I have had a few people ask me if they should pull their money from the bank. Since it seems to be a thought that is crossing some peoples minds, I thought I would give my 2 cents about it.
I am not pulling my money out of my bank or credit union. Here is my logic for my decision…
The $700 Billion dollar bailout is going to create high levels of inflation in the U.S. It may be a little while before the everyday consumer sees it, but just like shooting a rifle into the air, the bullets will hit the ground at some point. Money sitting under your mattress is constantly losing value (read the effects of inflation). At current inflation rates, a high-interest savings account or a CD may keep your spending power about level.
As far as the banks going belly up, that is more of a legitimate concern than it has been in a while. After the Great Depression FDIC insurance was created to put American’s minds at ease and keep them from running to the bank to pull all of their money out. So, if the bank does happen to go under, your accounts will be insured up to $250,000 (just recently changed from $100,000) by the Federal Government. But, as you may have seen in the news, it is a lot more likely for another bank to try to buy them out, rather than the bank going under.
In the long-term, I think the US has to make some major changes to their monetary policy if we are going to continue to be the strong nation that we have been. But, in the shorter term (a year or two) I think we are going to come out of this, just like we have all the other recessions (or even depressions). Check the history of recessions for some encouraging data about the length of and what happens after recessions in the past.
To add to this, I am trying to scrape up some extra cash to invest. You may have noticed that Warren Buffett has been making some purchases lately. After reading quite a few books about Warren, I can tell you that he is extremely wise and timely with his investments. He very rarely buys unless he finds a deal. The panic in the markets is causing a lot of stocks to be undervalued and he is taking advantage of the lower prices because he knows that they will bounce back. I share his sentiment.
What do you think – am I being overly optimistic?