What to do with paper money

[DAZ]

short term there may be deflation as things are valued to where they should be, and foreclosing mortgages destroy money... but the fed would not let that happen for long.

also the bank doesn't loan out your money that you put in, and you are fdic insured up to 100k anyway. the banks operate on a fractional reserve policy, where they only need to actually have x% of dollars. so say i put in 10 dollars and the reserve is 10%. they can then loan out 90 dollars. of that 100 total (loaned 90 and my held 10) they only need to actually have 10% on hand. when you buy a house they don't give you 250k in some pool of money there; they just give you the money out of thin air because they created it. money was once a store of value, and now it is monetized debt.

I've read that the FDIC only has enough cash currently to cover about 3% of all FDIC-insured funds. (Can't remember where, so that may not be true.) If they were to make up that shortfall, where do you think that FDIC money would come from? Either taxes (bad for you and me) or printed out of nothing (inflationary---and bad for you and me). Honestly, I think a large crisis like I illustrated earlier would prove too much for the FDIC and they would "suspend" payments. Besides, I don't think the Federal Gov. has a very good track record of providing aid to those in need. Just like I'm not counting on getting a Social Security check when I hit 65, I'm not counting on the FDIC to protect my bank account should "Banks 'R Us" go under. Some things in life we can all count on. Is the FDIC one of them?

As far as the rest of your post goes, I don't really see how it is a rebuttal. Looks more like an agreement to me. Debt is issued with the expectation that it will be repaid. When debtors default on a large scale, wealth (debt, actually, but in today's world they are functionally the same) evaporates.

Now, I may be incorrect about the power of the Fed to stop such a spiral. I know that there are safeguards in place, stock trading will automatically halt if prices fall too quickly, etc. Unfortunately, this bubble needs to burst to allow a return to normalcy. Assets are overvalued and debt is over-extended. There will be a recession (it's started already). The Fed is walking a very fine line, because too much interference will postpone the pop and make it worse down the road while too little may lead to panic among investors, creditors, and consumers.

The Center for Economic and Policy Research just put out their report on this whole situation. I recommend everybody read this.
http://www.cepr.net/documents/publications/meltdown_2007_08.pdf

 

[Brandybuck]

There are a couple of problems with buying gold:

The biggest problem is that no one will accept it as payment. Ditto for silver. Oh, a few libertarians here and there may accept it, but the common person isn't going to.

Intead, stock ownership in solid companies that pay dividends is great. But most people don't know the first thing about stocks, so get a good mutual fund instead. Vantage is good because it's indexed. Don't try to play the stock market. A friend of mine lost his savings that way last week.

Buy some gold, of course. It makes a good inflation buffer. And diversify. Have some bond funds, and some international funds. The latter is good, because if the US dollar tanks, they'll skyrocket.

 

[DAZ]

Stock Market

Here's my issue with putting more money into the stock market right now.

Any idiot can make money with a diversified stock/mutual fund portfolio in a bull market. Including me. But when the markets head south, it takes a lot more knowledge, attention, caution, and time invested to turn a profit. With a longterm view, it has been seen that values tend to increase. But right now might be a bad time to ignore the short term. If the markets head south in the near future, one will probably be better off finding a more stable investment until the trend reverses.


Caveat: nothing I post should be construed as investment advice. Do your own due diligence.

 

[lost_in_samoa]

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