Two Letters Re: Tomorrow’s Headlines? — A Nationwide Banking Panic

Hi James,
First, thanks for sharing Mike [“Mish”} Shedlock’s recent article with the SurvivalBlog.com community. Like you, I’ve grown to trust his observations and analysis and I read his work as often as I read yours – daily.

I wanted to add a couple of comments, which will strengthen both Mish’s and your viewpoints concerning your observations on the potential for a nationwide banking panic.

First – is that [as mentioned,] the FDIC is preparing for this crisis right now, by hiring back some retirees, with specific experience in dealing with bank failures, as they are expecting a large number of banks to fail. This is, of course, very big news and we all know the obvious reasons why this announcement was so poorly lit by the mainstream shills.

Second, FDIC is no longer capable of insuring all of the coming bank failures, so it is astonishing to me that they can actually raise their limits on how much they can insure. This seems like a desperate attempt to head off a panic state. At this point in time, I see very little chance that this crisis can end without at least several major failures. Once everyone learns that FDIC cannot insure all which they claim they can, then it may be game over and a gargantuan panic far beyond anyone’s wildest expectations could, indeed, unfold.

They will reap what they sow. Regards, – HHH

Sir:
I earn my income from two primary sources, one from a “dot.mil” source and the other from a “dot.edu” source. I have made moderate progress on preps and other issues, but have one external factor that I cannot control very much, short of an unrealistic change in jobs (I will have earned my retirement in another five years, for example, from one of the jobs).

Both of my income sources require the use of [payroll] Direct Deposit. I cannot change that without changing my employer. I have some savings, cash and precious metals, but my regular income flow is purely electronic. Are there reasonable steps in that area I can take to protect myself from a banking crisis? Are there special vulnerabilities I should be aware of for this type of pay method? Thanks! – Todd in Virginia

JWR Replies: Anyone trapped in a “direct deposit only” payroll system has limited options in the event of a banking panic. If the banking panic is widespread or if there is a nationwide “bank holiday” declared, I suspect that many employers will revert to paper paychecks within a few weeks after the crisis begins.

The best thing that you can do is to have your direct deposit sent to a checking account that is in a relatively safe bank that has minimal exposure to subprime mortgage debt. For many years, I have recommended Weiss Ratings (now part of TheStreet.com) as an information source for judging the safety of banks and insurers, for my consulting clients. Marty Weiss and his staff do excellent research and, unlike Standard & Poors, they are truly independent and objective.

The only other thing that comes to mind is keeping the equivalent of three months worth of rent and important expenditures on hand in greenback cash or in very liquid assets (such as precious metals), at home, as a reserve. I realize that A.) Few readers have that sort of cash available, B.) You will be foregoing any interest income on the cash, and leaving it fully vulnerable to inflation, and C.) It will be vulnerable to theft. To minimize that latter risk, construct a Rawles “Through the Looking Glass” wall or door cache, or something similar.

Odds ‘n Sods:

Matt Bracken suggested this economic commentary with a preparedness message by James Macfarlane: The Thin Red White & Blue Line. Matt’s comment: “Make sure to read to the “What to Do” section at the end of the essay.” Macfarlane’s essay ends with this: “The wisest words I heard lately are these: In the next few years it’s not going to be about where you live, but about whom you live with. Make friends with your neighbors.”

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Krys in Idaho found this ABC News piece for us: Everything Seemingly Is Spinning out of Control. A comment from Krys: “This article shows that even the mainstream press is no longer able to deny the truth. KYPD.”

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The floods in the midwestern US still aren’t over, but their end is in sight. Forecaster: End is near to Mississippi River rise. BTW the floods will make already tight grain supplies even more scarce in the next year. I hope that SurvivalBlog readers stocked up, many months ago.

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The Memsahib notes: This morning I was looking back through my farm journals. In the Fall of 1995 we bought grass hay for $75 a ton (delivered and stacked!) We bought 50 pound sacks of cracked corn for $8. My total feed cost per ewe (excluding what that ate at pasture) was $41.12 per year. Given today’s feed costs, I think that we are going to have to raise the asking price for our lambs and kid goats next spring.

