From: hal@rain.org
Date: Fri Feb 12 1999 - 12:59:27 MST
Brent Allsop, <allsop@swttools.fc.hp.com>, writes:
> Could this really cause such a collapse? As I indicated
> before many of my more fundamentalistic family and friends are getting
> more cache than this in their house right now.
If you are going to cache some cash, it's much better for the system as
a whole to do it now, rather than waiting until next Christmas. You do
forego more interest, but 4% of even three months' salary is only 1%
of your yearly income.
If cash withdrawals start increasing early in the year, there is more time
for the banking system to react. Banks can reduce their loan portfolios,
the Fed could start printing larger bills if necessary, and/or special
acccounting provisions can allow banks to give out more cash than they
normally could.
If the big crunch hits all at once, there is less time to react, and
the banks could run out of cash. In that case they would have to start
limiting cash withdrawals. I think there is some precedent for this
during the S&L failures in the 1980s. The S&Ls were able to continue
operating in some form but depositors could only get their money out a
little bit at a time.
Getting your money out early both benefits the system and also increases
the chance that you won't find yourself limited in what you can get.
The main problem is safely storing the money. There is some concern
that if this practice becomes widespread, home invasion robberies may
become more common. (Of course, if you do get robbed in this way, maybe
you would rather that the robbers happily find thousands of dollars in
cash than angrily discover that you don't have anything.)
One possibility is to put some part of the money in a safe deposit box
at the bank, but if the bank completely shuts down you may not be able
to get to that for a while. However if the "soft landing" with limited
withdrawals scenario occurs, you should be able to get to it.
The ironic thing is that banks appear to be in relatively good shape as
far as Y2K software. They have been working aggressively on the problem
for the last year or so, the Fed is cracking down on banks and has said
that problem banks will be merged out of existence. The chance that
a bank will actually lose your money due to its broken software looks
pretty remote. (Of course power failures would temporarily cripple
banks along with most other businesses.)
Banks plan a big PR campaign later this year about how well prepared
they are. But it may not matter if people want to withdraw cash not
because they are afraid of bank Y2K failures, but because they are
afraid of Y2K-fear-driven bank runs. We may see a return to WWII civic
propaganda, casting aspersions on people who fearfully withdraw money,
making them look like selfish hoarders. By protecting themselves they
are injuring the banking system and hurting their neighbors. I don't
know if such a message would sell today, but they might try it.
Hal
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