-Caveat Lector-
FYI,
F
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Gary North's REALITY CHECK
Issue 42
September 13, 1999
KEEPING GOOD BANK RECORDS WON'T HELP YOU IN A Y2K CRISIS
I have already explained this to REMNANT REVIEW
subscribers in the July 2 issue. Here, I want to follow up
on some of the implications.
The U.S. government from the beginning has dismissed
Y2K as a minor problem with mild consequences: the 72-hour
hurricane. Mild consequences call forth inexpensive
answers. Problems that produce mild consequences are
ignored by most people.
What are the likely consequences of Y2K for banks?
According to the government, hardly any. But, just in
case, we are told to keep good records. This means we
should keep our bank receipts. That's all? Yes.
The Federal Deposit Insurance Corporation is a
government agency, or at least a quasi-government agency.
It has a Web site with .gov ending its address. On the
FDIC site, the Y2K-concerned reader is told this:
"As always, keep good records of your financial
transactions, especially for the last few months
of 1999 and until you get several statements in
2000."
http://www.fdic.gov/news/news/press/1999/checklist.pdf
Why should we keep good records? We are not told. It
is implied by the FDIC that these records will get you your
money on any account up to $100,000. Well, they won't --
not according to the FDIC's own rules. Read Section 330.1
from the pertinent FDIC Web page. Pay close attention to
the words, "books and records of the insured institution."
They are not your books and records. Here is what you
possess: "account statements, deposit slips, items
deposited or cancelled checks." These are specifically
exempted as evidence. Here is the text:
330.1 Definitions. For the purposes of this part:
(e) Deposit account records means account
ledgers, signature cards, certificates of deposit,
passbooks, corporate resolutions authorizing
accounts in the possession of the insured
depository institution and other books and
records of the insured depository institution,
including records maintained by computer, which
relate to the insured depository institution's
deposit taking function, but does not mean
account statements, deposit slips, items
deposited or cancelled checks.
[Codified to 12 C.F.R., 330.1]
[Section 330.1 amended at 58 Fed. Reg. 29963, May 25, 1993,
effective December 19, 1993; 63 Fed. Reg. 25756, May 11,
1998, effective July 1, 1998]
You can verify this by clicking through:
http://www.fdic.gov/regulations/laws/rules/2000-15.html
This is also spelled out in detail in the FDIC booklet
for banks, "Financial Institution Employees' Guide to
Deposit Insurance" (Fall 1996):
For the purpose of determining legal ownership of
accounts, deposit account records do not include:
Account statements, Deposit slips, Items
deposited and cancelled checks.
Are you getting the picture? The FDIC has soothed the
fearful hearts of Y2K-aware depositors by telling them that
all they need to do is keep good records. But these
records have no legal status. What has legal status are
the records of the banks. Problem: the computers are
non-compliant. If your bank's computer will not give access
to your accounts' records, you are left without recourse.
Your account is closed. You cannot get your money. The
FDIC owes you nothing. It only owes the bank that paid its
FDIC insurance premiums.
What we have here is deliberate deception. The FDIC
knows exactly what it's doing. It is calming the public by
means of a false hope. It is trying to head off a bank run
that will bankrupt the FDIC. It is a self-interested party
that is misinforming the depositors.
The depositors know nothing about all this. This
information is buried in the FDIC's regulations. The press
has not picked up the story, even though I published it,
with the full documentation, on July 2. I have not
received any inquiry from the press on this matter. The
press is not going to break ranks with the banks. The
government's greatest Y2K fear today is that there will be
a run on the banks. The press will not risk creating a
bank run by exposing this chicanery.
All digital money is at risk. The risk is so great
that the FDIC is playing games with the public. This means
that all forms of capital that derive their present value
from markets based on digital money are also at risk.
WORTHLESS RECEIPTS
You have a bank receipt. Goodie for you. Try to
spend it.
The receipt is at least a month old. It's probably
six weeks old. Does it prove what is in your bank account
today? Obviously not. You probably wrote checks on the
account since then. Your bank records are ancient history.
Yet the obviousness of this fact is not obvious to tens of
millions of depositors who take seriously the warning,
"keep good bank records."
You go to the teller. She says, "I'm sorry, our
computer is down." Tell me: What good is the print-out of
your bank records? It's worthless legally, according to
FDIC rules. It's worthless economically because it's out
of date. You've got nothing of value.
But you are told by the highest civil government
authority not to withdraw currency from your account
because all you need are good bank records.
Are you being conned? You bet!
Why? Because the banking system can't pay off its
depositors if they all go down and withdraw their accounts
in currency and then fail to re-deposit the currency.
Fractional reserve banking is based on a lie. Y2K is about
to make the public aware of this lie. The authorities are
hoping for a silver bullet to solve the banking system's
problem before the bank runs begin. There is none.
There is no compliant money-center bank.
One banker recommends that you get traveler's checks.
