<p>Quick question: How long would it actually take for the FDIC to return the money in your bank account? I would expect that to take months as efficiently as the government is run...</p>
<p>Lurker: I'll make a deal with you. If Citibank and E-Trade Bank ever fail, you agree to overnight me $3,542.14 in cash, ADJUSTED FOR (HYPER)INFLATION (if $35 trillion is worth $3,542.14, you agree to pay me $35 trillion in cash), in whatever currency is most stable at the time, at today's exchange rates. I'm talking piles of $100 notes. And in exchange, I'll agree not to run on Citibank and Etrade. If you're not willing to make this deal, you have just as little faith in the banking system as I. Unless you're personally willing to back Citibank and E-Trade Bank's bank deposits, you have just as little faith in those two banks as I, and therefore I'll assume everything you've said is driven by blind nationalism rather than rational logic.</p>
<p>Just for reference, today's exchange rates:
US$-GB£=$1.75 (GB£2,024.08)
US$-CA$=$0.86 (CA$4,118.77)
US$-Eu€=$1.37 (EU€2,585.50)
US$-AU$=$0.71 (AU$4,988.93)
US$-NZ$=$0.62 (NZ$5,713.13)</p>
<p>Governments aren't above defaulting on their debts (anyone from Argentina or anyone who's held Argentinian bonds can attest to this), and eventually with the current deficit we're going to have to take on more debt to pay the debt service on our debts. This economy's collapsed before, and it can collapse again. What makes you think that China's going to keep buying our debt or keep lending money to us? The government earns $2.5 trillion a year and spends $2.8 trillion a year and has done the same thing for the past 8 years. If I had that kind of results as an asset manager or a corporate executive, my ass would have been fired so fast they would have just thrown me out the window.</p>
<p>Are you honestly comparing the U.S. government with the Argentine government? I understand the point that governments can fail but really? You're comparing a poor South American country with the USA. The federal government's debt is large, yes but it is completely manageable. And exactly how are we going to default on it? The worst thing that would happen is that tax rates would have to go up and services cut. But thats not going to happen because our biggest creditors are not going to call in the debt (e.g China). Let's put it this way if the federal government fails, Ill pay you everything i have plus everything i make for the next decade. Its just not going to happen, there are way too many assets in this country for the government to fail. While some governments may be able to fail, the US is not going to, nor is any major industrialized nation. The best evidence for this is that the best example that you could come up with is Argentina - it just does not have the economy of a major power. For comparison the estimated 2007 GDP of Argentina was 260 billion (<a href="https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html%5B/url%5D">https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html</a>) which is roughly comparable to the GDP of Minnesota (131</a> - US States Renamed For Countries With Similar GDPs « Strange Maps)</p>
<p>
[quote]
The worst thing that would happen is that tax rates would have to go up and services cut.
[/quote]
</p>
<p>According to Mellon the strategy should be to decrease tax rates to see an increase in revenue. ;) </p>
<p>"77% of nothing is nothing.
25% of something is still something."</p>
<p>However, fiscal policy at the top has been so bad for the past few decades that I don't think that we're only digging ourselves into a deeper hole of debt.</p>
<p>Whatever, no government is immune from failure. Don't say it will never happen because it can. Great Britain used to be the largest industrial power in the world just 100 years ago. The Roman Empire was the greatest power in the world just 1600 years ago. Spain, France, Great Britain, current-day Turkey, Austria/Hungary, Japan, and current-day Germany were all global powers at some time in the past 500 years. Nobody ever predicted the complete collapse of Swissair either, nor did anyone actually know how bad this financial crisis actually was. Just because the US is a major economic power doesn't exempt it from the possibility of total collapse. Remember that the UK used to hold the status that we hold (and are quickly losing) today. I suspect when we overextend ourselves and get into huge debt and end up having to cut services as you say, the EU would be glad to take our status as a global economic superpower.</p>
<p>This country's sinking faster than the Titanic and a lot of us are blissfully unaware. I'm sorry, but leveraging to 8 times your yearly income is NOT manageable. That's out of control. And the bank bailouts are expected to double the national debt or something. And the government is losing money year after year for the past 8 years. If you make an analogy to the personal debt market, the US government has $10 trillion and counting in credit card debt, and it's applying for new credit cards and charging the interest on the existing debt to those new credit cards.</p>
<p>Yes the power of these countries fell but the governments did not fiscally fail at least not in the modern sense of the term. Anyway these countries were from before the current global credit system so theyre not particularly valid comparisons. Im not arguing that the US's power wont wane - Im merely saying that the chances of the US defaulting on its loans from this crisis is so miniscule that its more likely that the a meteor hits and the apocalypse occurs.</p>
<p>Argument from tradition is a fallacy, you know.</p>
<p>Your account is now ensured up to $250,000. I wouldn't worry about it. I'm not worried at all, my father works for the FDIC so I get some prime information about the whole economic situation and gov involvement. It is very, very unlikely 300 million american bank accounts would need to be insured.
