San Diego Housing Bubble News and Analysis

Keep some serious cash on hand. The FDIC has a 100 Billion credit line it can draw from the Treasury but that will add to the immense debt offerings they are already selling. The fact of the matter is that the FDIC is going to take an insane amount of losses by not closing banks down when they should and eventually there may be no real insurance to cover deposits.

It's a stretch expecting that the gov't will not have the means to bail out the FDIC but it is possible.

As capeman pointed out, the FDIC will borrow the shortfall from the Treasury (We the People, that is). Then, in theory, the FDIC will levy increased deposit fees on the banks (as they are doing now on a regular basis) who will pay back the Treasury and replenish the fund over time. I think the Treasury will get paid back and the insurance fund will be replenished but it will take many years. And who will pay for this? Depositors, ultimately.

Means nothing.

If you want to be a worry wart, start looking at the bond rates like here: http://finance.yahoo.com/bonds

As long as you don't see double digits, US treasury is not yet bankrupt and can borrow to replenish FDIC.

If you start seeing double digits, it is "red alert" time and you should convert your $ to other currencies or assets since the money will be rapidly losing value.

(Last time this "red alert" was reached was during 1979-85 see http://finance.yahoo.com/q/hp?s=^TYX&a=01&b=15&c=1977&d=07&e=25&f=2009&g=m&z=66&y=0 )

Using bond rates as a measure of risk for your deposits is insane especially when the biggest Treasury buyers are the Primary Dealers and the Fed. That's manipulation of your risk market and by the time you'd see the risk hit double digits it would likely be too late to do anything about it.

Also if you are using the 1979-1985 scenario as a reference in that case you would want to load up on long term Ts hand over fist at high rates. You'd be living well off of the up to 18% interest the taxpayer is paying you long term. Another much much less likely scenario would be rates don't peak at a reasonable/profitable level (much higher) and the currency collapses. Then money wouldn't matter anyways in a Mad Max scenario like that.

For the purpose of this thread I would be very concerned that the organization insuring my deposits may not be able to pay out and the gov't may not be in a position to help at some point.

capeman,

I can't follow your logic very well; but the bottom line is, the FDIC will always give you green pieces of paper for the insured amount, one way or other. What those green papers can buy is a different matter entirely.

BTW, when the treasuries reach 18%, your best bet is to move out of US $. Even consider moving to a non $ locale if possible. There will be far worse things (like social unrest) happening besides inflation then.

Hmmm, what can we do with the acronym FDIC and a few minutes of work?

"Funnel Deposits Into Cash"
"Fed Directly Insuring China"

... more TK

I read someplace that those were callable.

Why do you take it as a given that hyperinflation causes society to collapse? I was in Brazil when they had hyperinflation running 4 digits per year. Interestingly, you could still write checks for payments - and each check written had an interest rate assigned to compensate the seller for the week or so delay it took to clear funds. Within about 6 months, the Brazilian banking industry in cooperation with the government had revamped the process so that most checks cleared funds the same day they were written.

There was no chaos in the street - the busses ran, the markets sold food. It was very tough on the poor but society did not collapse. Now, after twice swapping out the entire currency they seem to have got it under control.

For an example true hyperinflation on the scale of what could happen if they push the printing too far... look to Zimbabwe.

jonnycsd,

That is an interesting observation about Brazil. I think people have extreme fear of inflation due to stories about Weimar Germany (http://www.pbs.org/wgbh/commandingheight...) and more recently pictures of Zimbabwe's currency with 15 digits. But U.S. inflation will be more like that in the 1970s, not even as much as Brazil. In fact, I think, people were not in extreme hardship during 1972-82. I don't think there is any report of widespread homelessness or hunger (like in the 1930s).

BS, you talk as if you have a clue about the amount of money being printed. You don't have a clue nor does anyone here. I think we have printed enough to put us in a Zimbabwe like inflation scenario, but we are using other resources to combat this inflation. Will it get bad? Most likely and when it does it won't be a walk in the park. You are crazy to believe it will be similar to the 70's inflationary period. There are huge repercussions to our actions, unfortunately it is completely unpredictable at this point.

Socrattt, I'm confused. 'There are huge repercussions to our actions...' and 'it is completely unpredictable at this point' seem to be contradictory statements. It sounds like you're confident about the 'scale' of the problem. What are you unsure about? Please clarify?

Predictions in regards to the type of inflation that will occur in the US isn't possible as know one really knows how much money has been printed. One thing we do know is it is much more than 70's inflationary period. This we can pinpoint with the bailouts along with an number of other stimulus programs. Granted not all programs required a printing press, but plenty did.

When I speak of unpredictability I am referring to the fact that eventually the time will come in the US where hyperinflation will kick in. The only question remains is when. I believe the US has created the perfect storm for the US economy and there is no turning back. What I can't predict, nor can anyone else including the big boys at the FED, is when will the s**t actually hit the fan. No one knows and I truly believe something catastrophic could happen over night. It could happen with an announcement from the EU or Asia that they are changing the reserve currency or a simple collapse overnight of our banking system.

Will it happen soon? My guess is no as I believe our government is playing an excellent game of Stratego. But I do believe in the next 3-5 years we will experience some incredibly trying times here in the US. No charts will help you understand the direction we are going. The data is just that, it's all manipulated, but I believe at some point, whether it be 3 months or 5 years, the truth will come out and America will suffer.