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

Christian Science Monitor ^ | 9-19-09 | Mark Trumbull

[RockinRight]

Well...you can also borrow it cheap.

[palmer]

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.

[Evil Slayer]

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

[ChildOfThe60s]

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?

[ChildOfThe60s]

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.

[April Lexington]

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!

[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!

[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!

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

[April Lexington]

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...

[April Lexington]

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

[RockinRight]

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...

[Toddsterpatriot]

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.

[CPT Clay]

bump to read later

[ChildOfThe60s]

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.

[ClearCase_guy]

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.

[RockinRight]

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.

[Toddsterpatriot]

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.

[Alamo-Girl]

Thanks for the ping!

[SonOfDarkSkies]

"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.

[SonOfDarkSkies]

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!"