Financial Safety

As I wrote in an earlier post, the FDIC is worried about people pulling money out of bank because they seem to have the need to remind us how safe our money is with banks. The key problem with the FDIC’s message is that they seem to forget or willfully ignore the effect of inflation on the currency and subsequent “value” of coverage. To that end, I have created the table below to show the FDIC how they need to adjust their coverage for inflation since no one there seems to do anything unless a crisis pops up.

I assume a 3% rate of inflation and use 10 year cadence adjustment. The column on the rate is the actual calculation and the column on the left is a suggested rounded number. Keep in mind that as of the date on this post the coverage is $250,000 and it may stay there without people prodding their representatives and government officials to raise this amount.

YearFDIC Insurance CoverageActual TVM (3% inflation rate)

Now that I have put my financial survival plans in place for 2020 and beyond, I figured I’d share some of my strategies. A large portion of this post is simply a repeat from the 2007 crisis with some added changes.

  1. Keep your payroll check in MULTIPLE bank accounts
  2. Keep some amount of emergency funds (cash) in your home somewhere safe and sound, don’t assume ATM machines will have cash.
  3. Keep your savings in a SEPARATE account.
  4. Keep well under the 250k limit of FDIC and don’t assume FDIC will bail you out; you’ll learn why later
  5. Forget about money market funds
  6. You should already have a large cash position if investing in the market, if not you’re going to have to ride it out – it took 10 years to recover from 2007 crash.
  7. Keep plenty of food available in your home
  8. Keep you gas tank full at all times when possible
  9. Be vigilant at all times; worry about burglary, robbery and assault at any time from now on until this crisis is over
  10. Have a worst case scenario plan for yourself and your family
  11. If you have large amounts of money buy US Treasuries.
  12. Worry about the “safety” of your safe deposit boxes at the bank and rethink if that’s the best place for your property.
  13. Immediately start thinking about how you can earn some extra cash.
  14. Don’t plan on anyone else saving you. You are on your own.

If you are old enough you might remember the crash of 2001, 2008, and 2020. Keep this in mind when planning your retirement and emergency fund needs.

I received a photo from a long line of cars at a bank ATM from someone today and it got me thinking. Why are people rushing to the bank to get cash?

Is it because 10 million people have filed for unemployment the past two weeks? Is it because those 10 million people won’t be making any more bank deposits? Is it because those 10 million people likely will have their credit card lines cut for non payment soon and they need to stock up on cash?

I wonder what happens when 10 million, 12 million, 15 million and on and on stop making bank deposits and stop making payments on loans, credit cards, mortgages, etc.

Hmm…I wonder what will happen………

As I write this post, I am watching President Trump give an update on March 29, 2020 at 5:30 p.m. Trump’s just announced the extension of the quasi-lock down we are in until April 30th and that has me thinking what if?

What if it’s August and the virus is still out of control?

What if it’s August and no one has gone back to work?

What if the meat packers that process our meats can’t/won’t show up to work?

What if the migrant workers that pick up the crops on farms all over the U.S. don’t show up to work the fields anymore?

What if the drivers that drive the food from the slaughterhouse to the supermarket can’t drive because they are sick?

What if the food arrives at the the grocery store but no one is there to unload the truck and stock the shelves?

What if the shelves are stocked but cashiers are sick?

What if it’s August and you don’t get any more money from the government to help you get by?

What if you decide it’s time to get money out of your bank branch but it’s closed or inaccessible? Ditto for your safety deposit box?

What if desperation sets in for the multitudes that don’t have enough to eat?

Unfortunately, I don’t have any answers for you and most of the answers I can think of aren’t very pleasant. In the worst case scenario, getting meat and fresh fruit and veggies may become very difficult to come by unless you are growing your own.

I’ve gone out and stocked up on canned goods, beans, and rice. It’s not ideal eating but I have enough food now to last me a few months. I have also prepared in other ways that I won’t get into here but if you think through the questions, you should be able to come to the same conclusions.

I wrote the following comment over 10 years ago and I never thought I would need to resurrect it but here we are again.

When people realize that the money they thought they had in the stock market is gone, when they realize that their credit lines have been cut and when they have no cash on hand left to pay for fuel, groceries or medicine there will be a stampede at your local bank.   The first ones to get there and pull out some or all of their cash will get their money; the lazy, the ignorant, the socialized, the optimists, and the clueless will be left cashless.

Be prudent, Be safe, Be Solvent.

Well just a few days ago I wrote how FDIC should have raised their insurance coverage limit from $250,000 to $350,000 to adjust for inflation since the last time it was adjusted was in 2008 with the last financial crash. Here we go again.

I hope they raise the limit because I’ve already pulled cash out of the bank for that very reason. Now that I see this video has been posted on the internet, I can only surmise that there is a slow bank “crawl” rather than a bank run but who knows.

In any event, here is the video.

