Your Money’s Safety

How  Safe  is  Your  Money?  …………..  Really!!

In recent years, we’ve all heard people (ie: the perennial “armchair experts”) talk about financial crises  –  though mostly about those crises happening in Europe, China, and the US.

As residents of the great ‘down under’ land of Australia (where we can’t even get a federal election right!) discussions always seem very detached and very removed, as if ‘crisis’ is a very distant, hypothetical situation.

The fact is that it’s been so long since Australia had a recession  –  in fact, about 25 years since Paul Keating proclaimed that we were then in “the recession that we had to have”  –  that many people here have never lived through one  ………………………  or, quite simply, just don’t remember one.

This lack of hardship has understandably led the majority of ‘the sheeple’ of Australia to believe that money in the bank is safe  ………………………  and will always be available.  You may also feel the same way.

However, please be aware things can change very quickly.

In 2008, after a mild ‘bank run’ scare, the Australian government established the deposit guarantee.

The government is currently guaranteeing deposits up to $250,000 per approved institution.  However, there are fears that the government may not be able to honour its promise.

What the government-dependent, mainstream media doesn’t tell you is that the deposit guarantee (as the legislation currently stands) is limited to $20 billion per institution  –  yet the big four banks each have deposits in the hundreds of billions of dollars.

Even an arithmetical dummy can see there’s no way that $20 billion is anywhere near enough to protect all deposits.

More to the point  –  and what I particularly want to share with you today  –  a bank guarantee does not ensure that you will be able to actually access (ie: withdraw) your money during a deposit freeze.

So, can a deposit freeze happen in Australia?

While this may sound like an unlikely scenario to you today, please be aware that anything can happen  –  even if it is a low odds event at this stage, and I stress, at this stage.

The next financial global crisis, coupled with a loss of confidence in financial institutions, could see another, very severe ‘bank run’ here in Australia.  Depending on the severity and duration of the run and banks’ own assurances, the government might do nothing or it might decide to actually increase the deposit guarantee  –  but if that measure fails, it’s highly likely that the government will impose a deposit freeze.

So, what might a deposit freeze actually look like?

Before I get to that, in the words of ABC24’s finance presenter Del Irani, “Let’s have a quick look at the markets”.

World Markets

Markets in the US continued to rebound on Friday the 1^st of July, 2016.  The Dow Jones, the NASDAQ and the S&P 500 all closed up.

European markets were in the black as well.  The FTSE 100, the DAX and the French CAC 40 all clawed back some of the heavy losses that they all suffered in the days following the Brexit decision of just 12 days ago!

In our corner of the world, most of the Asian domiciled markets were up last week.

The Aussie dollar is hanging around the 75 US cents mark and in commodities, West Texas Crude is trading at around US$49.00 per barrel and gold is at around US$1345.00 per ounce.

I don’t know about you, but I cannot believe that Brexit all happened just 12 days ago given all the sh#t that’s happened within the British government since then!

I can just see that, any month now, both Boris Johnson and Nigel Farage will be lying in lazy boys on a beach in the Bahamas knocking back cocktails and laughing at all the poor schmucks back in the UK dealing with just the very beginning of the decade-long fallout of their successful “leave the EU” campaign!

Anyway, now, where was I?  Oh, yes, that’s right, an Australian nationwide deposit freeze.

Lessons from the Argentinian ‘Corralito’

Argentinians long ago learned the hard way that having money in the bank does not ensure its safety.

In 2001 Argentina was immersed in the ‘corralito’.  The word comes from ‘corral’ and refers to the pen that keeps farm animals in.

In short, the ‘corralito’ is a deposit freeze.

Argentinean banks kept bank deposits effectively locked inside their banks to prevent a ‘bank run’.

Towards the end of this week I’ll publish another (and far more lengthy) article that is specifically entitled “Lessons from the Argentinian ‘Corralito’”  –  so please stay tuned to your Facebook and LinkedIn accounts for my riveting insight into the historical financial affairs and tragic circumstances of that South American (and borderline Third World) economic sh#t hole.

Deposit guarantees can fall short

Again in short, while Australia’s deposit guarantee does offer some benefits, it does not mean that you will be able to access your money during a deposit freeze  –  or that a currency devaluation (while your money is frozen) will not affect it.

So, does this mean you should take all of your money out of the bank?  No!  Well, at least not yet.

Most importantly, you should be aware of the warning signs to look out for – signs that indicate a deposit freeze may be in the works.

In Argentina’s case there were a number of warning signs flashing well before the ‘corralito’ was implemented.

Argentina’s net trade balance had reduced (ie: imports surpassed exports due to an overly {and unjustifiably} strong currency) and this lower net trade balance drastically decreased the country’s financial reserves.

Another tell-tale sign was the increased amount of debt levels relative to GDP.  Argentina became debt-dependent to maintain an unsustainable growth model  –  and the country’s financial system crumbled like a poorly constructed shanty when they could not take on any more debt to sustain it.

Further in short, the country of Argentina was living beyond its means and, eventually, that always catches up with everyone.

Imagine trying to live off of your credit card without having either any disposable income or a sensible, rational or credible plan with which to pay it off.  That’s what a succession of Australian governments have been doing since “Kevin ‘07” tragically came into power in late 2007.

Not even the population of the country of Argentina, let alone foreign governments or the World Bank, were prepared to loan the Argentinian government money with which to sustain itself!  In the words of the classics, Argentina was ‘le screwed’!

Does anything in the immediately above 5 paragraphs sound familiar to you in the context of the Australian economy in the last 5 to 10 years?  If not, with respect, you need to take more notice of what is really going on around you.

Add to all of this the inevitable level of distraction with which the eventual government of this country post last Saturday’s federal election (whoever that may be) will face  –  in particular because significant percentages of politicians’ time will be devoted, more so than ever, to keeping themselves in a job instead of extracting the Australian economy from the true quagmire in which it is stuck at the present time  –  and it seems highly likely that very few people, if any, in government will be focused upon saving the Australian economy from its current position of financial peril.

If you’re worried about the mess that central bankers and government officials are making of our financial markets, you can call me on my mobile phone number of 0419 223 556 to find out more about how to protect your own wealth.

Do you have a defined strategy in the event of a deposit freeze?

Wildly waving your ATM card at the supermarket checkout operator will do you no good if your account has been frozen.

Ask yourself these questions:

How much ‘real’ cash (ie: folding bank notes) do you have lying around the house?

How long will whatever ‘real’ cash you do have actually last?

Do you have any gold, silver or platinum bullion?

In the alternative, how long will it take you to melt down your and your grandparents’ gold wedding rings to be able to buy the essentials of life in the event of “electronic money” no longer existing?

Just some ‘food for thought’ – if you have the ‘currency’ with which to buy any, that is! 😉

Peter Kerin