Given the recent headlines, I just want to say a few words about the safety of your money in the bank — and all the “end of the world” financial stories, memes, and postings that have started to circulate— again.
This is not the first time Americans have worried about the survivability of the US dollar and America’s central place in the global economy.
Those who studied history will know that 90 years ago, the nation was gripped in a pervasive Depression that was both financial and psychological. President Roosevelt is famously remembered for saying: “The only thing we have to fear is fear itself.”
Those words apply today. So if you get one of those frightening emails telling you where to stash your cash, take a look at who is about to make money off this dire warning. Likely your “subscription “ to this newsletter or purchase of precious metals or crypto will benefit the alarmist far more than you.
Those scary Facebook posts are either from people who are financially illiterate or greedy fear-mongers. Perhaps even worse, some are deliberately designed to spew panic about our financial system and the strength of our Democracy.
Don’t fall for it!
Sure our economy and our banking system have problems. But we’ve been through frightening financial times before. In 1973, Americans were lining up at gas stations — a shocking recognition of our national vulnerability. We responded over time by becoming the world’s largest energy exporter.
Have you forgotten the atmosphere of fear as we approached Y2K? In retrospect, it seems almost quaint to fear technology. Similarly, the bursting of the dot.com bubble a year later made many think Internet shopping was “over”! Hah!
More seriously, the financial crisis of 2008, triggered by unsound mortgages, threatened to destroy the bedrock of the American dream — home ownership. Thousands of people walked away from their mortgages after realizing they owed more on their mortgage than the home was currently worth. And lenders even had some homes razed. If only they had stuck it out, instead of reacting in fear. The homes soared in value just a few years later, and could have been refinanced with 3% mortgages.
Lessons of history
Yes, hindsight is perfect. But it gives us lessons for facing future challenges. And the biggest lesson of all is to avoid actions taken out of panic.
In 1973, the Dow fell below 600! In 2001, it dipped to 7500. In 2008, the market crashed, the DJIA dropping from over 14,000 in fall of 2007 to bottom at just over 6500 in March of 2009.
Three years ago, in the Pandemic Panic, the Dow fell to a low of 18,591. Yet here we are today, with the DJIA over 33,000. Panic is always a losing strategy over the long run!
Be Sensible about Safety
That doesn’t mean you shouldn’t be aware of risks, and how they impact your personal finances.
That’s why, long ago, I created the term “Chicken Money” — money you cannot afford to lose. The amount of your assets in these safe investments depends on your personal situation. But everyone sleeps better with a portion of chicken money on the sidelines, safely invested in insured bank deposits, government-only money market funds, or US government Treasury bills.
And today is no exception. But recent events have been a reminder of the limits of FDIC bank account insurance, at least for ordinary depositors. Suddenly, FDIC coverage questions and searches are making headlines. Basic $250,000 coverage can be extended through joint accounts, or trust accounts and even some retirement accounts. The rules are complex and can be found here at FDIC.gov.
But why get caught up in this coverage game, and why keep potentially excessive assets in any one insured financial institution? What is your bank giving you in return lately? Yes, banking is built on relationships. But it should be a two-way street.
If you’re near or potentially over the insurance limit, just open an account at TreasuryDirect.gov and buy 3- or 6-month Treasury bills auctioned every Monday. (See link at TerrySavage.com for a complete explanation.). T-bills are the ultimate safety, without limitation. And that’s The Savage Truth.