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CD's, Money Market Fund safe if insured?
KUCH
Posts: 1,186
It's been a hot early summer here in Indiana and things are heating up even more, with regards to The Euro Zone. Currently the FDIC insures deposits, CD's, Money Market Funds, etc. When the USA contracts 50%-75% (economic collapse), and a bank run occurs, will your funds be safe/protected?
Can we count on the USA to follow in the footsteps of Europe? In 2008, Europe had bank holidays, transactions were by credit cards only, all to prevent a bank run. Now liquidity (cash,gold) is fleeing some European countries. Once again, is this the course of America?
Just thinking of the near future.
Can we count on the USA to follow in the footsteps of Europe? In 2008, Europe had bank holidays, transactions were by credit cards only, all to prevent a bank run. Now liquidity (cash,gold) is fleeing some European countries. Once again, is this the course of America?
Just thinking of the near future.
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The media and politicians are apparently doing a good job promoting the "fiscal cliff".
Knowledge is the enemy of fear
Well, in order to "make you safe" with more regulations (read: TS A) they have to get you to feel like you are doomed or at least very vulnerable.
<< <i>3 of 4 replies believe all amounts in bank, within FDIC insurance is protected. One reply says no. This is not a hypothetical situation. I will advise this great grandparent to leave her 200K in CD's. Appreciate the advise. >>
Why not talk to an account or professional financial advisor regarding her $200k savings, rather than getting advice on an internet forum?
<< <i>3 of 4 replies believe all amounts in bank, within FDIC insurance is protected. One reply says no. This is not a hypothetical situation. I will advise this great grandparent to leave her 200K in CD's. Appreciate the advise. >>
I thought this to be a joke thread, a troll thread. It is very scary to think that it isn't.
My advice, turn off the TV, turn off the computer, and keep them off for a month. Stop talking to who ever you are talking to that scares you that badly. Living with that kind of irrational fear and worry will take 20 years off what might yet be a long life, and subtract half of the joy out of what should be the best years of your life.
I don't understand. Why would a great grand parent need financial advice? Did they ask you? Is their English that bad? Is there no rational person like a financially stable and conservative son or daughter in their lives, only a great grand kid filled with low probability irrational fears? What exactly would you do if the bank isn't safe? Put the money into one of the most volatile vehicles out there like silver? Put a pile of bills into a mattress and get a big dog? If you suggest them to move to a credit union, or one of the more stable banks, that is fine, but it isn't the question asked. The old person should be giving you advice, and be telling you stories about he/she got through times so tough that young folks of today could not imagine how they got through.
The scenario in the original post could happen. Anything can happen. Is it likely to happen? Possibilities and probabilities. The scenario as outlined is about as likely as swimsuit model Kate Upton showing up at your door volunteering to be your live in personal assistant for a month. Am I saying there is a chance? Sigh.
And no offense to Steve, but in a major US banking crisis FDIC insurance will be one of the first promises to be broken. FDIC insurance's primary purpose is to instill faith in a banking system that was proven in 2008 to be fragile and only a heartbeat from failure. FDIC insurance, as pointed out by the wise fishcooker, is like the Titanic that had only enough life boats to carry less than half of its passengers. It is built around the principle that it will never be needed. It is not designed for worst case scenario. It is not designed to even protect in a "half of" a worst case scenario.
The safest place for your money is in your pocket. There is always counterparty risk when someone else has possession of your property, regardless of promises to make it good if things go bad - paper metal vs. physical metal is a perfect example as is the MF Global failure.
edited to add: mixing up deposits with a number of different banks doesn't help. A failure here and there can and will be covered by FDIC. It's the "big" failure of all of them that will make FDIC useless.
Give Me Liberty or Give Me Debt
If you are going to keep it in a bank, research a little on the banks exposure to bad loans and if they are a risk taking bank with regard to loans of "YOUR MONEY" and see where the bank is headed in addition to where it's been.
A couple hundred grand is not a lot of money in the whole scheme of things but for one person it is a lot of money.
As Will Rogers said...'the heck with return ON my investment...I want return OF my investment'.
Give Me Liberty or Give Me Debt
<< <i>When a city such as Stockton, CA has to seriously consider bankruptcy to avoid paying creditors with money that it doesn't have then it is time to seriously re-evaluate all financial promises (FDIC) that we believe will be fully honored in a major economic crisis. Is a major economic crisis in the US possible? Unfortunately the answer is yes.
