People Seem To Be Sitting On A Pile Of Cash...Gene Koretz
The public is exhibiting a strange infatuation with paper money. After expanding by a near-record 10.8% in 1990, currency in circulation has exploded in 1991, rising at a heady 26% annual pace in the first six weeks of the year.
Ordinarily, a surge in people's cash holdings implies a need to fund a rising tide of purchases. The most striking aspect of the recent sharp growth in currency in circulation, however, is that it has occurred at a time when consumers have actually curtailed their spending.
One possible reason for this development, speculates economist William E. Sullivan Jr. of Dean Witter Reynolds Inc., is that the Persian Gulf crisis may have increased foreigners' desire to hold dollars. But Sullivan believes a more likely explanation is that Americans are worried about the safety of their deposits in thrifts, commercial banks, and credit unions and are choosing to hold their savings in the form of cash.
"The unusual behavior of money in circulation," he says, "suggests that the much-publicized troubles of the banking system have had a significant negative impact on consumer psychology, which does not bode well for a near-term pickup in consumer spending."