a loan to someone that another bank will lend to?

And remember that these people have assets that they can sell, as well as borrowing power. They can sell their stocks, for example. They also can take out loans against their retirement plans, which by the way are not optional to the institution; if their plan says that they can borrow, then the organization who holds the assets must lend to them. There are hundreds of billions if not trillions of dollars in those retirement plans, much of which could be borrowed against on short notice.

No, I'm sorry, but your claim that people don't have enough money to take enough cash out of the banks to sink them is just not true. And you know it.

-- Steve Heller (stheller@koyote.com), August 13, 1999.

Yes Steve,

he knows it ALL TOO WELL - and we will all see soon enough that the fed has run out of oxygen...

"And remember that these people have assets that they can sell, as well as borrowing power. They can sell their stocks, for example. They also can take out loans against their retirement plans, which by the way are not optional to the institution; if their plan says that they can borrow, then the organization who holds the assets must lend to them. There are hundreds of billions if not trillions of dollars in those retirement plans, much of which could be borrowed against on short notice.

No, I'm sorry, but your claim that people don't have enough money to take enough cash out of the banks to sink them is just not true. And you know it."

Futhermore John Q Public can get money tomorrow by

1. Maxing out all credit cards, the average American has several, most people could raise $15-20-25-30,000 + with little trouble.

THIS ALONE COULD BANKRUPT THE FED

2. Borrowing from relatives

3. Pawning stuff

4. Selling cars, watches, jewellry

5. Refinancing houses

6. Borrowing 50% on 401k's

7. Stop paying tax

8. Changing the tax status to +9 dependents (effectively the same as paying no tax...)

9. Cashing in insurance policies

10. Calling in personal loans

There are many many other ways that I haven't even thhought of, and certainly ddecker hasn't the ignoramus!

-- Andy (2000EOD@prodigy.net), August 13, 1999.

Mr. Heller,

Banks make money through a variety of means, my least favorite being service charges. They also make money collecting interest on loans (and many fees.) If you have a commercial line of credit, please read the fine print. The bank can cancel the line of credit... or increase the price of credit to the point of loan sharking. (Remember the early 1980s).

Ah, now we have the competitive pressure argument. This is actually a better attempt, Mr. Heller. Let me ask you a question, have you ever been turned down for a loan or line of credit? Do you think a just released convict with no work history, collateral or source of income can walk into a bank and take out a loan? There is a food chain of lending institutions, right down to the neighbhorhood pawn shop. How are pawn shops different than banks? Pawn shops serve a different customer... but even pawn shops do not give money on a handshake. You see, Mr. Heller, there are natural limits to competitive pressures... and bad loans are very unprofitable. This is why most banks have loan officers, loan committees, approvals, credit checks, etc. When times are hard, banks make fewer loans.

A loan is not an entitlement, Mr. Heller. Banks are under no obligation to loan you a nickel... even if you have perfect credit, 100% collateral and a really winning personality. In times of economic turmoil, banks are likely to stop making loans... or slow the process to the point where it is effectively the same thing. In the case of retirement plan loans, read the fine print. And remember, if the bank decides to loan you money, you have to begin repayment immediately AND they may charge enough interest and fees to make the transaction highway robbery.

Back to the "selling assets" question. To sell an asset, I assume you want a buyer to pay you in return. Unless you are bartering, the buyer must have money. No money, no sale. If everyone is selling stocks... prices fall. In fact, they fall until sellers can be found. You can try to sell swampland in Florida... but there is no transaction without a buyer.

So, the real question here... can a general panic "crash" the system. Your answer is a qualified yes. The U.S. Government and the Federal Reserve could take draconian steps to preserve the system. In some cases, the cure might be worse than the disease. Will people holding a bit of extra cash for Y2K crash the system? No. Will a general panic cause tremendous problems in the financial sector... yes. It could take recession into a depression. I think the chances are very slight, but they do exist.

Andy... read the entire thread carefully, and then comment. By the way, maxing out credit cards bankrupts the ill-advised consumers, not the Federal Reserve. And most of the methods of "gaining" money you describe rely on a functioning economy. (You missed robbery.)

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), August 13, 1999.

Mr. Decker:

So, the real question here... can a general panic "crash" the system. Your answer is a qualified yes. The U.S. Government and the Federal Reserve could take draconian steps to preserve the system. In some cases, the cure might be worse than the disease. Will people holding a bit of extra cash for Y2K crash the system? No. Will a general panic cause tremendous problems in the financial sector... yes.

I think we agree on the potential risks to the system well enough that there's no point in continuing this discussion. Although we may disagree on the exact degree of risk of a general panic, I think it is clear that taking precautions against such a possibility would be prudent. And that's the point I was making.

-- Steve Heller (stheller@koyote.com), August 13, 1999.

Mr. Heller,

Agreed... and it is good to see civil discourse can lead to an agreeable exchange. Have a good weekend.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), August 13, 1999.

Mr. Decker:

Agreed... and it is good to see civil discourse can lead to an agreeable exchange. Have a good weekend.

And the same to you.

-- Steve Heller (stheller@koyote.com), August 13, 1999.

