What Happens to the U.S. Dollar if the FDIC Fails?

How many times have you heard this phrase? "Our bank is well-capitalized." A few weeks later, either the bank outright fails or gets bailed out. First, it was Countrywide, then Bear Stearns, and then IndyMac. Fannie Mae and Freddie Mac are within a few days of receiving the mother of all bailouts after they had announced they are well-capitalized. Have I mentioned Washington Mutual? Folks, banks are failing left and right as I had warned last year that we may see possible bank collapses and that we need to prepare for it. All these banking problems should come as no surprise as the credit crisis continues for the next several years.

Clearly the government cannot bail out every bank that fails. It's simply not possible. Ben Bernanke and company won't have any more bullets left after bailing out Fannie and Freddie. There isn't much the Federal Reserve can do anymore. In the months to come, I do expect many more bank failures which obviously will not bode well for the economy and the stock market.

But how do all these bank failures affect you? No big deal as long as your money is FDIC-insured right? Yes and no. As this credit crisis continues, it won't take long before the FDIC runs out of funding! There is approximately $53B available for bank failures and IndyMac has already consumed about $8B of it. So it could be entirely possible that the FDIC experiences funding problems in the near term which could be trouble for millions of depositors. The banking system is all about confidence. So if that confidence is lost, this could lead into a massive global bank run which obviously is not a desirable situation. But I think this scenario is highly unlikely as the government will not allow the FDIC to fail. The only viable solution is to print more dollars to fund FDIC on an as needed basis which eventually will drive the value of the dollar even lower! So yes, you'll get your insured money back, but quite frankly, the value of your money won't amount to much since price inflation would be rampant by then. Take a look at the currency below. This is what happens when a country prints too much money and it could very well happen to the U.S.

Related Posts:
Bank Failure Interactive Map
Bank Rating List: Is Your Bank Safe?
Short Candidate: Washington Mutual Pt 2

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