Toilet paper isn’t the only thing people are hoarding during the coronavirus panic. In a sign of the times, FDIC Chair Jelena McWilliams literally asked Americans not to hoard cash under the mattress. That is not the message you want to turn on your television to hear the government telling people.
Because that means it’s getting terrifyingly real out there.
Is The FDIC Scared of A Bank Run?
The FDIC is the Federal Deposit Insurance Corporation. It was created by President Franklin D. Roosevelt during the Great Depression to insure any money deposited at U.S. depository institutions. As a result, all U.S. checking accounts are insured (up to $150,000) by Uncle Sam. The official Twitter account for the FDIC tweeted this message Tuesday:
“Forget the mattress! Keeping large sums of cash at home is risky. The best place to protect your money is in an FDIC-insured bank where it’s safe and sound.”
So if the authorities are actually this concerned that Americans will literally start hoarding cash under the mattress like in the Great Depression, then is it okay for the rest of us to go ahead and panic? Because hearing the FDIC Chair say this makes me want to drive straight to my bank to withdraw. And pull out everything that isn’t auto-paying next month’s bills.
The coronavirus lockdown and economic crash are getting absolutely terrifying. Attached to the tweet was a video of Chair McWilliams sympathizing with people’s fear:
“We are living in unprecedented times. At the time of a pandemic like this it is way too easy to get confused. And to have fear about what you should be doing with your money. With your accounts, especially as you’re looking at the volatility in the stock market and the financial sector.”
Well, I am worried about the world right now, but I wasn’t afraid of money not being in the bank until the insurer of bank deposits had to go on air and assure us our money’s fine. Now I’m afraid.
How Safe Is Your Money At The FDIC?
McWilliams says keep calm and bank American:
“This is what I would like you to take away from this. Your money is safe at the banks. The last thing you sould be doing is pulling your money out of the banks now, thinking that it’s going to be safer some place else. You don’t want to be walking around with large wads of cash.
And I will tell you this. No depositor has lost a penny of their insured deposits since 1933 when the FDIC was created. So if you’re talking about having your money in a safe place, please keep it in an FDIC insured bank.”
I would never bet against the United States, and if the government can’t make good on insurance promises, then we are truly in an apocalyptic situation. As unnervingly massive as this crisis is, that seems on the unlikely side of the probability spectrum. But it’s not impossible.
Consider this: when IndyMac, a leading mortgage lender, went under during the last financial crisis– preliminary claim estimates were as high as $8 billion in insured deposits with the FDIC. That was 10% of the FDIC’s insurance fund, from one bank that you may have never heard of collapsing. In 2017, the FDIC fund was $92 billion.
If it got serious, maybe Congress would step in and tell the Fed to “print” all the money the FDIC needs to pay out claims. But they already just borrowed $2 trillion for the federal stimulus bill. After years of running the national debt up to more and more perilous record highs. There is some level of devastation that could break the bank.
The Appeal of Bitcoin
The appeal of cryptocurrencies like Bitcoin is that it’s “honest money.” There’s not a fractional reserve banking system. There is a limited number of coins, it’s all accounted for on a transparent, public ledger, and if you own some of it you know it will be there.
If you’ve got the private keys to spend it, it’s your Bitcoin. In Code We Trust.
The U.S. banking system prints “In God We Trust” on the money, but the way the financial system acts they don’t seem to be very God-fearing. All this unsinkable ship talk of the Titanic didn’t work out so well. Don’t misunderstand me. I’m not saying the U.S. financial system will collapse. I’m just saying don’t be so certain it’s collapse proof. Especially not the way they’re riding it lately.
* Disclaimer: This article is the opinion of the author and does not represent professional financial or investing advice.