Posted by Jurassosaurus on 29 April 1999 at 05:10:31:

In Reply to: Re: Money Economics posted by Swift Claw on 29 April 1999 at 04:23:44:

This isn't exactly my most knowledgeable field, but I do know a bit on it, such as the art of fractional reserve banking.

In fractional reserve you give your money to a bank and they hold a fraction of it (generally 10%), the rest they give away towards loans and other banks, this form of banking actually creates money in the market (even though the money is not actually there). You can still write out checks for however much is in your account and use credit cards, but you won't be able to ever withdraw your entire account because in reality your entire account is not there (well unless you only had 95 cents). This is part of the reason for the depression, people wanted to withdraw all their money, but the banks didn't have all of it, no one did (It's a Wonderful Life gives a prime example of this).

This is also why the Federal Reserve was invented, to back up banks in the event of such a problem. And it can do it, up to a point, when it runs out, then you rely on the International Monetary Fund (which has it's own problems with areas like Brazil) which will stock it back up. Problem is though, that if only 6% or so of the world population decided that they couldn't trust the banks due to Y2K and take out their money, then suddenly there is no more money left for the other 94% and we have a whole lotta trouble going on. Hence why banks won't admit that they are not prepared.

Mind you, I'm not like Gary North. I don't think Y2K will spell Armageddon (it comes out to be something like wetick right :) but hypothetical examples like this just go to show how easily the world economies could just shutdown.

Follow Ups:

• Y2K Swift Claw 29 April 1999 at 05:37:01 (0)