If you are not scared of what’s happening in Wall Street then you are either broke or have your head up your ass. I’m afraid. I long for the days when my mom gave me a nighttime chocolate chip cookie and warm milk and then tucked me in and I didn’t have wealth that could be destroyed because of corrupt bankers and politicians.
All because of houses!
I have dollars in three banks insured by FDIC, which has a $53 billion fund to cover $6.84 trillion in bank deposits. Another way to put it: it has $0.053 trillion to cover $6.840 trillion in deposits. But when banks gives money to FDIC, it gets sent to the Treasury which spends that and then gives the FDIC an IOU. There is no FDIC fund. Now when banks go bust, guess where the money comes from? The taxpayer. We, along with our children and children’s children, get the bill. In effect you will bail yourself out.
The Fed has blown through at least $900 billion this year, but I’m not sure if it includes “loans” swept under the rug like $138 billion to Lehman this week. Who knows how much will be paid back. If you assume like I do that mere human beings who make decisions are not aware of unintended consequences, there is no reason to have faith in Bernanke and Paulson and what they’re doing. Like pro wrestling they are making it up as they go along. This is a simulation not unlike SimCity and no one can say with certainty that it will all work out in the end.
Your bank deposits are insured but all you have to do is look how other governments bought time to prevent a systemic banking crisis. They set up “bank holidays” where you are not allowed to withdraw more than a small amount for days, weeks, or longer. The announcement will sound something like this:
“The bank holiday was declared to preserve the stability of markets… In the past few days, there has been a great deal of speculative activity and we wanted to calm the market down.”
If it’s a short holiday then who cares but if it’s long then during that time the central bank prints prints prints and all you do is helplessly watch as the purchasing power of your savings diminish. If you’re unlucky a new currency is introduced with depressing exchange rates and in effect you’re tossed halfway down the mountain and told to start up again. Don’t believe it will happen here? I wish I had your optimism. Even now if you want to withdraw more than a few thousand from a weak bank like WaMu or Wachovia, good luck.
To get away from the upcoming FDIC boondoggle that doesn’t involve your crusty mattress, an option is to plug your money directly into the US Treasury with their TreasuryDirect program. You won’t earn any interest (unless you purchase a treasury) but at least you don’t have to worry about dealing with banks. Your money is safe with the government!
Or is it? What happens if China or Petrol nations that are purchasing up dollars every day decides that they no longer what currency from a sick country? Either outright default or we’ll get the United States of Zimbabwe. The reason China is purchasing dollars instead of investing on its own infrastructure is to limit the standard of living for their citizens (easier to control the populace, read 1984) and to control inflation. But if the American economy tanks and lawn chairs and plastic doohickeys stop selling at Walmart then there is little incentive for them return that money back here in the form or treasury purchases to sustain mind-boggling current account deficits for our wars and shopping. That’s one thing I admire about the Chinese: while all we have to show the past five years is plasma televisions and sunglasses (consumption), they have factories (production). Assuming they can get their environmental problems under control, who do you think will see more economic growth in the next 20 years?
What the Fed doing is trying to preserve the system, and I’m sure they will at least partially succeed with printers running full steam, but mathematically something has to suffer from this. It will be the dollar, and it’s already struggling.
Bank executives cried deregulation on the way up but now their hands are in our pockets to fix their frauds. Yet they will keep their house in the Hamptons and fancy cars (and even severance packages irregardless of the smoldering ruin they left behind), while you are I are rewarded with a worthless currency. You better believe that every struggling bank worth a damn is in private meetings right now trying to figure out the best way to present to the Fed that their failure will lead to the collapse of the world so they also get a bailout. Or they will merge with another bank so they are now “too big to fail.” Wages have been on the decline for years (but productivity is up!) and keep in mind that every time you read a rosy news article about bike ridership increasing or frugality being the new hot trend it’s just proof that our living standards are decreasing. Do you think bicycle ridership is increasing today in a place like Brazil or China?
For savers who have worked hard and been prudent, there are a couple options. Accumulate gold and silver from coin dealers (easier said that done), stick them in a bolted safe in your basement and leave them there. If the currency collapses you don’t have to line up at a soup kitchen, otherwise you can sell, possibly for a profit.
My solution has been foreign currencies. Slowly I’ve been moving my money into Swiss Francs, Japanese Yen, Norwegian Krohne, and Australian Dollar via an FDIC insured bank that does the exchange. With currencies it’s all relative so even if there will be a worldwide depression, which currency will do the worst? Unfortunately I think it’s my own. I did something because it’s no one’s responsibility but my own to protect my savings. (Currency trading has huge risks—do your own research.)
There’s a few commentators that I trust to lay it out there straight without any bullshit. Of course I read everything with my brain turned on.
Noriel Roubini (register to view full posts—it’s worth it)
Ultimately we are at fault for this. During the housing boom no one wanted to stop and question the fraud of big business and even with these bailouts I don’t hear much concern among my peers. I’ve not protested, sent faxes, emails, letters, or organized in any way. I’ve been silent just like everyone else, and only when my savings is threatened do my ears perk up. Too little too late. Now it’s a salvage operation to cover my ass because of the colossal failure of the U.S. Government to protect its currency and financial system. I would no longer count on them to guard what you have earned. If you don’t take the steps yourself then you deserve what happens.
Postscript: You know what… I’ll step up to lead you all. Is a Sunday afternoon good?