The Most Important Post You May Read Today: Banks, the Economy, and You

The economy stinks. If you own stocks, you wish you didn’t. Money doesn’t stretch as far as it used to. A gallon of gas is over $4, gold is at $1000, and oil is at $150.

WaMu (WM) has lost 92 percent of its value. IndyMac was taken over by the FDIC. Freddie Mac and Fannie Mae have all but been taken under receivership by the federal government.

Layoffs are only going to get worse. More banks will fail. You may lose your livelihood.

I hope you’ve been paying attention.

You have an emergency fund. You have cash in the bank. Are you concerned that your cash will vanish, just like the equity in your home and in your stock portfolio?


That’s right. Don’t. I’ll say it again, to make it crystal clear:


Why not, you ask? Because if you have $100,000 or less in a given institution that is FDIC-insured, your money is guaranteed.

Don’t make matters worse by trying to pull your money out of your bank. Putting your money under your mattress makes no sense at all!!!

I repeat: Do not exacerbate the situation by withdrawing your money from your bank.

The Great Depression turned from a bad day in the stock market to a total economic meltdown partly because there was a run on the banks. The federal government made the situation even worse by not providing the liquidity the market needed. In fact, it tightened credit.

Right now, if the government had to, it would turn on the (figurative) printing presses. Money creation is not a problem, and it is my belief that the Fed, the controllers of the supply of money, will create the money necessary to keep us out of a depression.

The Federal Reserve may say it’s concerned about inflation, but it’s deathly fearful of the opposite possibility, a deflation. One only needs to compare the 1930s to the 1970s to determine which is worse.

I even think that there’s a possibility that the worst is over. But it may take a year or two of economic doldrums to see an upturn; in short, we may be in this current situation for a couple of years. I don’t think this will be a prolonged downturn (i.e., Great Depression).

However, it will be painful. It’s time to tighten the belt and go on a diet, literally and figuratively. Cut out all unnecessary spending: Movies, soda, magazine subscriptions. Put some money in the bank. If you have a home equity line of credit, I’d suggest pulling out enough to keep yourself awash in cash for 6 months. The interest you pay will be trivial, especially if you lose your income.

Get rid of junk. Sell what you no longer need. Downsize. Clear clutter. Simplify.

Work on earning extra money.

Earn more than you spend.

Prepare your own meals. Buy local. Buy 87 octane gas. Drive sparingly. Shop at secondhand stores. 

Reduce. Reuse. Recycle.

If you don’t absolutely need it, don’t buy it.

I’m dead serious about all of this. The banks will be fine as long as people don’t turn into a mob. You will be fine if you’ve prepared for this.

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