Ed, I lost the url for your forthcoming book so would appreciate it. I think the topic of means of exchange should be touched on. Is this going to be the biggest redistribution of wealth that the world has seen? Will the pundits touting silver and gold coins be right? I was just reading a thread and someone mentioned hyperinflation. Will fiat currency be worthless? Was toilet paper a good barter item?

-- Rick Reilly (rreilly@home.com), August 31, 1999

Answers

Norm,

Nice to hear from you again. Unfortunately, I don't remember the name of the photographer who attended that Senate session, and I haven't heard from him since then. I think he was taking pictures for some magazine story he was working on, but I don't remember which one...

I think there are definitely some alternatives to the current form of cash and banking, but the only obvious ones that I can think of depend upon technology, and specifically telecommunications and the Internet. Assuming that the Internet stays up in the post-Y2K era, I can imagine the possibility of an Internet-based medium of exchange...

But technology really isn't the issue here -- the issue is whether the creation, distribution, and control of money will be in the hands of government or in the hands of the people. In the past, it has always seemed necessary to entrust government with the task of devising a standard "unit" of money and ensuring that those monetary units -- whether coins of gold, or pieces of paper -- were uniform and legitimate (i.e., not counterfeit). Of course, once you turn control of such things over to the government, it provides a mechanism for the government to enforce taxation, and it opens up a Pandora's Box of other governmental controls.

Realistically, I'm not very hopeful that we'll manage to avoid governmental control of the money and banks in the post-Y2K era, but if such an opportunity does arrive, we should try to grab it!

Ed

-- Ed Yourdon (HumptyDumptyY2K@yourdon.com), September 04, 1999.

Hyperinflation is very unlikely if there is a major y2k economic collapse because the evaporation of all that digital "money" is a totally deflationary event. The little money left, which will be actual cash dollars plus gold and silver, will have enormous value because it will be so scarce and because it will be the only medium of exchange available.

Fiat money will have value because that's all most people will have and that's what they'll have to use. In a barter economy toilet paper will be very valuable, as will liquor and cigarettes.

-- cody (cody@y2ksurvive.com), August 31, 1999.

Many readers of this forum are aware of the dramatic vulnerability of the fractionally reserved banking system, the high rise dangers in massively leveraged global derivatives trading, and the great market bubbles based on monitization of debt. In addition, the fact that banks are in the end controlled by national governments, which have been getting seriously into debt lately, does not bode well for the system.

Rick, you asked if this is going to be the biggest wealth redistribution in history. Here is something to consider - if the banks severely falter or collapse, and therefore the means of payment beyond face to face (cash, barter, local ad hoc currencies, precious coins, etc) becomes the only method of payment in most of the world (for a while), then THIS WILL BE ONE OF THE GREATEST WEALTH DESTRUCTIONS IN HISTORY. The wealth of the industrialized world is not only in materials but in the flow of materials. For example, 300 pounds of seed corn, 25 gallons of diesel fuel, flow onto farm acres to produce wealth.

Sure, a lot who seemed poor (rurals who never gave up the basics) may seem more wealthy on a relative basis than those who seemed rich (downtown lawyers and executives who were actually leveraged to the hilt).

Cody is right about deflation if the access to or rate of flow of "digital" money is strongly reduced. There may be a period of time where green cash in hand is worth a large multiple of cash in the checking account. But there is a follow-on danger that many people overlook. A certain number of banks will be able to manage their systems, and they will push themselves and other banks to get the digital game working again (most people will be praying like rain dancers for this to happen). Once digital money re-enters the economy, it will cause hyperinflation in the price of certain goods.

Ed has defined this forum as a place to discuss levels 4-9. Thus, since we are not considering complete social collapse, and since almost all of the plow horses in this world are dead, and it is a h--- of a lot of work to hand till land, society will have to get the farms working, which means enough fuel to the farmers for their tractors. In the same way, some type of banking system will be needed. Just like medical doctors will remain in their profession, I believe that the "new banking" system will be built mainly by people who are in banking today.

-- Thom Gilligan (thomgill@eznet.net), September 01, 1999.

We would do well to remember that people will demand value for their goods and services. If there are several mediums of exchange, people will demand the one that they see as most valuable. Thus, they may only be willing to barter for hard goods, rather than accept fiat paper (pauper?) money. If I can get gold, I'd prefer that to paper money, except for convenience. If the confidence goes out of our paper money (e.g., the US dollar), it could be a decade before confidence returns to anything like the present level.

-- Mad Monk (madmonk@hawaiian.net), September 02, 1999.

Y2K may be the catalyst that will finally bring down cash as the medium of exchange.

If I remember correctly, the first cash the original colonys had in our countrys infancy was tobacco. This was impractical. Bartering will be impractical on a long term basis. Sure, short term, a roll of toilet paper may get you a good meal or a gallon of gas but bartering will not last. Society must have some means of exchanging "earnings" (wages, interest or transfer payments etc.) and I am wondering if the scenario will develop that the FED and other central banks will come clean and say, "hey, we just don't have the kind of cash required if everyone wants to hold their liquid wealth in cash." Let's face it, honesty is the best policy. Maybe Alan Greenspan will take on the role of George in IT'S A WONDERFUL LIFE and that way stop a total collapse of the financial system. Well, maybe not but it could happen.

Now, no matter how long it takes to restore infrastructure, I believe that society will realize that bartering is local, limited and impractical longterm and will realize that the banking system just honestly and simply doesn't have the ability for everyone to hold all of their liquid assets in cash.

In addition to that, I see that Y2K will advance us technologically to the point where we will within the next 10 years, maybe much sooner, go to a cashless society.

There is alot of talk now about the "fear" of ATMs not working. I am amazed at how fast society has taken hold of the ATM/Debit card idea. We have gone very quickly as a society of saying "I am not going to use those things" to "Oh my!!!!! I won't be able to get cash from an ATM now!!!!!!!.

I read something about a grocery store chain in Texas working with a bank to experiment with POS system where purchases are being made with a device that reads the iris of the purchaser. Hmmmmm and interesting idea.

Could it be that when all is said and done with Y2K the majority of purchases will be made with each of us looking into a machine so that it can read the iris of our eyes and instantly deduct that amount from our bank accounts or add it to our credit accounts? Sounds pretty far fetched I reckon but I believe that society will be chomping at the bits for something that can bring order followiing Y2K.

A humble thought.

P.S. Mr. Yourdon,

I am the guy from Florida that visited with you and your wife at the May 25th Senate Y2K hearing on Community Preparedness. Do you know of anyway I might find the photographer that was there taking your pictures? I haven't heard from him.

-- Norm (Prez22@aol.com), September 03, 1999.