In several of my recent blog posts, I mentioned where I got some of my information to explain the current economic situation in Dickinson, North Dakota. I think that my best source was the website titled “A Brief History of Oil Production in North Dakota”, because this site did not present the website creator’s opinion, instead it was a collection of newspaper articles from North Dakota newspapers going back sixty-five years that recorded events after they had just happened. Another good source that I found was an article submitted by “Oilman2” to the website “RuralPioneer”, that explained among other things, that North Dakota oil is relatively difficult and expensive to extract, it requires deep drilling, horizontal drilling, fracturing, and can only be produced when the price of oil is high. The first source that I mentioned above, clearly showed that there had been a boom-to-bust cycle in North Dakota in the 1950s, and the 1970s, it gave all the reasons why, what the growth was like, and what the decline was like. The second source that I mentioned above, explained why there is always a boom-to-bust cycle whenever and wherever oil production occurs.
The two sources of information that I mentioned above, gave information that did not lead to a good economic outlook for western North Dakota. In many of my earlier blog posts, I based some of what I wrote on information contained in the “Dickinson Press” newspaper, “The Drill” newspaper, and “The Bakken” magazine. Though the information in these three publications has been accurate, these publications have most often tried to not say anything too negative, because they rely on revenue from advertisement sales, and they have tried to be a supporter of the western North Dakota economy. All the businesses and business owners in western North Dakota thought that the best thing for them to do, was to keep a positive outlook going.
In my writing, I wanted to tell what I saw going on. I got some of my facts from the two newspapers and the magazine mentioned above, but I tried to make an independent conclusion. I discussed my thoughts on what was happening, with other people in Dickinson, many of them were long time residents of Dickinson, some had lived and worked in other states. My goal was to provide useful and truthful information about what living in Dickinson, North Dakota was like.
In some of my recent reading, I found an economic forecaster named William Bonner, who founded a company named Agora Inc. William Bonner founded Agora Inc. in Baltimore, Maryland in 1978. His company does economic research and forecasting, and their findings are presented in a newsletter that is provided to 2.4 million paid subscribers. Supposedly, his newsletter is read by more people than the Wall Street Journal. His writing is very clear, direct, to-the-point, and unambiguous.
I have a lot of time to read because I am not busy in my two jobs in Dickinson right now. I need to get a third job because the economy is so slow in Dickinson now. In reading William Bonner’s forecasts recently, I found something which I believe is very important, that William Bonner is very emphatic about. He explains in much more detail than I can repeat in this post, that there was very nearly a sudden catastrophic economic collapse in the United States in the past ten years that some very high level people knew about, that 99% of people never knew about. There is no benefit to William Bonner in explaining it, he just believes that people should know about it, it may be inevitable that it will happen again.
As brief as possible: All U.S. banks have lent out money in the form of loans, mortgages, and credit cards. On banking records, individuals and businesses owe billions of dollars to the banks due to loans, mortgages, and credit card debt. Banks have deposit holders who have placed money in the banks and have bank accounts. We have all probably been told and have heard, that if all the deposit holders showed up at a bank on the same day and wanted to take all of their money out, they couldn’t, because it is not all there, it has been loaned out.
Before you jump to any conclusions about what I am going to say next, don’t jump to a conclusion yet, because I am not going to talk about a “bank run”, where everybody panics and runs to the bank at the same time to get their money out and it is not all there. I am going to explain a different type of United States bank failure that nearly happened, that did not involve a “bank run”.
William Bonner writes, I believe that he said it was 2008, that some people, and some large deposit holders, were uneasy, and believed that they needed to get their cash money out of the banks, and they did. On a particular day, the individual banks, the United States government, and the Federal Reserve realized that there was not enough actual cash on hand in the banks to complete all the pending transactions. There was not a run on the banks, the banks were not insolvent, there was not a panic, the banks just did not have enough cash on hand to complete all the pending transactions. 99% of people never knew that this happened on a particular date in 2008. William Bonner said that due to the emergency, the government had to make billions of dollars of cash available to the banks. ( I don’t know if this was freshly printed money, or if there was cash held in reserve somewhere.) A few government and Federal Reserve officials have commented and made statements about this incident, a few years after it happened, acknowledging that on a particular day, the United States nearly had a catastrophic banking failure.
What almost happened, was that people who were at the banks presenting any kind of check, business, personal, or government, they would not have been able to cash them. Deposit checks into accounts, yes, get cash back, no. ATM machines would have run out of cash within a day. Many individuals and businesses would have had difficulty conducting transactions. Once word spread that many people were unable to get cash at the bank or ATMs, panic and looting probably would have occurred. Once stores and businesses are looted, they do not re-stock or re-open until order is restored. The United States would have been in chaos.
To be clear about what happened, if most of the individuals and businesses with loans, mortgages, and credit card debt continued to make their monthly payments to the banks, and individuals and businesses continued to make deposits to their accounts in banks, there would have been enough cash money on hand for some individuals and some businesses to take cash out. There would have been enough cash on hand at the banks to stock the local ATM machines. However, there was a trend and a suspicion that the banks were not a good place for money at that time, some individuals and some large deposit holders made cash withdrawals to remove all of their money, and there became a cash shortage in the banking system. There was not enough physical cash on hand in the banking system to continue making normal, day-to-day transactions.
William Bonner explained that there were several reasons why there became such a shortage of physical cash in the banking system. Across the United States, many individuals were hoarding large amounts of cash at their homes or in safety deposit boxes. Individuals and businesses had moved actual physical cash dollars to locations overseas. I will add here, that drug cartels in Mexico probably had billions of dollars in actual physical cash, probably so did China.
If there would have been some type of authoritarian referee at every bank in every town, that could have forced some people who were hoarding cash at home to make their business loan payment or mortgage payment in cash not check, and also not allow account holders to withdraw all of their money in cash at that time, there would have been enough cash on hand in the banking system to continue making all the normal day-to-day transactions. But there is no such referee, the physical cash shortage can happen again, it probably will.
In addition to writing about the low price of oil, and how this affects the economy in North Dakota, I wanted to explain another mechanism that could cause an economic collapse. It is believed that as the economy in the United States continues to decline for a variety of reasons, as people become more fearful, a trend to remove cash from banks could cause there to be a shortage of cash on hand at banks and cause them to be unable to function.