Jim’s Quote of the Day:

"Be not deceived; God is not mocked: for whatsoever a man soweth, that shall he also reap. For he that soweth to his flesh shall of the flesh reap corruption; but he that soweth to the Spirit shall of the Spirit reap life everlasting." – Galatians 6:7-8 (KJV)

Note from JWR:

Today we present a guest article from Mike “Mish” Shedlock, a registered investment advisor representative for SitkaPacific Capital Management. I highly value his investing analyses and his “big picture” view of the global economy.

Two Trillion Dollar Reduction In Credit Card Lines Coming Up, by Mish Shedlock

Credit is drying up everywhere. Banks are now concerned (finally), about rising credit card debt. They have every reason to be. The bankruptcy reform act of 2005, which encouraged such reckless lending is now blowing up in lenders’ faces.

Banks and credit card companies wrote that bill. They got everything they wanted. It goes to show you two things:

1.) Be careful of what you ask, you might get it.
2.) Greed kills.

Furthermore, I expect many of the debt slave provisions of the bill to be undone after Obama is elected. That will increase defaults. Even if an unwinding of that “reform” does not happen, the writing is on the wall for lenders for the simple reason “You cannot get blood out of a turnip”.

Regardless of what the law says, unemployed people are not going to be paying credit card bills. A second point is that someone unemployed, with no income, will meet the strict guidelines for wiping away all their debt.

I talked about this in Bankruptcy Reform Act Finally Blows Sky High.
Banks have finally beginning to get the bleak message that credit card defaults are going to soar. In response, Banks are Trimming Limits for Many on Credit Cards.

The easy money that led Americans to depend on credit cards to pay their bills is starting to dry up. After fostering the explosive growth of consumer debt in recent years, financial companies are reducing the credit limits on cards held by millions of Americans, often without warning.

Washington Mutual (WM) cut back the total credit lines available to its cardholders by nearly 10 percent in the first quarter of the year, according to an analysis of bank regulatory data. HSBC Holdings, Target (TGT) and Wells Fargo (WFC) each trimmed their credit card lines by about 3 percent.

Among those four lenders, that amounts to a reduction of about $15 billion in three months. Over all, the amount of available credit for the industry appears to be about flat, with the three biggest issuers – Bank of America (BAC), JPMorgan Chase (JPM) and Citigroup (C) – slightly increasing their overall credit lines. But even they are trying to rein in risky individual accounts.

“This downturn is the perfect storm where the consumer is getting squeezed from all levels,” said Michael Taiano, a credit card industry analyst at Sandler O’Neill. He projects that credit card loss rates for lenders, now around 5.7 percent, could go as high as 10 percent in next 18 months. That would be higher than the peak levels reached after the 2001 technology bust.

Meredith Whitney, an Oppenheimer banking analyst, said the impact of the recent regulatory proposals on lender profits could be so severe that she expected the industry to pull back $2 trillion in outstanding credit lines by 2010. That would be a 45 percent reduction in credit currently available to consumers. Risky borrowers would be squeezed the most.


Direct Bottom Line Hit
Every default is a direct hit to the bottom line. And 10% chargeoffs would not be surprising in the least.

Furthermore, a reduction in credit lines by $2 trillion is not peanuts. Credit is contracting folks. Yes, this is deflation regardless of what energy and food prices are doing.


FDIC Bank Examiner Audits
From a source I consider reliable, I received this email the other day: A good friend of mine has a friend who is a Bank Examiner(BE) for the FDIC. The BE says the message he takes into every exam is “You must raise your loan loss reserves”. This is delivered directly to the Chairman, President and CFO of every bank visit, every time. No Exceptions!

I asked for clarification and was told no exceptions, literally means no exceptions. Note that an increase in loan loss provisions means capital will need to be raised or fewer loans will be issued, or both.

Zombification of Banks Accelerates
As I said in Regional Banks Spiral Towards Zero, I suspected Bank United (BKUNA) was raising money at $1.90 because it was told to. BKUNA was down another 11.58% on Friday, to $1.68. I do not see how it can survive even if it raises the $400 million it is seeking.

