"Cash Out" to send a message to the Fed

Economics Political Theory
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1

In The Case Against the Fed, Murray Rothbard has this to say on page 143:

“It should be easy to see why the Fed pays for its assets with a check on itself rather than by printing Federal Reserve Notes. Only by using checks can it expand the money supply by ten-fold; it is the Fed’s demand deposits that serve as the base of the pyramiding by the commercial banks… The Fed only issues paper money (Federal Reserve Notes) if the public demands cash for its bank accounts and the commercial banks then have to go to the Fed to draw down their deposits. The Fed wants people to use checks rather than cash as far as possible, so that it can generate bank credit inflation at a pace that it can control.”

This passage points to a method by which the Fed could be made accountable. On a certain day, decided and announced far in advance, people would withdraw cash from their checking accounts. It would not be necessary to close accounts, and sufficient funds would be left to cover outstanding checks. People would simply demand cash for funds not immediately needed. Then, a day or a week later, people could re-deposit their cash.

The purpose would not be to cause bank runs, although it might have that effect on especially weak institutions, but to send a message to the Fed. As Rothbard observes, the money supply is leveraged ten times over on our checking accounts; even a moderate demand for cash would have a correspondingly leveraged effect on that supply.

An appropriate date for “Cash Out” would be 22 December, the anniversary of the passage of the Federal Reserve Act. Besides, extra cash is always welcome during the holidays.

2

In order to hurt the Federal Reserve, cashing out your bank account and taking physical Federal Reserve Notes is pointless. The State can still steal from you via inflation, if you hold physical FRNs.

In order to really hurt the Federal Reserve, you should sell your FRNs and buy gold and silver. You should do this sooner rather than later. The motivation isn’t merely “**** the Fed!” It’s in your rational self-interest to protect yourself from hyperinflation.

3
  • The Treasury prints up a bunch of notes in anticipation of ‘Cash Out Day’ and distributes them to the banks.
  • Banks merrily hand out the notes to all who ask.
  • People redeposit them in a couple days.
  • The Treasury dutifully collects all the excess notes and destroys them.

Net result: gov’t gets an even bigger budget due to the increased workload having to deal with the creation and destruction of all those notes and/or congress overreacts and makes it illegal to hold/withdrawal more than a token amount of hard currency.

Hell, chances are that if something like this were miraculously organized the Fed would just spin it to show how stable the banking system is under their supervision.

Last I heard it was somewhere around 2% due to various easing of regulations and things like sweeps where they put ‘excess’ checking account money into 0% reserve requirement savings accounts.

4

The damage will be delivered by the message, not the action itself. I think it’s a great idea.

5

In reply to fsk, the point is not to keep the notes, but to demonstrate how the Fed uses demand deposits to artificially inflate the money supply. Gold, as insurance against the price rises that will be the probable consequence of the central bank’s inflation, is good to have, I agree. In fact, I have just purchased two kilograms of the stuff to fund my IRA (64.3 oz. for $61.4K).

In reply to AC, the Fed would not need to request the Treasury to print extra notes as it keeps a large supply on hand. This is the “special money,” as Rothbard calls it, used as gold was in an earlier day; it is also called “high-powered money” by the monetarists. It is, however, not “hard currency,” as it is not backed by any commodity. Again, the point is not to keep the money. Why, then, draw it out?

When I was young, banks charged for checking accounts; now, they almost never do. Demand deposits are the necessary basis for the banks’ money expansion via fiduciary media, to use Mises’ term. Most people know that only a fraction of their money is physically present in their banks, but few realize the extent of the pyramid that is built on their funds. Deposit $100, and the Fed creates $900 (perhaps as much as $4900, if AC’s estimate of a 2% reserve is correct). The purpose of “Cash Out” would be to educate people about the credit expansion that may, in the end, destroy the dollar.

Howard Katz has estimated (Mises author 1274) that the money supply has increased 70% in the last year (16% is the official figure). This is clearly unsustainable. I tell people that the good news is that we shall all soon be millionaires. The bad news is that a latte will cost a thousand dollars, or five. Any idea that could shine light on the shenanigans of the Fed might be a good idea. Ron Paul has 251 co-sponsors for his bill to audit the Fed; perhaps this could help.

Finally, it would hardly be necessary (as AC suggests) for the Congress to restrict possession of cash; the IRS has already done that by requiring documentation of transactions of greater than $10K. Even smaller amounts are discouraged. A Realtor friend of mine recently took $1000 to a property closing. It was refused. Again, the point is to withdraw, then replace, cash in order to call attention to artificial money expansion. If the Austrians are correct, fiduciary expansion is both the cause of the boom-bust cycle and the force that impels our currency towards crisis.

6

This is an interesting proposal. I myself use a credit union so I don’t think it will have an effect.

7

They will just declare a bank holiday.