Last week I wrote about the very shaky position many banks are finding themselves in due to the trillions in derivatives they are sitting on.
What can make such a situation worse? People starting to take their money out of the banking system. We haven’t reached the level of bank runs, but there is already evidence of banks running out of cash, of branches being closed, and of physical gold & silver being sold out at bullion dealers.
Now watch this surreal video by the Federal Deposit Insurance Corporation, which insures most personal accounts in the United States up to $250,000.
Does this sound reassuring? Definitely not. It certainly looks and sounds desperate.
Do notice that the comments have been disabled. The powers that be probably didn’t like them. So much for free speech in America.
The FDIC has nowhere near enough to cover deposits if a few medium sized banks went bust, unless its line of credit with the Treasury Department was extended.
The numbers are all openly available in the FDIC’s 2019 financial reports. $108 billion of funds to cover $7.7 trillion of insured deposits. The FDIC has a mere 1.4% coverage.
Would the government simply print more money to cover defaults? Probably, but partial bail-ins are also a possibility.
And this is in America, which has much better banks than Europe. If you have money at Italian or French banks, or Deutsche Bank, I’d be very careful.
Countries like South Africa are also very vulnerable, but for different reasons.
So what can you do?
1. Choose your bank wisely. Look at the bank balance sheet carefully before deciding to put your hard-earned savings there.
2. Get some cash. At least 6 months of living expenses because “you never know”. With interest rates being almost negative in most Western countries there is little downside to doing so. But don’t overdo it. Governments would be very capable of banning cash because it is supposedly “unhygienic” and it “spreads the virus”, but in reality they’d simply be forcing people to keep their money in the banking system.
It’s impossible to know what is going to happen. But if you do the above, it’ll help you reduce risk at very little cost.
If you want to have a consulting session with me to discuss your plans and portfolio, do get in touch with me. My fee will go up in the next few weeks.
To a World of Opportunities,
The Wandering Investor