And no offense to Steve, but in a major US banking crisis FDIC insurance will be one of the first promises to be broken. FDIC insurance's primary purpose is to instill faith in a banking system that was proven in 2008 to be fragile and only a heartbeat from failure. FDIC insurance, as pointed out by the wise fishcooker, is like the Titanic that had only enough life boats to carry less than half of its passengers. It is built around the principle that it will never be needed. It is not designed for worst case scenario. It is not designed to even protect in a "half of" a worst case scenario.
The safest place for your money is in your pocket. There is always counterparty risk when someone else has possession of your property, regardless of promises to make it good if things go bad - paper metal vs. physical metal is a perfect example as is the MF Global failure.
edited to add: mixing up deposits with a number of different banks doesn't help. A failure here and there can and will be covered by FDIC. It's the "big" failure of all of them that will make FDIC useless. >>
Fascinating view point. I have to ask, what do you suggest the great grandmother do? Pull her $200,000 out the bank, which is only a "heartbeat from failure" and put the money in her pocket?
<< <i>Fascinating view point. I have to ask, what do you suggest the great grandmother do? Pull her $200,000 out the bank, which is only a "heartbeat from failure" and put the money in her pocket? >>
If it were my money and I was happy with the return it draws and was happy with the people holding it and didn't want to take associated risk looking for greater returns I would leave it right where it is. However, I would keep an eye on the things that could put it's security in jeopardy and have a plan to immediately move or pull it if the economic environment warranted it. I do not feel the current enviornment warrants it. Things will have to get a lot worse before risk increases. First signs of a major bank failure is your first clue.
It's not the end of the financial world. What we have been witnessing is that it is a remote possibility and that we need to be cautious, informed and prepared.
Give Me Liberty or Give Me Debt
The FDIC has an unlimited line of credit. It is safe.
Knowledge is the enemy of fear
<< <i>The Stockton bankruptcy is AWESOME and just what the system needs to correct itself. This isnt bad news.
The FDIC has an unlimited line of credit. It is safe. >>
Social Security has an unlimited line of credit, how long is it safe? The Stockton bankruptcy is what the system needs to put some public sector employee unions on notice as well as others who feed at the taxpayer trough. Any government payment promise are only as good as the availability of money to back ithem There is potentail crisis point in all payment promises where money is just not there. Stockton and other smaller cities are telling us that.
Another threat to "promises" is austerity which could and should become a grassroot movement. The fact that eurozone failures are causing promises to be broken is good indication that it can happen anywhere. A Stockton bankruptcy is nothing more than a legal move to break promises. California is the eight largest economy in the world. It would be wise for the remainder of the US economy to take notice of what happens there. What happens in California, unfortunately, does not stay there.
Give Me Liberty or Give Me Debt
<< <i>
<< <i>Fascinating view point. I have to ask, what do you suggest the great grandmother do? Pull her $200,000 out the bank, which is only a "heartbeat from failure" and put the money in her pocket? >>
If it were my money and I was happy with the return it draws and was happy with the people holding it and didn't want to take associated risk looking for greater returns I would leave it right where it is. However, I would keep an eye on the things that could put it's security in jeopardy and have a plan to immediately move or pull it if the economic environment warranted it. I do not feel the current enviornment warrants it. Things will have to get a lot worse before risk increases. First signs of a major bank failure is your first clue.
It's not the end of the financial world. What we have been witnessing is that it is a remote possibility and that we need to be cautious, informed and prepared. >>
The great grandmaw should probably prepare for TSHTF by getting some rolls of ASEs and AGEs to pack in her bug-out bag, along with freeze-dried food, a water filter and other camping stuff, and lots of weapons and ammo. The system is on the verge of collapse according to some and one must be ready like rambo, mad max, and snake plissken are
Liberty: Parent of Science & Industry
CD's and Money Markets are relatively safe for the masses as long as the system stays in place. For some, even with its weaknesses and stabilty possibilities, leaving money in that form may be better then going to any higher level risk, or cash. (for me, I know cash in hand is more in danger from me than any other risk..)
THANKS! I realize Now! I need a greater variety handy, in forms that at least hold their value and tradable. A local MM fund may be a good 'additional choice' to suppliment cash. But using only one method is not the best way.
The other half of the "where to" is the tricky %percent(ages) determination to keep ready and available. Its a sliding scale mix of more ready cash vehicles up to more locked in investments.
Give Me Liberty or Give Me Debt
"Gee, I'm sorry you lost your life savings when the FDIC ran out of money, especially since you also lost your job and your house. I'm afraid there's nothing I can do, there are only so many dollars to go around and we can't create any more.
"By the way, I hope you'll support my re-election campaign."
If you think the above scenario is a tad unrealistic, then you know why the FDIC will *never ever* go broke.