Much of the credit on the books of banks is worthless. It will be written off. There is nothing inflationary about this at all. The zombification of banks that I mentioned in Night of the Living Fed is now picking up steam. Consumers are being increasingly zombified as well. – Mike “Mish” Shedlock

Tomorrow’s Headlines? — A Nationwide Banking Panic

Since September of 2007, I’ve been warning SurvivalBlog readers about the potential for bank failures and bank runs in the US, spawned by the unfolding global credit collapse. I am now raising my warning to multiple red flags. There are certainly some ominous signs. These include: New banking scrutiny–especially for investment banks. Plunging bank reserves. A few more bank failures this year than in a typical year. A record increase in “bank owned” (foreclosed) houses. New FDIC rules on assessing risks at major banks.To be ready for bank runs, the FDIC has even re-hired some former employees from its division of resolutions and receiverships.

It is noteworthy that the US Federal Deposit Insurance Corporation (FDIC) will soon announce that it is raising the limit on individual depositor insurance from $100,000 to $250,000. Could it be that the FDIC executives are expecting more bank failures in the near future and they want to give everyone a warm fuzzy feeling–just to head off a potential banking panic?

A key indicator is the level of bank reserves. Many US banks are now technically insolvent. These banks are on life support, courtesy of your tax dollars. Since February of 2008, I’ve been warning you about the “Non-Borrowed Reserves” figure at the Federal Reserve web site. Bank reserves are plummeting deep into negative numbers. When you look at the US banking industry in aggregate numbers, there are effectively no genuine reserves left. If the average bank depositor was aware of this, then there would already be huge bank runs in progress. But the Generally Dumb Public (GDP), is still blissfully ignorant, and continues to be lulled into a sense of complacency by the long-standing universal depositor’s insurance backed by “the “full faith and credit” of the US government. Seeing the alarming negative numbers at the Fed’s web site puts me at a loss for words. I don’t know which metaphor to use: House of Cards? Ponzi Scheme? Collision Course? Whatever you choose to call it, be ready, folks! Again, I predict some widespread and very ugly bank failures and bank runs in the near future that will make last September’s Northern Rock Bank debacle in England seem small, by comparison. It may take six months or more all of the FDIC claims to be paid out. Since ATMs and online banking will likely be shut down and virtually all bank instruments (including debit cards) will be disallowed or at least widely distrusted you will need plenty of greenback cash on hand to see to through a banking crisis. Withdraw some cash now, while you still can.

Odds ‘n Sods:

Hawaiian K. mentioned a glow-in-the-dark paint product. This could have numerous uses at a retreat, such as painting firearms front sights. In my experience, luminescent paint is quite useful for painting light switch plate covers.

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There are now just 10 days left in BulletProofME.com’s special sale on Interceptor Body Armor and Kevlar helmets, just for SurvivalBlog readers.

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Chris Laird predicts economic and political trends by following precious metals market behavior. In Dangers – Danger period 2008 and 2009 posted at the Silver Bear Cafe. Laird writes: “…the US, the world’s biggest grain exporter, is seeing widespread damage to its grain crops. Without the US ability to continue huge grain exports into 2009, the world will face new grain export restrictions by many other grain exporters. This will lead to a real world food crisis into [20]09. There is no bigger factor that will lead to world destabilization than food shortages.” (A hat tip to Kevin A. for the link.)

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Several readers in the US wrote to mention that another bit of our privacy is at risk: Senate Housing Bill Requires eBay, Amazon, Google, and All Credit Card Companies to Report Transactions to the Government. If this bothers you, then please contact your congresscritters.

Jim’s Quote of the Day:

"A nation is the more prosperous today the less it has tried to put obstacles in the way of the spirit of free enterprise and private initiative. The people of the United States are more prosperous than the inhabitants of all other countries because their government embarked later than the governments in other parts of the world upon the policy of obstructing business." – Ludwig von Mises

Letter Re: Advice on Storing Sterno-Type Canned Fuel

Dear Jim,
Does Sterno style fuel have a shelf life? I have come across two cases (48 cans) of Don brand Heat Wick (WX-6) six hour fuel – the type used in catering. The price for the lot is $5. Seems like it’s too good to be true. Is it worth it? Are there special storage issues involved with this type of fuel?

Thanks for all the info you put on your site every day. I am using it to get my family ready! Thanks again, – Beth F.