I tried searching for reports on reserves for some of the big health insurance companies and I had trouble finding them. If I understand how most insurance companies operate, they take in premiums, invest those premiums in bonds and equities to generate returns and use those funds to pay claims that are filed by their customers.

With the stock market crashing and the bond market in turmoil and the potential for insurance claims to soar as people get sick, is this the perfect trifecta to crash the health insurance market?

According to this news report, a woman who got coronavirus and was treated, ended up with a $35,000 bill. The report doesn’t offer too many details but if that is the average bill and health insurance companies end up getting inundated with 100,000 claims then that’s a staggering $3.5 billion per 100k claims. If we end up with 1 million sick that’s $35 billion and 10 million sick, it’s a whopping $350 billion.

So are health insurance companies even solvent at this point? I don’t know the answer to that question but it is frightening to think that the health coverage I think I have may not even be there if I need it.

Plan accordingly. Stay home and stay healthy.

Well here we are again 11 years after the last financial crash and there is talk of bailouts for airlines, cruise lines, banks, hotels, restaurants and on and on and I have yet to hear a single person demand FDIC insurance be funded to prevent insolvency,

I wish that were the only problem but the second one is that FDIC coverage hasn’t increased from $250,000 since 2008. It seems I am one of the few people that can do a net present value calculation so let me give you the numbers. The $250,000 amount from 2008, adjusted for inflation at 3% interest for 10 years should be around $335,000 but let’s just round it up to $350,000 or better yet $400,000. See you in 2030.

If congress fails to act, I’m gonna pull all my money out and then the banking system will really be hurting.

So I recently purchased a new 27″ iMac fully loaded for a nice chunk of change and I looked back on my blog to figure out how long I had waited.   It turns out I had initially intended to buy it in 2008 but held off then in 2009, I got sacked because of the financial crisis and it’s now been two years and a month since that time and I’ve finally restarted to make large purchases.

To be fair, financial confidence actually happened sooner with a nice vacation to the east coast this summer but it’s interesting that financially prudent people really don’t dive into big expenditures until cash reserves and emergency reserves are fully replenished before taking a plunge back into the consumerist lifestyle.    Things are very different for me though because I’ve paid down almost all debt including mortgage and now have excessive cash reserves so it’s seemed appropriate to spend some cash.

This year I’ve taken two nice vacations, purchased an iPad and iMac and just purchased another iPad as a gift for someone special ;).   So where does that leave us now?   If we do hit another recession or dip deeper into more malaise then there possibly can’t be any economic boom until at least late 2013 or even 2014.  In the meantime, cash keeps tumbling in on my investment activity so I’ll keep chugging along.

This Wall Street Journal article points out what I’ve been suspecting for years: Pre-paid college tuition is a scam!  It’s a scam or rather “ponzi” scheme just like social security, medicare and any other government program with similar characteristics.

This poor woman has contributed $100,000 under the false assumption that her grand kids college education would be taken care of but now the state is struggling to keep up and finding all sorts of loop holes to not fulfill their obligations.  Hmmm…..sound familiar?

Patti Lambert wanted to pay the college tuition for her eight grandchildren. So for the past 16 years, the real-estate agent signed onto the state of Alabama’s prepaid tuition program. She invested more than $100,000—a daunting amount but a good deal because the prepaid plan promises to cover tuition no matter how much it increases.

Or so she thought. Facing a severe funding shortfall, Alabama is trying to renege on its promise to foot the whole bill. Instead, the state wants to pay the average tuition rate, potentially forcing schools and families to make up any difference.

When my wife and I first got married, we went through our finances and my wife showed me some contributions she was making to a similar program for her younger sister.  I immediately told her to quit paying it and request a refund.  She got all of her money back and we put it in savings.   I told my wife that when the time came, we would help her out as much as we could but that ultimately the plan wasn’t going to work.   A few years after the state froze the program and significantly modified the plan, making many people unhappy.    My sister in law graduates this May and my wife’s been helping her along the way with tuition and other items.

I’m still waiting for the day when the exact same thing happens to social security and at the current rate of disintegration that should only be a few years away.

It seems like all revolutions start on college campuses and this time won’t be any different.  From California, it seems unbearable tuition hikes were the final straw…

The UC regents are expected to put the final seal today on a hefty 32 percent tuition increase as students resume the protests that shut down their board meeting three times Wednesday and required campus police in riot gear to maintain calm.

Students, furious at the increase that will bring their yearly fees above $10,000 for the first time, rushed the UCLA building where the regents were meeting, throwing food, sticks and vinegar-soaked red bandannas meant to look like blood.

UC police arrested 14 people for disrupting the meeting and resisting arrest.

Wednesday’s vote by the regents’ finance committee was also protested at UC Berkeley, where about 1,000 students, faculty and university workers filled Sproul Plaza for a noontime rally. About 300 protesters turned out at UC Santa Cruz. The full board is to vote today.

Read more:

So how far and fast is spreads from there is up for question but I won’t be surprised to see a grass roots movement spiral out of control.

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