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US no longer insures your money-market fund, but thatís good news
Christian Science Monitor ^ | 9-19-09 | Mark Trumbull

Posted on 09/27/2009 10:10:27 AM PDT by STARWISE

US no longer insures your money-market fund, but that’s good news

Withdrawing federal insurance is part of a broader exit strategy from the government's emergency supports for the economy, expected to gather steam this year.

###

Savers take note: Your money-market fund is no longer insured by the US Treasury.

These mutual funds, which earn interest for millions of Americans in brokerage or 401(k) accounts, rarely run into financial trouble. Almost always, they are able to maintain a reliable value of $1 per share. “Almost” is the key word, though.

Last year, one of the original money-market funds, the Reserve Primary Fund, “broke the buck” because some of it had investments issued by a certain firm called Lehman Brothers. When that Wall Street giant collapsed, Reserve’s share price fell a bit below a dollar.

In the panicked climate of last fall, concern about a broader “run” by money-market depositors caused the Treasury to step in with an unusual guarantee.

*snip*

The guarantees come to a stop Friday, however.

*snip*

The program helped achieve that end. But the fact that it was needed means policymakers need to think about how to best avoid a repeat in the future.

For now, policymakers appear confident that the absence of federal insurance won’t cause investors to flee the funds for safer bank savings accounts and the like. Many investors are shifting out of money funds simply because the interest rates are so low (nearly zero now) and the stock market has had growing appeal.

(Excerpt) Read more at features.csmonitor.com ...


TOPICS: Business/Economy; Editorial; Front Page News; Government; Politics/Elections
KEYWORDS: feds; insurance; moneymarket; mutualfunds; treasury

1 posted on 09/27/2009 10:10:28 AM PDT by STARWISE
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To: penelopesire; seekthetruth; television is just wrong; jcsjcm; BP2; Pablo Mac; April Lexington; ...

~~PING!


2 posted on 09/27/2009 10:12:07 AM PDT by STARWISE (The Art & Science Institute of Chicago Politics NE Div: now open at the White House)
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To: STARWISE
This article is misleading.

Bank money market deposit accounts are still covered by the FDIC up to $250,000.

3 posted on 09/27/2009 10:16:22 AM PDT by SonOfDarkSkies (For good judgment ask...What would Obama do? Then do the opposite!)
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To: STARWISE; SonOfDarkSkies
Thanks for the ping!

September 20, 2008
Hoping to stem a mass exodus from money market mutual funds, the Treasury Department said Friday that it will guarantee most money funds for one year.

4 posted on 09/27/2009 10:27:05 AM PDT by Just A Nobody ( (Better Dead than RED! NEVER AGAIN...Support our Troops! Beware the ENEMEDIA))
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To: SonOfDarkSkies

They certainly are, to my understanding. The money market insurance has lapsed.


5 posted on 09/27/2009 10:27:48 AM PDT by STARWISE (The Art & Science Institute of Chicago Politics NE Div: now open at the White House)
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To: Just A Nobody; BP2; All

But this should sit us up.

~~~~~~~~~

My biggest concern is that when this DOES hit, it will be virtually overnight. Maybe a half a week.

Agreed — expect a massive dump that leaves the unexpecting nitwit holding the bag. History shows that when the BIG BOYS feel they have driven the stocks up enough, they will sell off en mass and take their profits earned from when they bought during the lows. That’s what the latest RUN UP since March has been all about.

Chart for Dow Jones Industrial Average (^DJI)

To avoid taxes next year, they will sell off before Dec. 31, ESPECIALLY with Obama likely to MASSIVELY increase taxes in 2010 for those making over $250K per year. The economy will be VERY slow January-March 2010 leading into the next wave of foreclosures. Expect the big sell off to begin when the Forecasts start coming in of a poor Christmas buying season. The BDI is very telling of the 2009 Christmas buying season!

Baltic Exchange Dry Index (BDI) Recent, exponential average in red.

Lastly, Interest Rates MUST go up VERY SOON to entice buyers of US Treasury (UST) notes. Given the degree of “intermediation” by the Federal Reserve in the issuance of US Treasuries hitting a record in Q2, Federal Research System Open Market Account (SOMA) purchasing accounts for just under 50 percent of all net UST issuance “absorption”. This is a startling number, as the Fed’s SOMA purchases of $164 billion in Q2 Treasury notes dwarf the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period.

In fact, the Fed’s SOMA purchases was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases. This dramatic imbalance puts a lot of question marks over how the upcoming hundreds of billions in incremental Treasury purchases will be soaked up to pay for the decrease of tax revenues and increase in treasury spending. China is reportedly — and understandably — losing interest in buying into America’s future.

Just throw in a mini-calamity, such as a run on US banks precipitated by:
- domestic terrorist attacks
- attacks on Iraqi nuclear sites causing a HUGE spike in oil prices
- an extremely harsh US winter with slow-to-respond international grain imports
- Swine Flu mutation, etc

... and easy to see that we are very, VERY near a TIPPING POINT.

