The Value of FDIC Insurance

The following is from this morning's column by Chris Laird entitled Central Bank Quantitative Measures to Boost Gold in 09.

"We know that shorter term US Treasuries are yielding practically zero rates, or zero to two percent for terms longer than 4 weeks. People want to be in cash, and they are flooding into US Treasuries because they don’t trust banks, even with FDIC guarantees. And, this is one reason the USD rose so much in recent months with the latest detonation of the world credit markets after Lehman failed, etc."

Question: Why would those in-the-know not trust FDIC? What do they know that the average person doesn't know?

The following is from Jake Towne's Dec. 15th article entitled, Rioting at the Gates of Thermopylae: The Fed & Central Banks Shudder
"In brief, the FDIC (Federal Deposit Insurance Corporation) is a relic of the Great Depression designed to give depositors psychological assurance that the government will bail them out if the bank fails.

It is funded by small fees on all deposits its 8,384 member banks hold. The FDIC started 2008 with about $53 billion in reserves. Due to the failures at IndyMac and others, the FDIC fund has less than $34.6 billion left. Based on the closings since September 30, Captain Calculator reports less than $30 billion is left.

The FDIC last reported on September 30 a reserve ratio of 0.76%, covering $4,544 billion in insured deposits, so now they are at about a 0.66% reserve ratio. Converted to English, this means that just $0.66 out of every $100 that you have on deposit is REALLY "insured." The FDIC reported the total assets of these banks to be $13,613 billion, so $30 billion is really a pittance.

My warning to you is that a major bank failure will eradicate the FDIC funds overnight.

Now, if the FDIC fails, you will probably still get your money back in dollar terms. However, to do this the government/Federal Reserve will simply print more money, and you will NOT be able to get your funds immediately. How long is anyone's guess, my guess is months. With all of the building potential for a hyperinflation or inflation spike, by the time you get your dollars back, you may not be able to buy much with them."

In light of the above, I would encourage folks to seriously consider the percentage of their savings and investment funds that they hold in the banking system. You certainly need to keep some of your wealth stored there, but not all.

These days, diversification is the key to safety, not government insurance.