Have You Bought Gold?

by francine Hardaway on July 13, 2008

Barack Obama has finally said "there is little doubt the United States is in a recession." After Phil Gramm told us we were in a "mental recession," and John McCain allowed as how specific people might be in a recession. Jesus Christ, as my father would have yelled, what does it take for a politician to admit we are in trouble? I’ve been screaming that we’re in a Depression for a few months now on Newsgang Live and elsewhere, and people on TV say it’s not a Depression unless there’s a run on the bank.

All right, have some data points with your martini: Bear Stearns had a run on the bank a couple of months ago, and got bailed out by  some backroom deal between the Fed and Jamie Dimon.  The stock of Fannie Mae and Freddie Mac, the buyers of all our mortgages, has sunk to about  28 cents. It’s only not zero because the government has promised to bail it out. And this weekend IndyMac Bank was taken over by the FDIC because — you guessed it — there was a run on the bank.

How does that affect ordinary people who do not have subprime mortgages and weren’t greedy speculators?

Well, the new person who is running IndyMac Bank after the takeover, who used to be a high exec in the FDIC, warned everyone to make sure they had no more than $100,000 in any single bank, because $100k is all that the FDIC insures. Unless it’s in an IRA, in which you can have $250k insured.

So you are not even safe in cash. I’ve warned my kids to watch their bank accounts. Myself, I never keep money in a bank if I can help it.

A month ago, Citibank lowered my HELOC to the amount I had left outstanding (I had slowly been paying it off, which was stupid in retrospect.) They said it had nothing to do with my payment history, but happened because the value of my home had almost certainly declined. And yesterday I signed on to my Wells Fargo account, which I have had for fifteen years and use for both business and personal use, and found that my line of credit there, too, had been frozen. No late payment, no indication of problems on my end. The banks are just scared shitless and in a state of paralysis. This affects EVERYBODY.

That takes me back to my friend in Arizona who committed suicide at the beginning of June. I knew then that things were tough, because he wasn’t a lightweight thinker, an unresourceful person, or a crook. He just saw it coming.

What will happen now? As I’ve said before, the government will come in and try to do something. Whatever it does may or may not work. Worst case scenario, the FDIC fails, and we all lose everything we have in  American banks. Or the government starts printing money, in which case the value of the dollar falls even lower than it is now, and we become like Russia in the 90s or Argentina, with double digit inflation.

Or maybe I’ve got the scenarios reversed, and the best case is the failure of the FDIC…

Have another martini with your data?

Oh: you want a solution? Buy gold. Practice non-attachment. Take your dogs to the beach:-)

{ 5 comments… read them below or add one }

Ursula July 13, 2008 at 6:31 pm

I’m lucky in that my husband has been calling this crisis for some time and we did buy gold.

But, otherwise, there is not much any of us can really do when the decision makers are out of reach and touch.

Maybe a martini would help. For now …I walk my dog …

Nick O'Neill July 13, 2008 at 10:43 pm

Wow, the more I read this stuff the more I get nervous. Obviously that’s what you would like to accomplish with this post. What would you place the odds of FDIC failing?

gregorylent July 13, 2008 at 10:44 pm

why is a recession a bad thing? it is just a re-evaluation process of a formerly unrealistic valuation. life NEEDS cycles, that is how it works! it is what seasons are, what learning curves are.

the worry and anxiety is a lot more damaging than the actual events. what has changed even an iota in the last months of your life?

ed July 14, 2008 at 4:49 am

just a note about your terms:
I think that most now acknowledge that we are in a Recession (two quarters of negative GDP growth), I think that a Depression (two years of negative GDP growth) is on the cards, but then my views are probably abnormally bearish.

and to answer your question, yes I have invested in gold and I will still be doing so. The Perth Mint Certificate Programme is a particularly good way to go about it, esp. if you think like me, and you want to hold on to your investment for a few years (since there are no storage costs for unallocated holdings)

francine hardaway July 14, 2008 at 8:29 am

Well, Gregory, my lines of credit have been extinguished, which for a business person means no more investment in my entrepreneurs or my own business. And I will probably lose my home when my mortgage readjusts in two years, because credit terms have changed and values have gone down. My real estate investments are all illiquid and I don’t know what they will be worth when we pull out of this. The last one took 10 years to pull out of. And I am not 25. So yes, it does impact my life and those who I work with who depend on me for investment.

Nick, for you, who are young, it means less. It does mean the country needs attention to resources and policy changes, and a bit less greed. And if you have more than $100k in any bank, move it around.

The government would probably print money or increase the debt levels before it would let the FDIC fail. I’m not an economist, just a trained observer.

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