~~~~

Go here for accompanying diagrams of explanation

http://www.freerepublic.com/focus/news/2349169/posts?page=43#43


6 posted on 09/27/2009 10:31:27 AM PDT by STARWISE (The Art & Science Institute of Chicago Politics NE Div: now open at the White House)
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To: STARWISE
- attacks on Iraqi nuclear sites causing a HUGE spike in oil prices

Iranian, right?

(Gulp.) ;-)

7 posted on 09/27/2009 10:36:24 AM PDT by Allegra (It doesn't matter what this tagline says...the liberals are going to call it "racist.")
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To: Allegra
Iranian, right?

That was my first "WHAT???"

Now we know what you are doing there. LOL!

8 posted on 09/27/2009 10:38:45 AM PDT by Just A Nobody ( (Better Dead than RED! NEVER AGAIN...Support our Troops! Beware the ENEMEDIA))
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To: Allegra

The ‘gulps’ are increasing every day.
Stay safe .. and we know Who is in
charge .. HUGS.


9 posted on 09/27/2009 10:40:14 AM PDT by STARWISE (The Art & Science Institute of Chicago Politics NE Div: now open at the White House)
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To: STARWISE

Yikes!


10 posted on 09/27/2009 10:41:25 AM PDT by Just A Nobody ( (Better Dead than RED! NEVER AGAIN...Support our Troops! Beware the ENEMEDIA))
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To: STARWISE
Lastly, Interest Rates MUST go up VERY SOON to entice buyers of US Treasury (UST) notes.

Won't higher interest rates force QE, esp. in light of declining tax revenues? With increased interest rates, the cost of servicing the debt will grow exponentially and where's the money going to come from except just printing it?

Also won't higher interest rates dampen economic recovery?

Treasury and Fed seem to be trying to run out the clock, with fingers crossed that the economy will grow enough to get us out of this debt hole, but there are few signs this is happening and if it is happening, it's at a snail's pace.

11 posted on 09/27/2009 10:44:25 AM PDT by randita (Release ALL the ACORN video now or risk having it deep sixed by Holder.)
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To: STARWISE; Jet Jaguar; NorwegianViking; ExTexasRedhead; HollyB; FromLori; ...

The list, ping


12 posted on 09/27/2009 10:52:38 AM PDT by Nachum (The complete Obama list at www.nachumlist.com)
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To: STARWISE

Does this include money market cash held by trading companies and brokers like Scottrade?


13 posted on 09/27/2009 11:39:06 AM PDT by pabianice
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To: STARWISE

My CD’s are now earning 1.9% interest. I am thinking of taking the money and putting it in jars in the backyard.

It just ticks me off that banks can use my money for 1.9%


14 posted on 09/27/2009 12:04:45 PM PDT by Venturer
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To: berdie

later


15 posted on 09/27/2009 12:52:50 PM PDT by berdie (Hey, Bill Mahr...That's Mrs. Cracker to you.)
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To: pabianice

I would think it applies to all money market funds ..
if they’re so labeled and hold cash, earning interest.


16 posted on 09/27/2009 12:59:50 PM PDT by STARWISE (The Art & Science Institute of Chicago Politics NE Div: now open at the White House)
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To: AdmSmith; Berosus; bigheadfred; Convert from ECUSA; dervish; Ernest_at_the_Beach; Fred Nerks; ...
Withdrawing federal insurance is part of a broader exit strategy from the government's emergency supports for the economy

17 posted on 09/27/2009 2:41:35 PM PDT by SunkenCiv (https://secure.freerepublic.com/donate/__Since Jan 3, 2004__Profile updated Monday, January 12, 2009)
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To: STARWISE

Whoops, and thanks STARWISE.


