Definitely *not* physics…
Time to build a transporter?
This post is definitely not about physics, unless we’re applying a “what goes up must come down” principle to Wall Street. It’s just that I have a lot of conversations with people about the economy lately — including a few conversations that make me want to beam to another galaxy.
I woke up this morning pondering what is happening to the US economy, and intrigued by how things might unfold in both the short- and long-term. Many of my friends are moving money around these days — out of the market and into savings accounts. Some are convinced that their money is safe or somewhat safe in those accounts because they are FDIC insured.
I’m no economist, but I don’t think the US dollar is “safe,” period… And I know the FDIC can’t handle another major collapse without needing to be bailed out itself.
As far as FDIC-insured accounts are concerned, the FDIC is seriously undercapitalized. They only had net assets of $53 billion *before* the collapses of IndyMac, Fannie and Freddy — to cover over $13.4 trillion in deposits. It’s been estimated that 2,200 of the 8,500 FDIC-insured banks will go belly up, amounting to $410 billion in FDIC payouts. That’s 10 times what the FDIC has left. With the failure of even one more major bank (i.e., WaMu), the FDIC will need additional capital… So where will that money come from?
If this current situation plays out as anticipated by many economists, the dollar will lose as much as 80% of its purchasing power. Though there may not be a run on the banks like there was in the 1930’s, this ongoing contraction of the investment markets cannot be controlled via bailouts and the end result will be the same: More money printed to replace the money lost. And the more money printed, the less that money will be worth. All to say that as these failures and buyouts continue to occur depositors will probably get their FDIC-insured money back (albeit at their own expense as taxpayers), but that money will purchase a *lot* less than it did when it was first deposited.
Also, thanks in large part to the US spending $720 million a day on an unjustifiable (and ultimately unwinnable) war in Iraq, our government is now dependent on foreign investment to float its growing debt. It’s a sure thing that as the dollar continues to depreciate, foreign investment in our deficit spending will grind to a halt… And when countries like China stop providing investment in US debt, we’d best plant vegetable gardens and take our FDIC-insured dollar bills and use them for fireplace kindling, ’cause that paper sure as hell ain’t gonna buy groceries or pay the heating bill.
What to do as this scenario plays out?
I mean, what’s the call?
Real estate? … In another country?
On another planet?
I don’t know, but short-term or long-term, the US dollar looks like a fool’s bet now. Personally, I am having the urge to spend while the spending is good, lol…. And then plant that aforementioned garden.
Better yet, I’d like to build a transporter…. Ah, yes… I hear Andevian II is lovely this time of year.
Open to discussion on this… Hit me back with your thoughts if you feel so inclined.