The whole mortgage crisis was caused by a gov mandate that forced banks to give out risky loans in order to increase the percentage of americans (minorities were the target group) who owned homes. Banks didn't have a problem handing out a bunch of risky mortgages, because Fannie Mae and Freddie Mac bought them. The whole mortgage issue was caused by gov. intervention, and the fed was basically obligated to bail out Freddie and Frannie.
Banks are failing b.c they chose poor investments. Larger banks with lots of capital won't be affected, and the reality is only 6% of mortgages have been defaulted(weird sentence construction sorry).
The market will balance itself out. Basically loan restricitions will be put back in place and credit will be tightened slightly. Even if rates go up, they will not reach the Carter era height of 18% (they're just under 6% right now).
No reason to be worried unless you are short term stock investor. However, you should be worried about the bailout plan, which is aimed at bailing out investment banks. And it gives Henry Paulson the power to buy up these investments under his authority, up to $700 billion. It's completely unconstitutional and over expanding federal authority over the economy. The fact is investors live by the boom and bust theory, and they're fine as long as they make their money. But the second they hit a rough strip (which equals out the boom cycles), they cry to the government for help.</p>
<p>FutureNYUStudent: your arguments make no sense. </p>
<ol>
<li><p>Yes, I'd gladly insure your accounts for a fee.</p></li>
<li><p>If you think the government wouldn't let Bear Sterns, AIG, etc fail, why do you think they would let Citibank, the largest bank in the United States of America fail? Just FYI, Citi has over 1 trillion dollars in assets. </p></li>
<li><p>The dollar has gone up against the Euro since this crisis has began because there is an unshakable faith in the United States government. The dollar is always where people put their money when things go bad. The dollar has improved dramatically against the Euro since the Europeans have finally realized that this crisis is going to effect them as well. (U.S</a>. Dollar to Euro Exchange Rate - Yahoo! Finance)</p></li>
<li><p>The fact that the United States generates 2.5 trillion dollars a year makes all of your comparisons to smaller governments inaccurate and foolish. The government's annual deficit is a mere fraction of the country's GDP. </p></li>
<li><p>The government has a triple AAA credit rating, making borrowing extremely cheap and affordable. </p></li>
<li><p>Only 25% of the debt is actually owed to foreigners. The rest is owed to Americans that invest in treasury securities, etc. Of the 25% that is owed to foreigners, this is the list.<br>
[quote]
Japan - 593b (22%)
China - 518b (19.4%)
UK - 290b (10.8%)
Source: US Treasury
[/quote]
<br>
Now look at that list and of the top 3, two of them are clearly American allies, and have been for the last (almost) century. Even if they weren't China's ability to "collapse the dollar" provides no gain for the Chinese at all. They will lose 518 billion dollars in investments in the United States Treasury, and wreck havoc on their own economy because their economy is heavily dependent on exporting and American and other foreign investment. </p></li>
<li><p>The EU already has a larger economy than the USA as of 2007, they have a 17 trillion GDP, and the US has a 13 trillion, so I guess the shift that you're talking about already happened, and you didn't even know about it. Shows the significance of it, huh? </p></li>
<li><p>I'm sorry, but if you think the US government is going to fail because of one quarter of negative growth, then you can believe what you want. I, for one, have more faith in the government and the people that endured two world wars, a few Panics, and the GReat Depression when unemployment rose to 25%. As of now, unemployment hovers around 6%.</p></li>
<li><p>And if you knew anything about history, you would know that Britain and France have been in and out of debt for the past 400 years and they're still around. Britain is still #6 and France is #8 by GDP. Not bad considering both countries were ravaged by two world wars in the past century and both countries had to deal with the upkeep and eventual independence of their colonies. </p></li>
</ol>
<p>But yes, go ahead, take your 3000$ out of citibank. I'm sure it'll cause quite the run, and you'll only be losing out on citi's miniscule savings account interest anyways. But hey, there's probably a higher chance of you getting robbed - I won't be insuring that.</p>
<p>PS: ROFL, if you're worried about government banking bailouts, you should be out of this country. Wait till social security and medicare hit.</p>
<p>
[quote]
Within the next four years? when I need the money?