18 posted on 09/27/2009 2:48:35 PM PDT by SunkenCiv (https://secure.freerepublic.com/donate/__Since Jan 3, 2004__Profile updated Monday, January 12, 2009)
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To: STARWISE
This is a startling number, as the Fed’s SOMA purchases of $164 billion in Q2 Treasury notes dwarf the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period.

OMG! This is terrible! The Fed now owns $17 billion less in Treasuries than they did 2 years ago.

19 posted on 09/27/2009 3:03:20 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: SonOfDarkSkies

Yes...I get clients (I work in a bank branch) constantly confused by this.


20 posted on 09/27/2009 3:09:35 PM PDT by RockinRight (9/12/09 - the day the sh*t hit the fan)
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To: Venturer

Well...you can also borrow it cheap.


21 posted on 09/27/2009 3:10:24 PM PDT by RockinRight (9/12/09 - the day the sh*t hit the fan)
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To: Toddsterpatriot
The Fed now owns $17 billion less in Treasuries than they did 2 years ago.

Because much of their balance sheet is junk securities instead.

22 posted on 09/27/2009 5:50:10 PM PDT by palmer (Cooperating with Obama = helping him extend the depression and implement socialism.)
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To: All
I found this on a comment site pertaining to the above subject....

This bit of news sent shivers down my spine because I just deposited a significant chunk of money in a Citibank money market account. I imagine there may be lot of folks like myself wondering if this is going to put their money market bank accounts at risk. Found the following which assuaged my fears.

http://www.money-rates.com/blog/2009/09/money-market-accounts-money-market-funds-and-september-18.htm

23 posted on 09/27/2009 6:27:55 PM PDT by Evil Slayer (Onward, Christian soldiers, marching as to war)
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To: SonOfDarkSkies
Bank money market deposit accounts are still covered by the FDIC up to $250,000.

OK. But we should be realistic about the value of FDIC coverage in the real world. Next year bank failure losses are going to total many times that of the FDIC funds. At what point does the "insurance" become as worthless as the deposits it is insuring?

"Full faith and credit of the United States government". Nice sounding statement. Just what tangible assets are backing up any of this stuff?

24 posted on 09/27/2009 6:30:30 PM PDT by ChildOfThe60s (If you can remember the 60s........you weren't really there)
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To: STARWISE

I have a question for anyone in this thread that would like to respond.

If devaluing currency (the $) erases some of the government issued debt, what happens to my mortgage debt?

For example, suppose I have a $600 monthly payment on a $90K mortgage. Suppose I have $60K in savings accounts. The US devalues the dollar by 2/3. Does that mean my savings are now $20K, but my mortgage balance remains at $90K and my payment remains at $600? In that case I’d effectively have my debt tripled with the stroke of a pen.


25 posted on 09/27/2009 6:45:53 PM PDT by ChildOfThe60s (If you can remember the 60s........you weren't really there)
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To: STARWISE
It is getting tough to find safe harbor for liquid assets. Money market funds were never insured until last year. SO, I doubt the lack of insurance will have a dramatic efect. But, something big is brewing and I agree that when it happens, these money market funds will be at great risk. I’m thinking Swiss bonds are a safe haven at the moment... maybe German bonds now that merkel is safely in place as leader of the Frei Welt!
26 posted on 09/27/2009 7:22:13 PM PDT by April Lexington (Study the constitution so you know what they are taking away!)
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To: ChildOfThe60s
Unless you are a government, you are expected to pay the money back! But, if inflation hits, you'll be paying it back with devalued $$$ so... you win!
27 posted on 09/27/2009 7:23:49 PM PDT by April Lexington (Study the constitution so you know what they are taking away!)
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To: April Lexington
Unless you are a government, you are expected to pay the money back! But, if inflation hits, you'll be paying it back with devalued $$$ so... you win!

If, big if, I retain an income. Wages can't go up without a paycheck.

28 posted on 09/27/2009 7:29:25 PM PDT by ChildOfThe60s (If you can remember the 60s........you weren't really there)
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To: ChildOfThe60s
Good point. Sad point. But.. good point. If inflation hits and you don't have a job or savings... not good

Then Federal government MUST be destroyed...

