My main reason for this blog is to try and get people that are understandably very busy (work, kids, just trying to find some good down time) to take a look at what is going on behind the scenes. Circumstances have emerged to gift us with a perfect example of Economic Disconnect. You may or may not have heard that the third largest mortgage lender in England, Northern Rock Bank, had substantial losses and resultant credit and liquidity issues last month. Things got so severe, and old fashioned "bank run" actually occurred!:
Things got so bad, the government in England had to guarantee the deposits at the bank:
I know, move along nothing to see here, and besides it was in England anyway.
Well, after the closing bell on Friday (a closing on a friday that just so happened to be an options expirations date!) we get a buried story about a bank failure here in the good ole USA!:
Now Netbank is not a major bank, but the process by which it failed is not a unique story just applicable to that one case.
I had mentioned this event to my wife, and she asked me about our accounts. Our money is at two different banks, one major and one regional, and both are under the FDIC insurance amount of 100k. I assured her that our money was safe. I then had an absolutely terrible thought that has stuck with me, and it is this;
If a major bank like say bank of America, or Washington Mutual were to fail, I think that getting my money from the FDIC is not going to be my major concern going forward.
Now I am not one of these Gold Bug ( I am long lots of gold miners however! full disclosure) survival nuts that has a well stocked bunker ready for Armageddon in the woods, but think about it for a minute. If the FED had to supply money to the FDIC to guarantee deposits of a MAJOR bank, what would happen to the US dollar??
If you had say 20,000 in the account, after the printing presses are running full speed, will that 20k have anywhere near the same purchase power? Would submitting your forms to the FDIC be your first concern?
I do not have answers to these questions, but they are worth thinking about. The DOW is almost back to its all time high, and all the talking heads on the financial shows were wearing their bull horns today. The Economic Disconnect of everything is great versus all the money injections the FED is doing, and in a cutting interest rate environment are clear. Perhaps the FED and Wall Street are afraid, maybe you should be too.