same result. In the meantime, unlimited funding will be available at the Fed's discount window by 8 A.M., Eastern Standard time. The printing presses are already running at full capacity to provide the currency. Fleets of airplanes and armored cars are standing by to deliver it. Furthermore, don't give up on those defaulted loans. Congress will probably bailout the bankrupt American corporation. And the President has said he will ask for additional funding for the IMF/World Bank. That money will be created by the Fed and carry the stipulation that it must be used by Mexico and other defaulting countries to resume interest payments on their loans.
The bankers are told to open their doors to the public and act calm. The press already knows that something is going on but not the seriousness of it. So tell them only what they already know.
Nothing more. If people want to withdraw their money, give it to them. If lines should develop, call the police to maintain order, but continue paying out. Offer to stay open after closing hours, if necessary, to accommodate everyone. Above all, have the tellers take their time. Check and double check each transaction. Move the lines slowly.
The armored trucks will arrive at the busiest hours so the guards can carry sacks of money past the customers for visual confirmation that there is enough for everyone. A bank officer then should tell the crowd that a fresh delivery of money has just been made from the Federal Reserve System and that there is plenty more where that came from. Once people become convinced that the bank is able to pay, most of them will tire of the wait and go home.
PANIC AVERTED
It is now 6 P.M. of the following day. The plan was successful.
Lines of anxious depositors had formed yesterday morning, mostly in the larger cities, and resumed again this morning. But there has been enough money for everyone. The news media treated the story lightly, making sure to include sound bites from various experts that banks can no longer fail, thanks to the FDIC and the 540 THE CREATURE FROM JEKYLL ISLAND
Federal Reserve System. More than half the video time is devoted to armored trucks and guards carrying sacks of money. The banks closed on schedule today, and there were no more lines.
While everything appears calm to the passengers on deck, the fire still rages out of control in the boiler room. Over a billion dollars has already fled, mostly overseas, and the hemorrhage continues. The Fed is pumping in fresh money to replace it. Two of the banks have instructed their computer technicians to activate an automatic two-hour delay on all incoming transactions. There is talk of deliberately disabling the entire network and blaming the breakdown on overload, but the idea is abandoned. There are too many people in the system. Someone surely would leak the truth to the press.
The danger of a run on the banks by private depositors used to be the nightmare of the Federal Reserve. Now it is nothing compared to the electronic run that is taking place involving institutional depositors around the world. These are professionals who are not impressed by armed guards carrying bags of currency.
They want their money now—and they are getting it. Although they are receiving it in the form of electronic credits, they are immediately exchanging that for something more dependable, such as stocks, other currencies, and bullion.
This is the Fed's finest hour. It is exercising its many powers, carefully accumulated over the years, to create money out of whatever is at hand: U.S. Treasury bonds, bonds from other governments, corporate debt obligations, even direct loans to individuals and partnerships. Billions of new dollars are springing into existence. They are spreading around the globe to fulfill the banks' obligation to give people back their money.
A REAL RUN ON THE BANKS
It is now seven weeks later. Something happened, but no one knows what. Like a spark igniting a twig, spreading to a branch, and then engulfing the entire forest, the public has panicked.
Responding to a primitive herd instinct, they are descending on the banks and the thrifts. They want their money. They want their savings.
Perhaps it was the newly released statistics showing higher unemployment, or the continued rise in bankruptcies, or the Congressional vote to increase the national debt again, or the jump A PESSIMISTIC SCENARIO
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in Social-Security taxes, or the loss of another 140,000 jobs to Mexico, or the riots in Chicago and Detroit for more food stamps and government housing, or the presence of UN 'Peacekeeping'
troops to augment the National Guard, or the rumor that the Bank of America was technically insolvent, or the UN World Court ruling that the number of American automobiles had to be cut by 30% by December 31st, or the skeptical tone in the voice of the CBS
news anchor as he quoted the latest prediction of renewed prosperity. Whatever it was, there are now long lines of sober-faced depositors outside every bank. There is not enough cash in the vaults to meet the demand. Most money is checkbook money, which means it consists merely of magnetic impulses in a computer. Only about five per cent of the monetary supply is in the form of coins or currency. Most of that is already outside the banks in cash registers, wallets, and mattresses. The amount inside the banks is only about one-half of one per cent. The Fed's emergency supply of currency—a large quantity warehoused for exactly this kind of crisis—is inadequate. This time, the printing presses cannot keep up.
Spokesmen from the Treasury and the Federal Reserve appear on TV and assure the nation that there is no need for panic.
Everything is under control. The only problem is the irrational behavior of alarmists who have no faith in their country.
No one believes them. The lines grow longer, and the people become angry. Bank employees are jeered on their way to work.
Bomb threats are made. Sporadic violence breaks out, and bank windows are smashed. The
Since people cannot close out their bank accounts by withdrawing currency, they rush through the stores on checkbook-spending sprees. If they cannot get their money back, at least they can buy things with it. Garages and basements are filling up with canned goods, shoes, liquor, tires, ammunition. Goods are becoming scarce, pushing prices upward. The Dow Jones is going through the roof as investors empty their checking accounts to buy anything