Mr. Decker, with all due respect, I would prefer to keep our discussion in the public domain. I feel it is important for people following these topics to be as informed as possible about the potential for chaos in our economy due to behind-the-scenes manipulations, fraud, collusion, and theft.

I do not gain my position from reading LaRouches materials, although I do find him intruiging. My perspective is gotten from exhaustive research of quite a bit of tedious reading, along with theory dissection, probabilities and ramifications of those probabilities.

-- OR (orwelliator@biosys.net), August 13, 1999.

ddecker blustered...

". By the way, maxing out credit cards bankrupts the ill-advised consumers, not the Federal Reserve. "

wrong wrong wrong, if enough cardholders default - probably will happen when the market crashes and they all lose their pants on the .com shares they paid for with their credit cards - then who do you think is left holding the bag?

the banks, and the institutions that bought credit card loan risk...

have you any idea of the scale of chapter 7 bankruptcy in this country due to credit card debt?

i think not, otherwise you wouldn't blithely dismiss what I pointed out - wait and see what happens to credit card debt when the markets crash dd...

-- Andy (2000EOD@prodigy.net), August 13, 1999.

and the knock-on effect of all these institution (401k) and bank bankruptcies/defaults on the fed???

why, dd, i think even you can work that one out though you can bring yourself to say it...

bbbwwwwwaaaaaaaaaaaaaaahahahahahahahaha ha ha ha

-- Andy (2000EOD@prodigy.net), August 13, 1999.

Of all the BS that double Decker has ever managed to spew out under rapid fire assault, doing his best to hoodwink people into thinking that gold is a barbaric relic, that bank runs will NOT actually bring down the banking system, etc., etc., this has got to be the best. I'm printing it out, saving in on paper. Next year, possibly by candlelight, I'm going to enjoy its comedy from the clown of clowns: Mr. Decker.

-- King of Spain (madrid@aol.com), August 13, 1999.

Mr. Decker,

When you've finished digging through the Lyndon LaRouche EIR stuff, would you post your analysis? I'm not interested in an analysis of LaRouche himself, or his agenda (unless it's relevant), but the content of the EIR transcript itself.

-- RUOK (RUOK@yesiam.com), August 13, 1999.

Are you OK RUOK???

You seriously expect a banking shill to spill the beans on what the cabal are up to???

-- Andy (2000EOD@prodigy.net), August 13, 1999.

Andy,

I'm okay, you're okay :)

It would be instructive to see someone attempt to either substantiate or debunk the EIR transcipt's content, using other than self-referential sources. I'd be equally interested in both perspectives, just as I came to my present opinion about the potential impacts of Y2K by reading and evaluating opposing opinions.

-- RUOK (RUOK@yesiam.com), August 13, 1999.

Man, I got tired reading all this stuff -- glad I didn't write it.

We've got stuff about two separate phenonema going here, made possible by a third:
1) Central Banks selling gold
2) Bank runs
3) Fraudulent money/credit/banking system worldwide.

Central Banks Selling Gold
It is now obvious to me after reading many posts here, LaRouche articles, goldeagle articles, etc., as to why central banks are selling gold.

The powers that be see the financial system in general, and currencies in particular, TANKING.

The treasury/central bank flunkies are selling gold at bargain prices to wealthy PRIVATE banks and individuals in exchange for "money". The "public" or "country" is getting its soon-to-be worthless money back into the treasury. The private individuals are getting rid of the soon-to-be worthless money and are getting soon-to-be much more valuable gold from the public treasuries. Then, on "the other side" if not now, the treasury flunkies will be suitably rewarded by the super wealthy gold buyers for their assistance.

The GI Y2Kers aren't enough of a power to influence the bullion market one way or the other. The only area where prices are up, relative to bullion, is in the fractional ounce gold coins.

My thought is, follow the money. The super rich private bankers and individuals are dumping money and buying gold.

Bank Runs
Bottom line, there's only a small amount (I've seen 1.7% and about 5%, depending on what "type" of money talking about) of CASH relative to demand deposits.

You can play with the numbers -- 2% taking out all their money -- 1/3 taking out 1/3 their money -- whatever -- but, regardless, bank runs are likely because of a shortage of CASH when the demand "tipping point" is reached as people decide to stash a bit away "just in case." And we're not talking about just relatively few GIs, but the general public.

As mentioned before, a CASH crunch can be created in many ways. Getting cash can be accomplished in many ways other than going to the bank and writing a check for cash. ATM cash advances against CREDIT cards; writing checks or using CREDIT cards for small purchases instead of using cash, to preserve cash; small businesses reducing cash deposits to the bank, REFUSING to take credit cards, and/or offering a discount for cash from customers, etc.

Granted that cash taken against credit has to be paid back, but that doesn'nt have to be until "next" month or some months later. In the meantime, the electronic money/credit has been taken out in cash.

As a BTW, the average person, just taking the cash out, and holding it, is just as likely to get "stung" as are the governments who are selling off their gold for "money." Only the relative few of us who are GI and convert at least some of that cash to real stuff (like the gold the wealthy are buying, [and lead, beans ...]) have a chance of making out. Unfortunately, even we GIs have to have some cash, also, in case of bank runs and resulting "bank holidays."

-- A (A@AisA.com), August 14, 1999.