[/quote]
</p>
<p>The stock market is best used for long term investment, b/c it is volatile. In the long run, it will go up, but in the meantime, it goes up and down. You can probably find some CDs with ~4% interest rate in the next four years. You can find a CD that guarantees something like 4% in 2 years. The stock market makes no such guarantee. Obviously there is the possibility to make more, but there is also the possibility to lose more.</p>
<p>
[quote]
There's no real inherent utility in stock except to find another buyer, or if you actually have enough, to control the company, or to make a profit off of someone who wants to buy your stock to control the company. If most of the other buyers are also resellers -- well, it's obviously all a scam, isn't it?
[/quote]
</p>
<p>That is not true at all. When you buy stock, you are buying part of a company. You are investing that money in the company. If you buy $10,000 worth of stock from company X, you are giving them your $10,000 with the hope that they will turn your $10,000 into more, b/c of the products they release and the money that they make.</p>
<p>It's like, if you give me $10, I use the $10 to buy wood and nails and make a kids' toy. Then, I sell the toy that I just made with your $10 for $25. As a result of this profit, I am able to give you $1 (dividend). So then you got $1 from my little company. Now someone else sees that they can also make $1 by giving me $10, so the same thing happens again and again. Then when you sell the stock, you get your $10 back (or more, if the value of the stock has gone up), so you have your $10, plus the $1. You made money.</p>
<p>
[quote]
Why are you so sure [the government won't fail]? Blind patriotic pride? It also has tens of trillions of dollars of public debt that it will never be able to pay off ... as I see it, it'll only continue to skyrocket, along with the interest payments...
[/quote]
</p>
<p>This is a blip on the radar... The US government didn't fail when the country was torn in half in the 1860s. It didn't fail after being attacked by the Japanese in WWII. It didn't fail when the world met the biggest economic crisis in history in 1929. It didn't fail when the symbols of American economic power were blown up and thousands of innocent people murdered in 2001. This is nothing compared to any of those times. The government wasn't close to collapsing in 2001 when the Tech bubble burst. Remember then, the stock market bottomed out around 7000, if I remember correctly. This one (market was at almost 14,000... doubled in 6 years??? obviously overinflated) is caused by the housing industry.</p>
<p>As for the interest... other governments will not let the US government fail. Why? Because if the US government fails, the world economy goes down with it. Other countries will do everything that they can to make sure that the US government stays on its feet. And a government with the whole world backing it... well... let's just say that's pretty solid. It is not really my interest in this thread to explain entire concepts in macroeconomics... but the bottom line is you don't have to worry about it.</p>
<p>The real problems in the future that will have to be fixed are things like social security, medicaid and medicare... maybe if the Democrats spent the last 5 years trying to fix some of these things (I don't agree with their fixes, but dialogue could've happened, and successful compromises found), instead of complaining over and over and over again about Iraq, we would be in better shape now.</p>
<p>
[quote]
Quick question: How long would it actually take for the FDIC to return the money in your bank account? I would expect that to take months as efficiently as the government is run...
