Investment Rarities Incorporated
History |  Q & A  |  Endorsements  |  Portfolios  | Flatware | Gold Coins  |  Silver Coins  |  Contact |  Home


Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

..Read More »

The Best of Jim Cook Archive

Best of Bill Buckler
October 7, 2009
archive print

Your Money Is Safe

Three months ago, at the end of June, the Federal Deposit Insurance Corp (FDIC) had $US 10.4 Billion left in the fund which guarantees all US bank deposits up to a maximum of $US 250,000.  That's a rate of cover of 0.22 percent of the $US 4.8 TRILLION in bank deposits which the FDIC "insures", far below the 1.15 percent which the FDIC must, by law, maintain.

With the end of the third quarter this week, the FDIC was looking at their reserve fund actually going into deficit – a legacy of the 95 (and counting) US banks that have failed and have been closed down so far this year.  By way of comparison, 25 banks required an FDIC bailout in 2008 and 2 (that's two) in 2007.

The FDIC was faced with the necessity of topping up.  They narrowed the means down to three choices:

1.  They could borrow from the healthy (read "too big to fail") banks,
2.  They could impose a special "one time" fee on the entire banking industry,
3.  They could tap a Treasury line of credit raised in April 2009 from $US 30 Billion to $US 100 Billion.

On September 29, the FDIC announced their preferred option. To the surprise of very few, they rejected borrowing from theTreasury.  To the surprise of many, they rejected imposing a"one time" fee on the banking system.  Instead, they proposed to have the banks, mainly the BIG banks, pre-pay their 2010-12 insurance premiums.  This proposal is subject to what is called a 30-day "public comment" period and is expected to
raise about $US 45 Billion.  The FDIC actually requires a reserve fund of $US 55 Billion to reach the 1.15 percent of insured deposits mandated by Congress.

Why Not Tap The Treasury?:

"I don't understand why Sheila (Bair, FDIC Chairman) justdoes not use her Treasury line to recapitalise the fund....everyone knows that the FDIC is ultimately backed by
the full faith and credit of the US."

This is a quote from a banking consultant who has testified before Congress on deposit insurance funding. There are three very good reasons why the FDIC sees borrowing from the US Treasury as an absolute last resort.  First, we are talking about CASH IN THE BANK here, the closest thing there is to a stack of $100 bills $US 4.8 TRILLION high.  The dawning realisation that your cash in the bank is "backed" by nothing but the "faith and credit" of your government is what has led to every bank run in history.

The second reason, often cited, is that yet another Treasury bailout is not very politically palatable, especially now when everybody from Mr Obama on down is trumpeting about the recovery.  But here again, an FDIC bailout would be especially sensitive.  The inevitable question would arise: "Is my cash in the bank REALLY safe when the government department which "insures" it has to be bailed out??" 

The third reason is undoubtedly the one which swayed the FDIC's board, simply because it is current.  Right now, the US Treasury is doing everything it can to delay hitting its own debt limit.  An FDIC bailout would cut Treasury Secretary Geithner's ability to postpone - as long as he possibly can – the politically unpalatable debate around yet another debt limit hike.

Once Again - Buying Nothing But Time:

The FDIC wants three years of bank insurance "premiums" up front but even that will not bring the "insurance fund" up to its mandated 1.15 percent of deposits.  Clearly, this is a
stopgap measure until such time as the FDIC can quietly go to the US Treasury for a "top up".  That time will almost certainly come very soon after the next debt limit rise,
whenever that takes place. . . . . . . .

Over the past two years, the US Treasury has borrowed almost $US 3 TRILLION while borrowing by all other sectors of the US economy - including city, municipal, county and state governments - has been steadily declining.  There was a spurt in consumer spending in August almost exclusively due to the "cash for clunkers" program and the fact that the $8000 tax credit for first time home buyers was coming to a close.  So great is the need to believe that the government is creating "wealth" by borrowing money that the US savings rate actually contracted by 25 percent over the same month.

This is a tragedy waiting to happen.  Two weeks ago, the Fed repeated their assurance that they would  wind down their Treasury debt monetisation program by the end of this month.  This week, while Mr Geithner was cautioning against any withdrawal of global stimulus, Mr Bernanke was informing us that there was no "immediate risk" to the US Dollar.  And, in the wake of the October 2 US employment report, Mr. Obama stepped forward to say that: "I am working closely with my economic advisors to explore any and all additional options and measures that we might take to promote job creation."


"Job creation" was, of course, the number one goal of the first two Roosevelt administrations of the 1930s.  They all but destroyed the US economy in the process, but unemployment was as high or higher by the end of the 1930s as it had been when they took office.  Back in the 1930s, there was some excuse for believing that hamstringing an economy was the way to "grow" it.  By now, we should know better.

Ó 2009 – The Privateer

(reproduced with permission)


Delivery via email

Trial: 5 issues (once only)

Six-Month: 12 issues

Annual: 25 issues

Two-Year: 50 issues

Subscribe at