Charlotte, N.C. – Amid all the COVID-19 chaos, financial markets have been unstable. The stock market has lost a ton of money. It seems nearly everyday we are getting notices of 1,000 points here, 3,000 points there. If I’m honest, I do not even want to look at the value of my 401k at the moment given the volatility in the market. But there’s more.
The Wall Street Journal ran an article on Wednesday that talked about the challenges some banks are facing with large cash withdrawals. Dozens of incidents across the country where thousands of dollars is being withdrawn at a time. This is causing issues for some financial institutions to keep enough cash supplies on hand. The article discusses the risks of holding cash at home verses having it in a federally secured bank account. It also goes on to describe that there is no shortage of cash in the banking system.
While I agree with the statement that you do not want thousands of dollars in cash lying around your house, I’m not sure that I 100% agree with the federally insured accounts thing either. There are only 3 reasons that a bank can freeze the funds in your account according to this article. Those are tax and student loan debt, illegal activity or creditors seeking judgement against you. That last one could certainly present a problem couldn’t it?
If you have hoards of cash lying around, a federally insured account may not be a bad idea. If you are at risk of creditor issues through the crisis, that could change the story. But hoarding cash at your home is a horrible idea as well. Aside from the risk of theft as the WSJ article implies, you have to give thought to the fact that cash is technically worthless paper. Let me explain.
In 1933, FDR technically ended the gold standard in the United States. To prevent a run on the banks, he enacted legislation that required everyone to turn in their gold. It changed the way the financial system worked. After the gold was turned in, at $20.67 per ounce, he inflated the price to $35 per ounce. This price held and dollars were converted to gold at $35 per ounce until 1971 under Richard Nixon. He ended the relationship between the value of the dollar and gold completely.
So in reality, the dollar is simply a piece of paper that is worthless. It does not matter what numbers appear on the front, it is only worth what someone is willing to give you for it. Sometimes they are willing to give you a gallon of gas for $2 of it, sometimes it takes $3. If faith in the United States financial system is lost, do you really think hoarded dollars will save you? Not really.
This article highlights some of the concerns that I share here. While the writers are looking to buy or sell gold, the thought process is there to consider. You also need to consider that gold prices have not been as volatile as the market. These precious metals have been much more stable, but you do not hear that from the main stream media. They simply increase the panic and chaos surrounding the COVID-19 virus and continue to drive markets lower.
I have read a lot about the value of the dollar and the potential changing of the value of the dollar. It’s certainly worth the read to consider. If the US does have changes to the value of the US dollar because of a significant crisis, hoarding the money you withdraw will not help you. While having items, like precious metals, will certainly benefit you in comparison. Given the state of toilet paper sales, maybe we shoudl all consider investing in that!
It is absolutely not worth withdrawing money just to simply hoard it at home. If you are going to remove it from the banks, put it in something secure. You are truly risking everything by simply having it at home. The volatility in the markets will end at some point. For those with the liquidity to buy, buying low is going to be a big benefit for you. But for those who may not, do not make a stupid decision. This is going to be a tough situation economically, but stupid decisions will make it much worse in the long run.
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