JWR Replies:
That is a great price! The cans should last almost last indefinitely, if they are well-sealed. If the sealed cans emit no odor when purchased new, then odds are that they have intact seals and hence are not out-gassing any alcohol vapors. But if they do smell like Sterno, then you can bet that they have a limited shelf life. The best way to test for minor leakage is to take a random half-dozen can sample and leave them in a sealed Tupperware-type container for 48 hours. At the end of 48 hours, open the Tupperware and take a sniff. If there is no noticeable alcohol smell, then you’ll know that those cans have tight seals. OBTW, if there is an alcohol smell, all is not lost. You can then try dipping the tops of the cans in melted paraffin, to establish a secondary seal. (This is a method that was developed years ago, to extend the storage life of canned tobacco and some other goods stored in two-piece cans.) Following the paraffin dip procedure, you should repeat the 48 hour sniff test.

Letter Re: Stocking Up on Socks and Underwear

Jim
After stocking up on beans, bullets, and band aids, I recommend putting in a decent supply of socks and underwear for the whole family. One can get used to wearing old, worn out clothes in TEOTWAWKI, but socks and underwear can be like gold–to help one retain a bit of dignity and morale in a grim aftermath world. Ask any vet how important a pair of clean, fresh socks meant to them. – Ron in Upstate New York

JWR Replies: In addition to dignity and morale, they are also crucial hygiene items. Every family member should have a three week supply. You never know when circumstances might force a delay in doing laundry.

Watch diligently for seasonal sales advertised at discount stores. Also, for some reason tube socks are often sold at bargain prices at flea markets.

Letter Re: Salt Intake

JWR:

A friend and I went to a Civilian Marksmanship Program (CMP) match last weekend. It was a good clinic to learn how to hit a long distance static target. (Cough.) Say what you will about how useful that it, I think that learning many different techniques for doing a thing gives you a better understanding of the thing. In this case marksmanship.

On to the point. We both ended up drinking three liters of water over the course of the day. The next day I could barely balance, couldn’t eat, was mostly incoherent (felt stupid). I drank water for the entire morning and didn’t get better. I had a can of V8 (high sodium) [tomato juice cocktail] and was better within 20 minutes. Salt is your friend. – Ben M.

Odds ‘n Sods:

Some guys have all the luck! Commander Zero featured a link to blog by a gent who recently discovered a forgotten 60 foot long Nazi underground tunnel in his back yard. A brief video shows the excitement of the discovery.

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FerFAL (SurvivalBlog’s correspondent in Argentina) has posted some observations on a recent home invasion robbery incident in Martinez, Argentina.

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Frequent contributor Bill N. flagged an interesting article about growing your own fuel for a low speed diesel engine.

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Jack B. spotted this piece in The Financial Times: Security fears over food and fuel crisis. This will no doubt be a recurring theme in the next 10 years.

Jim’s Quote of the Day:

"God made Sun and Moon to distinguish seasons, and day, and night, and we cannot have the fruits of the earth but in their seasons: But God hath made no decree to distinguish the seasons of his mercies; In paradise, the fruits were ripe, the first minute, and in heaven it is alwaies Autumne, his mercies are ever in their maturity. We ask panem quotidianum, our daily bread, and God never sayes you should have come yesterday, he never sayes you must againe to morrow, but to day if you will heare his voice, to day he will heare you. If some King of the earth have so large an extent of Dominion, in North, and South, as that he hath Winter and Summer together in his Dominions, so large an extent East and West, as that he hath day and night together in his Dominions, much more hath God mercy and judgement together: He brought light out of darknesse, not out of a lesser light; he can bring thy Summer out of Winter, though thou have no Spring; though in the wayes of fortune, or understanding, or conscience, thou have been benighted till now, wintred and frozen, clouded and eclypsed, damped and benummed, smothered and stupefied till now, now God comes to thee, not as in the dawning of the day, not as in the bud of the spring, but as the Sun at noon to illustrate all shadowes, as the sheaves in harvest, to fill all penuries, all occasions invite his mercies, and all times are his seasons." – John Donne, circa 1615

Note from JWR:

The following is another article for Round 17 of the SurvivalBlog non-fiction writing contest. The writer of the best non-fiction article will win two valuable four day “gray” transferable Front Sight course certificates. (Worth up to $4,000!) Second prize is a copy of my “Rawles Gets You Ready” preparedness course, generously donated by Jake Stafford of Arbogast Publishing. Round 17 ends on July 31st, so get busy writing and e-mail us your entries. Remember that articles that relate practical “how to” skills for survival will have an advantage in the judging.