Copyright 2013 John T. Reed
This was on page C3 of today’s Wall Street Journal (6/14/13). It should have been on page A1.
The SEC has proposed a new regulation that “would require money funds to impose withdrawal fees and [which would] allow funds to temporarily block redemption in times of market tumult.”
Let’s stop right there. Call your broker or IRA custodian or whoever has your money market funds and get them out of the U.S. right now.
Indeed, the Journal article has several Federal Reserve bank presidents worrying that “such restrictions could encourage investors to bolt over fears they would be unable to withdraw money.” Ya think?
Bolt, now, before it’s too late.
Where to? I would suggest a savings account at Westpac Australia like the eSaver account I have there. Contact my banker Caden Blumenthal
Personal Banker, Westpac Retail & Business Banking
60 Martin Place, Sydney, NSW, 2000
T 02 8253 3171 | E cadenblumenthal@westpac.com.au
It pays a far higher interest rate than U.S. money market funds: 4.3% for the first three months then 2.75%.
To be sure there is a currency risk when you live in the U.S. and own a foreign currency. The Australian dollar (AUD) could go down compared to the U.S. dollar (USD). Although if you spend the money in Australia, that ceases to be an issue. I expect we Americans will find we have to leave the U.S. for a year or two if and when USD hyperinflation hits. Australia, which I just scouted in March, is one of the prime places to take refuge.
Putting the money in AUD will also cause you to incur a currency conversion charge, as will converting it back into USD if you do that.
Or you could put the money in a USD account in my Canadian bank, the Bank of Montreal. That eliminates the currency risk of the foreign currency falling in relation to the USD. It also eliminates the currency conversion cost. Contact my banker: James Curran, Financial Service Manager
Transit 0004, 595 Burrard Street, Vancouver, B.C V7X-1L7
Tel: 604-665-7175
Fax:604-665-6614
James.Curran@bmo.com
Canadian banks have lousy savings account interest rates like the U.S. at present: like .25%. Although that’s probably the sort of rate you have been earning on your U.S. money market fund.
You can pay U.S. bills electronically for free out of a BMO premium plan auto cash account. But most importantly, if and when hyperinflation hits, you can go online at BMO and transfer your USD to your Canadian dollar (CAD) account. Your friends and relatives who keep their money in the U.S. will belatedy figure out that would be a good idea, but they will not be able to do it because the U.S. government will impose capital controls immediately after the hyperinflation starts. Capital controls outlaw possession of gold and foreign currencies in the U.S. They also severely limit how much money U.S. citizens can take wth them when they go abroad. Capital controls are currently in place in Argentina and Venezuela. Google capital conrols and those country names to see details.
I have no problem with time deposits, that is, certificates of deposit and such where you agree to leave the money there until a certain date in return for a higher rate. But that is not what the SEC is proposing. They are proposing turning demand deposits—those which can be withdrawn whenever you want—into money that you cannot withdraw until some unspecified future time, if ever.
I have often argued that the better way to prevent runs on banks is to require banks to match maturities, that is, only lend money from 5-year CDs out in the form of 5-year loans and so on. Our current approach is to “insure” deposits with FDIC insurance. In fact, a run on large numbers of banks is an uninsurable risk. FDIC insurance works when only a relatively small number of banks suffer a run. But I expect that we will have a run on the dollar worldwide if and when hyperinflation takes hold, in which case there is no insurance fund on earth that can give everyone on earth who owns USD bank accounts all their money.
The U.S. had 9,000 bank failures during the Great Depression. Canada had zero. Many Americans who were told the bank holidays of the Great Depression were temporary, like this SEC proposal, NEVER got their money. The banks never reopened.
At least time deposits have a date certain when you can get your money. In this SEC proposal, you may get your money when politicians decide that “times of market tumult” are over.
Screw that!
Also, what is this “withdrawal fee?” I have to pay a penalty for withdrawing my own money—money which I was told I could withdraw at any time!? Think about that. You put, say, $100,0000 of your hard-earned money into the account, but they only have to give $90,000 back. How is that not out-and-out theft?
Screw that!
This proposed SEC policy is reminiscent of the notorious “bank holidays” in the Great Depression. It is also reminiscent of the recent treatment of depositors in Cyprus.
“Times of market tumult” are exactly when you most need to withdraw your money.
The Journal says “much of the money-fund industry backs” this proposal.
Screw them!
I rarely give “buy signals” or “sell signals,” But this is outrageous. The only thing dumber than the SEC and the industry proposing this would be for you to leave your money in such funds after 6/14/13. The SEC has warned you in about as plain a language as possible. Don’t just stand there blinking like a deer caught in headlights.
In my book How to Protect Your Life Savings from Hyperinflation & Depression, 2nd edition, I drew a stark distinction between money-market funds and money-market deposit acounts. I told readers NOT to have any money in money-market funds but I thought money-market deposit accounts were okay because you could withdraw the money immediaetly if necessary.
You can withdraw your money from Australian and Canadian banks any time you want. I now doubt that you will be able to do so from U.S. brokerages or banks. This SEC proposal applies to funds, not deposit accounts. SEC has no jurisdiction over deposit accounts. But I see little reason why the danger of a run on money-market deposit accounts is any less than on money-market funds.
Last year, I wrote a web article titled “A finanical Berlin Wall is going up and you are on the wrong side of it.” This SEC proposal is a part of that wall. If you do not get your money out from behind this wall before it is finished,
you will be the one who gets screwed.
John T. Reed