They are safe, you are assured. They are indeed: safe for
the banker. They are not legal tender. They are not
liabilities for your bank. They are issued by a profit-
seeking company, such as American Express. Why would they
serve as money in a banking crisis? They won't.
Why would a bank recommend traveler's checks? To keep
you from pulling out currency. They will say anything,
promise anything, to get you to hold onto non-currency
forms of money.
SOURCES OF CURRENCY
Here is what will happen to fast food restaurants in a
monetary crisis. Small bills will be hoarded. The fast
food restaurant must give change for $20 bills. Where will
it replace them? The banks will run short, fast.
Then managers of local stores will start writing
personal checks at the end of the day and pulling out bills
and coins. I would. Why wouldn't he? It's legal. It
requires no currency withdrawal reports by the depositor's
bank. It's quick and easy.
Small bills will disappear so fast that the Federal
Reserve will not be able to respond. At that point, the
entire fast food industry will go bankrupt. A bank run
will kill this industry. It's a big industry.
The car wash industry is doomed. So is the laundromat
industry. Yet you can buy coins from a local car wash
owner today. Bring in a $100 bill and buy 400 quarters.
It's easier for him. It's better for you.
Your goal is to avoid buying anything in 2000 for
which the seller cannot make change. That's why large
bills must be exchanged now for small bills. You have only
a few weeks to get this done.
You get $20 bills from an ATM. Take those bills, one
at a time, and buy a small ticket item. Keep breaking
bills into smaller denominations. Ask for two $5's instead
of a $10. Never give up coins. Never add a few cents to
get a $1 bill in change. Get the coins.
Do you belong to a church? Offer to buy all of the
paper money at the end of the worship services. This is
what the toll booth operators did in the late summer of
1963, when silver coins started going into hoards. On
Sunday night, they went to the churches and bought coins.
There is liable to be competition for currency in some
churches, now that I have recommended this Y2K savings
strategy. If pastors had any Y2K awareness, they would
have been doing this for years.
WHAT WILL SERVE AS MONEY IN 2000?
Paper currency will. Coins will. People will
recognize them as money. That's why I recommend that you
have small bills and token coins for your defensive
portfolio.
Gold and silver coins are not readily recognized as
money today. Their value is not widely known. It will
take at least a year for gold and silver coins to come into
widespread use, even under a collapse scenario. I think it
will take even longer. These are long-term investments for
the rebuilding phase, depending on how bad things get.
Why buy them now? Because there may be no local
market where you can buy them later. When it becomes clear
to a few million people that they need a few gold coins,
the coin stores' phone lines will jam up.
One day, the banks will close. The day that the banks
close, a coin store cannot get delivery of coins. Worse:
every coin buyer's money that was "in transit" on that day
may go down with the banks.
Time is running out.
Then there are the old favorites: cigarettes, chewing
tobacco, bullets, condoms, toilet paper, and other easily
recognized items for which there is demand. These are
near-money: barter items that have broad appeal.
For any commodity to serve as money, it must be easily
recognized, portable (high value to volume/weight), and
divisible. Things that have some of these features can
serve as money in very bad situations, such as in a
prisoner of war camp (cigarettes).
You must do your best to be out of the markets in
2000. The worse things get, the more true this is. To
expose yourself as an owner of valuable assets is risky.
It is better to avoid such exposure. This means that you
should have consumer goods in reserve.
There is a question of risk. Will it be safe to be on
the roads? Will gasoline be rationed? If fuel is
rationed, anyone in a car or truck will be assumed to have
assets or military power. Do not make yourself a target.
This is why you should make plans for being in a
community where there is not much interaction with
outsiders. You do not want word of your assets to get
beyond the local group with which you trade.
I realize that this sounds like advice to "head for
the hills." But local urban neighborhoods will become
sealed-off communities in 2000 if power and water go off.
Residents will seal off access by setting up cars in the
streets.
But urban communities can break down if there is not
trust. This is a theme of the 1997 movie, "The Trigger
Effect." Unlike the movie, there will be no clear highway
out if water and power go off. There will be military
roadblocks or else bumper-to-bumper traffic. There are not
enough roads out of our cities to allow ready escape.
The person with a swimming pool will own a valuable
asset: drinkable water. He can grow food, too. It's time
to buy a hand pump for your pool if you own one.
The person with non-hybrid seeds will also be in a
good position. For information, click through:
http://www.kbot.com/y2kseeds
I would rather have $1,000 in non-hybrid seeds than
$1,000 in currency, if I had my choice of one or the other.
But I would prefer go $600-$400 in favor of the seeds.
WHAT TO DO TODAY
Clean out your wallet or purse. Start putting aside
all of your currency at the end of the day.
Start thinking of ways you can get currency quietly,
outside of the bank. There is no question: it's legal to
buy currency from non-bank sources. But I would not want
the sellers to know who I am or where I live.
Move from large bills to small bills. Move from small
bills to coins.
Visit a hardware store. Buy PCV tubes with screw-on
ends. They make great dirt safes.
END
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