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FDIC is bankrupt. Should I run to the bank?

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  • FDIC is bankrupt. Should I run to the bank?

    As of Friday August 14, 2009, FDIC is Bankrupt

    [...]
    Taxpayers Bailout FDIC

    If indeed $641 million was all that remained of the DIF, the FDIC is now bankrupt. Of the $641 million left, Community bank used up 781.5 million and Colonial Bank $2.8 billion
    [...]
    I have a few thousand bucks in the bank for paying my rent, groceries, eating out, etc. Should I run to the bank? Seriously.

    Can something like the Argentinian corralito happen here?

    http://en.wikipedia.org/wiki/Corralito

    Will this be inflationary or deflationary?

  • #2
    Re: FDIC is bankrupt. Should I run to the bank?

    Originally posted by gasull View Post
    I have a few thousand bucks in the bank for paying my rent, groceries, eating out, etc. Should I run to the bank? Seriously.
    Mish is hyperventilating on this one. There is no reason to be alarmed, yet anyway. As stated in Mish's article, the FDIC already has "pre-approved funding signed by the Congress in May 2009, including $100 billion from the U.S Treasury Department."

    Originally posted by gasull View Post
    Can something like the Argentinian corralito happen here?
    That is possible, though not likely and not immediately and not in the same specific form.

    Originally posted by gasull View Post
    Will this be inflationary or deflationary?
    As I can see you realize from some of your earlier posts, the terms "inflation" and "deflation" are key terms of art in the iTulip analysis. The quick answer would be that it's inflationary ... almost all inflationary almost all the time now that the none of the major currencies of the world have been on a solid gold standing since the 1930's.
    Most folks are good; a few aren't.

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    • #3
      Re: FDIC is bankrupt. Should I run to the bank?

      PythonicCow, thanks for your answers.

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      • #4
        Re: FDIC is bankrupt. Should I run to the bank?

        Mish expected a deflation spiral starting in 2008. Didn't happen.

        He does not believe in double entry bookkeeping, apparently. The Federal Reserve and Treasury use double entry bookkeeping to expand the money supply and cope with bad debts.

        Turns out that our forecast was correct, that adding a trillion or two to the Fed's and Treasury's books, both to expand the money supply and buy so-called "toxic assets," required a few hours of legal haggling to reclassify the assets, such as asset backed securities, to allow the Fed to buy them, then a few key strokes for data entry.

        By the same token, Mish also does not appear to understand that the FDIC is, for all practical purposes, an account of the Treasury Department. Getting legal authority to transfer money from one account to another within the Treasury Dept. is even easier than arranging with the Fed to monetize all manner of private debts.

        The question is, at what point do the markets start to worry that the Fed and Treasury are over-extended? Even the USA has its credit limit. If it is surpassed, the effect is anything but deflationary. Just ask the Argentinians.

        We recommend the following to Mish.



        Accounting For Dummies (English)

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        Last edited by FRED; 08-15-09, 10:52 PM.
        Ed.

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        • #5
          Re: FDIC is bankrupt. Should I run to the bank?

          Originally posted by FRED View Post
          Turns out that our forecast was correct, that adding a trillion or two to the Fed's and Treasury's books, both to expand the money supply and buy so-called "toxic assets," required a few hours of legal haggling to reclassify the assets, such as asset backed securities, to allow the Fed to buy them, then a few key strokes for data entry.
          "Stroke of the pen. Legal Tender of the land. Kinda cool."
          Most folks are good; a few aren't.

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          • #6
            Re: FDIC is bankrupt. Should I run to the bank?

            And as far as an adult male running around near a bank.

            Not recommended ;)

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            • #7
              Re: FDIC is bankrupt. Should I run to the bank?

              Originally posted by FRED View Post
              Mish expected a deflation spiral starting in 2008.
              Lies! He has been spewing the same nonsense AT LEAST since early 2002:

              http://boards.fool.com/message.asp?mid=16752085

              Sing it long enough and of course you'll be right at some point, but like I have told him that means little in the world of investing.
              --ST (aka steveaustin2006)

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              • #8
                Re: FDIC is bankrupt. Should I run to the bank?

                Originally posted by FRED View Post
                The question is, at what point do the markets start to worry that the Fed and Treasury are over-extended? Even the USA has its credit limit. If it is surpassed, the effect is anything but deflationary. Just ask the Argentinians.
                If asset deflation in stock markets around the world coincides with the Fed and Treasury 'extending', this would seem to diminish the risk of the perception of US over extension. Still a relative beauty contest, no? I think we have time, especially if all equity assets rise and fall in tandem. Other than Euro where will capital seek refuge? And how it? How about the health of the European banking system?

                "European banks have ‘assets’ of about 330% of their country’s GDP, compared to US banking assets, which are about 50%. "
                --ST (aka steveaustin2006)

                Comment


                • #9
                  Re: FDIC is bankrupt. Should I run to the bank?

                  Originally posted by gasull View Post
                  I have a few thousand bucks in the bank for paying my rent, groceries, eating out, etc. Should I run to the bank? Seriously.

                  Can something like the Argentinian corralito happen here?

                  http://en.wikipedia.org/wiki/Corralito

                  Will this be inflationary or deflationary?
                  For those with access to the Select area, this Ask EJ post from last fall is worth reviewing:

                  Is it time to panic? Should we expect bank runs?

                  Personally I encourage friends to not panic about losing whatever money they have in the bank (as long as it falls within FDIC coverage limits). The FDIC will be backstopped by the federal government if need be. You will get your money back... but it might take a while. Use a tool like bankrate.com to find higher-rated local banks and credit unions to reduce the risk.

                  Of course there's always cash under the mattress...;)

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