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I have another interview to present from the Wine Country Conference. This is an interview of me by Lauren Lyster of Yahoo! Finance regarding FDIC deposit insurance.
I did not discuss deposit insurance in my presentation, however, deposit insurance was the focus of a five minute interview with Lauren Lyster.
You can play the interview at the Daily Ticker site Don’t Depend on Bank Deposit Insurance: Mike Shedlock
SitkaPacific Capital Management's Mike Shedlock, who is also the author of the Global Economic Analysis blog, says the Cyprus fiasco is an example of what can happen in a banking system that really can’t guarantee everything it’s promised. He argues these are issues that exist in the U.S. banking system too.I have gone on record stating that FDIC will be honored, up to the stated limits. If necessary, the Fed will print money to cover losses.
“Here in the U.S. we have something like $3 trillion worth of monetary base, with $50 trillion worth of money out there that’s lent on that monetary base,” Shedlock told The Daily Ticker on the sidelines at the Wine Country Conference in Sonoma. “So how are we going to pay this all back? We can’t.”
Shedlock argues that deposit insurance - guaranteed by the FDIC for accounts up to $250,000 - can’t possibly cover all bank deposits.
“The whole idea of insurance... is fraudulent,” he says.
Shedlock points to New Zealand, which does not promise to insure depositors, as a better system.
Depositors may be forced to figure out if the banks they put their money in are solvent. Shedlock says the current system creates “moral hazard.”
However, amounts in excess of FDIC will not be honored.
Those not wanting to trust FDIC at all may be seeking alternatives. Given global happenings, I cannot really fault anyone for that attitude.
I presented some ideas regarding deposit insurance in Five Alternatives to FDIC "Insured Deposits".
Mike "Mish" Shedlock