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	Who's Afraid of a Run on Banks? By Declan McCullagh March 17, 1999 Bank runs should be welcomed, not feared. That's what the Ludwig von Mises Institute -- a bastion of Austrian free-market economics -- says about bank runs in its April 1999 monthly newsletter. "They spur banks on to be more careful in the conduct of their business. We need more, not fewer, of them," says Llewellyn Rockwell, president of the institute, in an article titled "Y2K and the Banks." "The [Y2K] bug has exposed a very real and deep infraction that has long plagued the US banking system. Thanks to long-ago government interventions that redefined a bank deposit as a loan, modern banks only hold a fraction of the demand deposits in people's cash accounts. The rest is used as the basis for extending and pyramiding loans," he writes. Here's the inevitable kicker: "If too many depositors demand their cash at once, which is their right, it would trigger a bank run, which in turn would lead to the so-called contagion effect, and runs on other banks." Keep in mind that Rockwell is a longtime critic of the current banking system, in which the Federal Reserve encourages banks to lend out much, much more money than they actually have in their vaults. (Banks no longer act like storage lockers, where everyone can take out what they put in.) If everyone wants their money at once, only those lucky enough to be first in line can get it. Unless, of course, the Federal Reserve steps in, which it has said it would do. It seems ready to print up as much physical currency as necessary, which would salve the worst fears of jittery customers. Rockwell predicts that would cause problems: "The Fed would have to run the printing press full time or they would go belly-up immediately. The result would be a dramatic deflation followed by hyperinflation." We disagree. Seems to us that once the newly-minted money enters the banking system again -- either from relieved depositors or through indirect spending on purchases -- the banks will repay their loans to the Fed and we'll be back to normal. That point aside, he's right to say that even with Fed intervention, Y2K could get messy: "Despite the appearance of stability and soundness, then, the foundations of modern banking are actually extremely precarious. It would only take the right kind of crisis, or perceived crisis, to throw the entire system into chaos."		FEATURES Book Reviews Y2K already has spawned its own genre. We tell you what books are worth buying. Chip 'n Little Cartoons Chip 'n Little goes on TV Chip 'n Little visits John Koskinen Chip 'n Little saves the world Warning: This cartoon has been called "foolish and tasteless." Y2K from A to Z Y2K Haiku Traditionalists may be shocked. Mad Cow Culture What does Y2K have in common with today's Mad Cow Culture? Answer: Everything. Declan McCullagh's Y2K articles Psychology of Y2K LATEST NEWS As of December 31, 1999 Get Your T-Shirt Quick Bill Gates Does Y2K Reader Feedback A Sarcastic Calendar Cooking After the Apocalypse A Real Y2K Disaster Hitchhiker's Guide Meets Y2K