[/quote]
</p>
<p>FDIC:</a> FDIC Consumer News Spring 2006</p>
<p>
[quote]
Misconception Number 3: If a bank fails, the FDIC could take up to 99 years to pay depositors for their insured accounts.</p>
<p>This is a completely false notion that many bank customers have told us they heard from someone attempting to sell them another kind of financial product.</p>
<p>The truth is that federal law requires the FDIC to pay the insured deposits "as soon as possible" after an insured bank fails. Historically, the FDIC pays insured deposits within a few days after a bank closes, usually the next business day. In most cases, the FDIC will provide each depositor with a new account at another insured bank. Or, if arrangements cannot be made with another institution, the FDIC will issue a check to each depositor.
[/quote]
</p>
<p>emphasis mine</p>
<p>
[quote]
Governments aren't above defaulting on their debts (anyone from Argentina or anyone who's held Argentinian bonds can attest to this)
[/quote]
</p>
<p>lol... what is your background in Argentinean History? If you can give even a brief outline of the last 60 years in Argentina (or I will even grant you Latin America as a whole, you do not need to be specific to Argentina), and then compare that 60 years to the US, you should quickly understand why this is a ridiculous point. I'll assume that you just forgot to mention Zimbabwe's rampant inflation, as clearly that would add to your argument as well. After all, they are experiencing somewhere along the lines of 5,770,000,000,000% inflation. But don't worry, the government there just declared that inflation is now "illegal". It is doubtful I am the only one who has more confidence in the US economy than the economy in Argentina or Zimbabwe.</p>
<p>
[quote]
Remember that the UK used to hold the status that we hold
[/quote]
</p>
<p>The UK fell dramatically. They are all the way down to 5th highest GDP in the world. Is their currency stable? Is their standard of living sufficient? Maybe everyone in the UK wishes they lived in Iran. Iran has not experienced a fall from power recently, clearly this makes them better off?</p>
<p>
[quote]
the EU would be glad to take our status as a global economic superpower.
[/quote]
</p>
<ol>
<li>The EU already had a bigger GDP than the US</li>
<li>The EU is not a country, and it does not act in a unified manor on the international stage like a country. At least not yet.</li>
<li>The EU continually adds more countries... when you add more countries, your GDP grows, obviously. Are you suggesting to stay ahead of the EU, the US should add more states? because that would be the equivalent.</li>
</ol>
<p>
[quote]
That is not true at all. When you buy stock, you are buying part of a company. You are investing that money in the company. If you buy $10,000 worth of stock from company X, you are giving them your $10,000 with the hope that they will turn your $10,000 into more, b/c of the products they release and the money that they make.</p>
<p>It's like, if you give me $10, I use the $10 to buy wood and nails and make a kids' toy. Then, I sell the toy that I just made with your $10 for $25. As a result of this profit, I am able to give you $1 (dividend). So then you got $1 from my little company. Now someone else sees that they can also make $1 by giving me $10, so the same thing happens again and again. Then when you sell the stock, you get your $10 back (or more, if the value of the stock has gone up), so you have your $10, plus the $1. You made money.
[/quote]
</p>
<p>That's only really true when the company is initially offering the stock. Let's say I buy Person A's stock in you for $12 and then convince someone else to buy it for $15. I've made $3, Person A made $2, and you made nothing off of those two additional sales. </p>
<p>To me, stocks seem like they only have real value because people are hoping for two situations. 1) A company wants to buy back its own stock and you hope they're willing to pay a lot for it. 2) Another company wants to buy out the company you have stock in, and they're willing to pay a lot of money for it. That's why the value of a stock goes up, because there's the belief some large entity might want to buy the shares at some point, and the better a company is doing, the more they'd supposedly be willing to pay.</p>
<p>Paragraph 2 might be complete hogwash since I just follow most economics passively and can't say I've ever really liked how the whole stock market and everything worked.</p>
<p>
[quote]
It's like, if you give me $10, I use the $10 to buy wood and nails and make a kids' toy. Then, I sell the toy that I just made with your $10 for $25. As a result of this profit, I am able to give you $1 (dividend). So then you got $1 from my little company. Now someone else sees that they can also make $1 by giving me $10, so the same thing happens again and again. Then when you sell the stock, you get your $10 back (or more, if the value of the stock has gone up), so you have your $10, plus the $1. You made money.
