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.
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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 ...
~~PING!
Bank money market deposit accounts are still covered by the FDIC up to $250,000.
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.
They certainly are, to my understanding. The money market insurance has lapsed.
But this should sit us up.
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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.
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Go here for accompanying diagrams of explanation
http://www.freerepublic.com/focus/news/2349169/posts?page=43#43
Iranian, right?
(Gulp.) ;-)
That was my first "WHAT???"
Now we know what you are doing there. LOL!
The ‘gulps’ are increasing every day.
Stay safe .. and we know Who is in
charge .. HUGS.
Yikes!
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.
The list, ping
Does this include money market cash held by trading companies and brokers like Scottrade?
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%
later
I would think it applies to all money market funds ..
if they’re so labeled and hold cash, earning interest.
Withdrawing federal insurance is part of a broader exit strategy from the government's emergency supports for the economy
Whoops, and thanks STARWISE.
OMG! This is terrible! The Fed now owns $17 billion less in Treasuries than they did 2 years ago.
Yes...I get clients (I work in a bank branch) constantly confused by this.
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