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Banks, dollars, and confidence

I have fielded a large number of questions and concerns over the recent “banking crisis” in the United States and thought it prudent to share my thoughts.


First, I believe it’s important to understand how the failures of Silicon Valley Bank and Signature Bank happened. Most of us understand the concept of the bank run, but that alone is not enough to cause failure. The failures happened before the depositors began lining up to withdraw their money largely due to the banks inability or unwillingness to diversify their assets. Concentration always works out when markets are soaring, but it’s not difficult to see how that concentrated risk can have an adverse effect.


While the bank failures will have a slight impact on the investment markets, don’t expect them to bring the entire system down. There are too many strong regional banks and big national banks with proper diversification for that to happen.


There is no need to succumb to fear and withdraw all of your savings. The most important idea here, so long as you continue to have confidence in the American way, is to make sure your accounts do not exceed their FDIC insurance limits. Yes, the government stepped in and backstopped all accounts, even those in excess of the limits, this time, but as prudent stewards of our money, we cannot expect that to be the case in future crises.


Withdrawing your money and storing it in the cookie jar will not solve your problem. Should systemic failures occur, fiat currency (the paper cash in your hand) will be just as subject to devaluation as the printed balance on your statements.


Furthermore, even if these most recent crises drive the country toward a more

centralized banking solution, there is no need to hit the panic button. Again, these decisions will affect markets, but they are unlikely to render your savings worthless.


Do not misunderstand. There are still some valid concerns over the strength of the dollar and the very real and present concept of inflation, both of which are more likely to impact your purchasing power than isolated bank failures and a gradual shift toward central banking. But stuffing cash dollars underneath your mattress won’t resolve any of the aforementioned headwinds.


If fiscal and monetary policies lead the United States into a serious currency crisis (and history insists that they will), then your money will be just as worthless in paper form as it would be digitally. Money only has value if somebody else is willing to accept it in exchange for goods and services. A complete devaluation of government-backed money would simply lead to society

reverting to the barter system. And although I believe it’s unlikely to occur in our lifetimes, should you have genuine fear, then the prudent course of action would be to trade your dollars today for items that will still have value in a compromised economy - things like appliances, tools, livestock, and weapons.


That is an extreme picture, and I wholeheartedly recommend that you live without fear and continue to save, spend, and invest as you always have.



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