Editor’s note: Each Thursday, well-known investment adviser Porter Stansberry offers his advice to WND readers in this column, “INVESTOR INSIGHTS.”
Are you safe holding large deposits of cash in the United States?
We’ve recently discussed the sorry situation in Cyprus. As part of its bailout deal, the Cypriot government is notoriously going to take 60 percent of deposits in accounts of more than 100,000 euros.
I can’t get over the fascination with Cyprus. By my reckoning, the dollar has lost 25-40 percent of its purchasing power over the last four years. So every person holding dollars during that time was subject to a 25-40 percent haircut – in other words, a loss almost as bad as a depositor’s in Cyprus.
To make things worse, it’s not as though the actions of our central bank are a secret. The Fed has flat-out said, “We’re increasing the monetary base here by 30 percent.” Well, if you increase the monetary base by 30 percent, sooner or later you increase the amount of money in circulation by a much larger measure.
That trend is going to continue and it’s going to get worse. If you hold more dollars than you absolutely need to pay your bills, you’re a fool.
So what do I suggest? It depends on your cash needs. But my first piece of advice would be, “don’t hold a lot of dollars.” If you wanted to hold on to dollars – say, you were afraid of deflation or thought a central bank was buying more debt each year than was being issued – you ought to buy Treasury bonds and put them someplace secure, like a safe deposit box.
But I believe the government is bankrupt and would be insolvent except for the actions of the Federal Reserve. And the Fed’s actions – to increase the money supply by around $1 trillion a year – are massively inflationary. They are designed to steal the purchasing power you’ve accumulated in your savings. By holding on to large amounts of dollars, you’re signing up to be robbed.
Legendary investor Warren Buffett has said he thinks of cash as having value. He’s happy to pay to be in cash because he’s able to pounce quickly on deals. If there’s a crisis, he can get in.
But remember, Buffett’s talking about the huge advantage of having “liquidity.”
I’m not Buffett’s treasurer, but let me assure you, he isn’t talking about holding millions of dollars in a checking account. He’s talking about short-term, fixed-income securities. And if we get to the point where the feds start seizing short-term sovereign bonds, you know the world has already ended.
Again, we’re talking about how much money is safe to hold in your checking account. The answer is: just enough to cover obligations. And believe me, nobody out there – unless you have outrageous operating expenses – needs to have more than $100,000 in checking.
You shouldn’t have cash in the bank, period. If you do, you’re volunteering to be sheared or taxed. So I don’t really care what happens to my checking account. What I care about is holding my savings in a way that it can’t be pilfered by either the bank or the government (in the form of inflation).
I wouldn’t be looking for a “safe” bank. I’d be looking for a safe currency. There are several out there. The Singapore dollar seems very, very sound to me. The Canadian dollar is very sound. The Canadian banks are very sound, for that matter. There is not as much leverage in their economies or banks.
I would also hold assets like gold or silver, or unleveraged real estate, or productive assets, like apartments or farms. Unfortunately, because of the duplicity of our own government, you can’t simply hold on to cash. It’s not safe.