My Adolph A. Weinman signature
Give Me Liberty or Give Me Debt
I knew it would happen.
<< <i>As I recall, Money Market Funds are no longer insured by anything, as of 2010 or so. >>
Correct....
Money market accounts are FDIC-insured up to FDIC coverage limits.
Money market funds, unlike money market accounts, are not FDIC-insured.
<< <i>
<< <i>As I recall, Money Market Funds are no longer insured by anything, as of 2010 or so. >>
Correct....
Money market accounts are FDIC-insured up to FDIC coverage limits.
Money market funds, unlike money market accounts, are not FDIC-insured. >>
But they are SIPC insured.
Knowledge is the enemy of fear
<< <i>Money market funds, unlike money market accounts, are not FDIC-insured. >>
I thought my Trowe Prime Reserve Fund - where I keep cash, was relatively safe (Treasuries). Guess I'll move some of
that into a local MM account (as one way).
ps.
Mutual Funds (less than: 10% phy PMs) hold my bulk and now it really worries me. THANKS!!!!!!!
Reserve Primary Money Fund breaks the Buck
Box of 20
How much money would they print, during a 75% contraction? I assume the hypothetical contraction occurs without the deaths of 75% of the population.
<< <i>The FDIC has an unlimited line of credit. It is safe. >>
assuming their backer has unlimited money.
Give Me Liberty or Give Me Debt
<< <i>When the USA contracts 50%-75%
How much money would they print, during a 75% contraction? I assume the hypothetical contraction occurs without the deaths of 75% of the population. >>
Even without the death and destruction, if the economy contracts the demand for money contracts. There would be no need to print.
Why people continue to look at the Weimar Republic as a comparison is beyond me. Nothing even remotely close.
Knowledge is the enemy of fear
Why people continue to look at the Weimar Republic as a comparison is beyond me. Nothing even remotely close.
Let me suggest a "reason". The government is loathe to let the appearance of an economic depression take hold, even when it's obvious to almost everyone around. On one side of the coin, keeping so many people chronically unemployed or "not looking" does nothing but create further drag on the system, even if bread lines are now passe'.
On the other side of the coin, the amount of money held in retirement accounts is ripe for the picking as long as the nominal dollar amounts held in those accounts doesn't decline. It's the middle class baby boomers heading into retirement that the politicians are trying to skim while the assets are still there.
Inflating the currency accomplishes several things. It keeps people from feeling as if their finances are being devastated as long as the nominal dollar amounts held in those accounts don't decline too much. Better yet, when the dollar amounts actually increase the "gains" ultimately become taxable. All of this can be accomplished by pumping out an excess of new dollars, whether or not they are physical or keystroked. Same effect.
However - the main need for new dollar creation is to fill in the gaping budget holes left by the budget deficit, by unfunded spending mandates (which now include obamacare - already at $1.7 trillion or so instead of $800 billion per GAO), and most certainly - to prevent another crash in the banking system, as bad debt from the derivatives mess is slowly inflated away (they say deleveraging, I say inflating).
Overall, the trend is still hugely worse and not better in each of these contributing factors. This continuously-impaired economy is surely not going to dig itself out of the hole and the continuously-increasing debt load simply can't be sustained. Debt destruction is much too dicey for the politicos to face head-on. Any meaningful deflation just ain't gonna happen. Bernanke promised.
At these levels of debt and these rates of increased spending, that is called Weimar. The only difference is that Weimar's unsustainable debt level was due to WWI War Reparations being imposed on Germany from the outside. Our unsustainable debt level is being created from within. It's still an open question as to how (and when) reality will be imposed on our overspending but it will probably be imposed from the outside as well.
I knew it would happen.
<< <i>Why people continue to look at the Weimar Republic as a comparison is beyond me. Nothing even remotely close. >>
What other options does the American government have to pay off their massive debt, other than by inflation? Outright default? The interest payments on that ~$14 trillion is still somewhat manageable for now, but interest rates won't stay low forever.
It was leaving Germany in a shambles after WW1. They didnt even have the manufacturing capacity to make a can of soup.
There is absolutely no comparison to the USA or Europe for that matter, to the situations in the Weimar Repub.
The USA is not in a Depression. Not even close.
Pokerman, why cant rates stay low for another decade or 2? Been low in Japan for 20 years.
Everyone is looking for either inflation, deflation or stagfaltion, when the result may actually be neither. Perhaps we just slog along for another 20 years until the bulk of the baby boomers (the old and sick) stop draining resources from the young and healthy? Time heals all wounds and time will correct the demographic problem we are facing.
Knowledge is the enemy of fear