[/quote]
</p>
<p>Theoretically, that's what happened before the securities bubble formed in the late 19th century, which still continues to exist. But everyone knows the dividends for most "solid" stocks are so minuscule not to be worth their share price. Some shares don't even offer dividends. All the buying with the intent of reselling makes the share price overinflated.</p>
<p>Not necessarily, galoisien. Although you make a good point, I think the stock market is fundamentally a very rational system. Of course, there are the wild ups and downs that we see now, but eventually, all stock values will drift back to what they're worth. The stock market is the epitome of capitalism and the share prices seem to be driven by supply and demand. </p>
<p>I don't think "the buying with the intent of reselling" makes the share prices overinflated, necessarily, but rather it represents the public's faith in the company and its future. And also gives an estimate for other companies if they want to takeover/acquire/merge with another company. I think what makes a share price inflated is hype. Example in point, Google, with a net income of about 4 billion and a market cap of ... 180 billion?!</p>
<p>Heh, futurenyustudent, you sound like you have no confidence, still, in the US government or banks or anything that's offered in this country, you might as well make the run for another country. Why don't you just head off to a socialist nation like Sweden if you really want to be taken care of?</p>
<p>
[quote]
To me, stocks seem like they only have real value because people are hoping for two situations. 1) A company wants to buy back its own stock and you hope they're willing to pay a lot for it. 2) Another company wants to buy out the company you have stock in, and they're willing to pay a lot of money for it. That's why the value of a stock goes up, because there's the belief some large entity might want to buy the shares at some point, and the better a company is doing, the more they'd supposedly be willing to pay.
[/quote]
</p>
<p>The better a company does though, the more other individuals are willing to pay for the stock as well.</p>
<p>
[quote]
Theoretically, that's what happened before the securities bubble formed in the late 19th century, which still continues to exist. But everyone knows the dividends for most "solid" stocks are so minuscule not to be worth their share price. Some shares don't even offer dividends. All the buying with the intent of reselling makes the share price overinflated.
[/quote]
</p>
<p>I don't think you can say the price is overinflated... it is worth whatever someone is willing to pay. That is how you figure out how much things are worth, by what someone is willing to pay for them.</p>
<p>
[quote]
The better a company does though, the more other individuals are willing to pay for the stock as well.
[/quote]
</p>
<p>Yeah, because they figure they'll become a more desirable acquisition for another company or the original company will be willing to pay more money to own more of itself.</p>
<p>How to stocks, beyond their initial sale, generate wealth?</p>
<p>The point of a stock is to raise capital for a company through the initial IPO and future stock sales. The point of it isn't to generate wealth, rather you own a piece of the company.</p>
<p>
[quote]
I don't think you can say the price is overinflated... it is worth whatever someone is willing to pay. That is how you figure out how much things are worth, by what someone is willing to pay for them.
[/quote]
</p>
<p>Actual marginal utility is different from perceived marginal utility. Often, they tend to match quite closely (especially since if you like fudge cake for example, you yourself know best how much you'd like), but a higher price of a stock because of increased resale volume does not in fact increase the marginal utility of that stock. </p>
<p>
[quote]
The point of it isn't to generate wealth, rather you own a piece of the company.
[/quote]
</p>
<p>Again, pointless if you aren't planning on being a power-mongerer.</p>
<p>I read a ton of online articles and watch the news like everybody else and Im pretty sick of the media telling Americans that they are safe. Sure we have the FDIC, which is fine and dandy, but what people don't realize is that when we go into hyperinflation(which we may be in already or close to, depending on which economist ya talk to) and the dollar isn't worth anything, your money is not backed by anything. So it doesn't matter what goverment agency will back you or protect you because they are as good as nothing. </p>
<p>So I have absolutely zero confidence in a fiat currency and even less in the fractional reserve system. I had zero confidence when we are at our peak, because the decline is always a guarantee with such a system.</p>