With fears of yet another government default only 30 days away, Terry Burnham, former Harvard economics professor and longtime critic of the Federal Reserve, is pulling all of his money out of Bank of America, and warns others might want to consider doing the same.
Although he stops short of calling for a run on the bank, he admits that what he’s doing could cause a huge ripple effect, causing other depositors to follow his lead. But he says the chance of losing his money by keeping it in the bank has become to great, and says he had no choice but to abandon Bank of America and the banking system.
In an article for PBS entitled Is your money safe at the bank? An economist says ‘no’ and withdraws his, Burnham writes, “Banks today promise everyone that they can have their money back instantaneously, but the bank does not actually have enough money to pay everyone at once because they have lent most of it out to other people — 90 percent or more.”
Why he’s warning Bank of America Customers:
In recent days, the chances for trouble at Bank of America have become more salient because of woes in the emerging markets, particularly Argentina, Turkey, Russia and China. The emerging market fears caused the Dow Jones Industrial Average to lose more than 500 points over the last week.
Returning to my money now entrusted to Bank of America, market turmoil reminded me that this particular trustee is simply not safe. Or not safe enough, given the fact that safety is the reason I put the money there at all. The market turmoil could threaten “BofA” with bankruptcy today as it did in 2008, and as banks have experienced again and again over time.
He then addresses critics who say the Federal Government’s FDIC insurance program protects depositor’s money by insuring it will be repaid should a bank go under. He says in the PBS article, “The FDIC currently has far less money in its fund than it has insured deposits: as of Sept. 1, about $41 billion in reserve against $6 trillion in insured deposits. (There are over $9 trillion on deposit at U.S. banks, by the way, so more than $3 trillion in deposits is completely uninsured.)”
In my opinion, he’s dead right on that. Should we face a crisis like we saw in 2008, when many of so-called “to big to fail” banks almost failed, there’s simply no way the government can possibly repay depositors. With our government already $17 trillion in debt, does anyone really believe they have the money to repay $6 trillion in insured deposits?
Where can you keep your money?
Burnham advises a number of things that I think are very smart; particularly paying down debt, keeping emergency cash on hand, and finding smaller local banks to spread your money around. In addition, I suggest stocking up on emergency supplies, food, water and consumables that will hold their value over the long run. Things like guns and ammo will definitely hold their value; and are not only a smart survival investment, but might be a smart financial investment as well.