29 posted on 09/27/2009 7:32:17 PM PDT by April Lexington (Study the constitution so you know what they are taking away!)
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To: Evil Slayer

Bank money market accounts are usually FDIC insured. Money market mutual funds are no longer insured...


30 posted on 09/27/2009 7:33:25 PM PDT by April Lexington (Study the constitution so you know what they are taking away!)
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To: ChildOfThe60s

Sort of...but assuming you didn’t spend your savings, you’d still have 60k even if worth less...but the 90k you owe on the mortgage would also be “less” money in value.

Not saying it would be GOOD, but still...


31 posted on 09/27/2009 7:34:43 PM PDT by RockinRight (9/12/09 - the day the sh*t hit the fan)
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To: ChildOfThe60s
For example, suppose I have a $600 monthly payment on a $90K mortgage. Suppose I have $60K in savings accounts. The US devalues the dollar by 2/3.

Your $200,000 house is now worth $600,000.

32 posted on 09/27/2009 8:46:27 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: STARWISE

bump to read later


33 posted on 09/27/2009 9:32:12 PM PDT by CPT Clay (Pick up your weapon and follow me.)
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To: Toddsterpatriot
Your $200,000 house is now worth $600,000.

True. But the practical reality is that unless I sell it, that "value" is of no value. And unless I have an income, I can't make the monthly payment with the cheaper dollars.

No matter how we try, we just can't make feces smell like perfume.

34 posted on 09/28/2009 6:02:16 AM PDT by ChildOfThe60s (If you can remember the 60s........you weren't really there)
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To: Toddsterpatriot
Your $200,000 house is now worth $600,000.

Decades ago (1970's, I think) there was a comic strip that I've always remembered. A man and a woman are in a living room, and the man says "When I was a kid, I dreamed of living in a $100,000 house" the next block in the comic is from outside and we see that the man is living in a very small, very drab house, in the middle of a crowded and bland subdivision. And the man says "And I finally do!"

The dollar figures, of course, are far out of date, but when I was a young teenager, that cartoon was the single biggest thing that made me realize what inflation really meant.

35 posted on 09/28/2009 6:09:42 AM PDT by ClearCase_guy (Play the Race Card -- lose the game.)
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To: ChildOfThe60s

Inflation is bad, but can be used to an individual’s advantage IF (big IF) they are employed and their salary follows the increase in prices.


36 posted on 09/28/2009 6:13:12 AM PDT by RockinRight (9/12/09 - the day the sh*t hit the fan)
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To: ChildOfThe60s
You started with cash of $60,000 and home equity of $110,000. Total $170,000.

You ended with cash of $60,000 and home equity of $510,000. Your net worth of $570,000 is equivalent to $190,000 before the inflation. It's true that you would have to sell the house (or take out a HELOC) to tap the equity.

Feces does not smell like perfume.

37 posted on 09/28/2009 6:48:43 AM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: STARWISE

Thanks for the ping!


38 posted on 09/28/2009 9:00:44 AM PDT by Alamo-Girl
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To: ChildOfThe60s
"Full faith and credit of the United States government". Nice sounding statement. Just what tangible assets are backing up any of this stuff?

Actually, there are no assets securing "full faith and credit" obligations (if that were the case, they would be a "mortgage" or "secured" obligations).

"Full faith and credit" securities are "General Obligation" securities and their holders look to the government's power to tax.

39 posted on 09/28/2009 12:17:42 PM PDT by SonOfDarkSkies (For good judgment ask...What would Obama do? Then do the opposite!)
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To: Toddsterpatriot
Feces does not smell like perfume.

As a aside, a friend whose father owned a large pig operation would comment to visitors (when they realized how strong and repugnant was the odor of the farm)...

"In case you are wondering about that smell...that's the smell of profit!"

40 posted on 09/28/2009 12:22:35 PM PDT by SonOfDarkSkies (For good judgment ask...What would Obama do? Then do the opposite!)
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To: SonOfDarkSkies
Actually, there are no assets securing "full faith and credit" obligations

Yep. My point. Faith...in government. I'd put more faith in a hooker.

41 posted on 09/28/2009 2:37:20 PM PDT by ChildOfThe60s (If you can remember the 60s........you weren't really there)
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