'...Money rationing would have to be instituted'
'Y2K Radio Rap
With Special Guest:
Andrew Gause -
Part I
By Ed Meagher
Background-
The Y2K computer problem exists on so
many levels. First there are the technical
issues of how to find, fix, test, and
re-integrate all of the date related code
extant in the systems that run our
computer dependent society. The next
level concerns how businesses,
governments, and our society itself will
deal with disruptions to these underlying systems. Still
another level of concern is the issue of trust. Briefly stated this
relates to how much of what makes our world work is based
on trust. From the ATM machine to the telecommunications
systems much of what we do is based on a blind trust in
unseen computer systems working flawlessly. Finally at the
highest level of abstraction are "systems" such as justice,
government, and monetary. Trying to understand how our
monetary system will behave led us to Andrew Gause, a
monetary historian, and author of the book, The Secret
World of Money.
Interview-
We began the interview by asking Andrew to comment on a
report concerning the IRS handling of the Y2K problem. He
responded by saying that he felt tax reform was a dead issue
as a result of Y2K and quoted Secretary of the Treasury
Rubin's request to Congress to hold all tax code modification
until after the Y2K problem had been solved.
Andrew then went into a fascinating history of U.S. monetary
policy. He noted that less than 10% of the wealth of the U.S.
(credit, assets, real property, etc.) existed in hard currency.
That is to say that if everyone decided to convert their assets
to cash only 10% could do so.
The fact that 90% of our wealth only existed as 0's and 1's in
our various computers led us to a discussion of the Secaucus
Corridor. This is an electronic switching facility in Secaucus
New Jersey through which some 80% of these 0's and 1's
pass. This "river of money" handles enough "money" in 72
hours to retire the national debt or fund Social Security forever.
Something as simple as a backhoe cutting a fiber optic cable
in this area could lead to these "digital dollars" going into a
black hole.
I asked Andrew what would happen if more than 10% of us
lost confidence in the "system" and tried to convert our assets
to "cash". He responded that my question didn't go far enough
to express the nature of the problem. He observed that of the
10% of our wealth that existed as "paper money" only 8% of
that was under the control of the Federal Reserve System.
The other 92% were in safety deposit boxes and under
mattresses outside the control of the monetary system. He
explained that the implication of this is that if there were a run
on our monetary system very little liquidity existed and money
rationing would have to be instituted. He explained that this
situation had occurred in Ohio in 1984 and the solution was to
allow folks to withdraw a maximum of $150 a day from their
accounts.
Next Week: More of our interview with Andrew Gause
A tape of this interview with Andrew Gause is available through
The Y2K Investor Web site, or by calling (301) 924 6643.
A copy of Andrew Gause's book, The Secret World of
Money can be obtained by calling (201) 423-2200
Read Ed Meagher's bio.
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