Thursday, September 4, 2008

Are you scared yet?

If you follow economics closely, two things should be apparent right now.

  • #1 Conditions should scare the hell out of you.
  • #2 The Prospect of John McCain winning the Presidency and therefor Lindsey Graham becoming the next Treasury Secretary should scare the hell out of you.
Forgive me for being part of Graham and McCain's "nation of whiners" but ten-year treasury yields are so low, that the last time they paid this little my grandfather was five years old. Treasuries have been rendered pointless for anything other than trying to prevent catastrophic loss of your wealth. The government pays 3.89% interest annualized over ten years and inflation is at least 4.5%, so I get to make an "investment" that is guaranteed by the federal government to lose me money. And yet people (and countries) are piling in.

You could invest in CDs at Wamu, but that's going to blow up. How do I know this? Because every other bank is offering 3.5% on CDs, but Washington Mutual is offering 5%. Why would they offer so much more than everyone else unless they are outright desperate for cash. This is the exact same thing Indy Mac did before it blew up. If you've got money saved at Wamu, you better join the bank run. True your money is insured, but how long will it take to get your money back when the FDIC runs out of money and no one even knows how to refill the coffers? What do you do when your ATM card stops working?

No comments: