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ReservesMay 20, 2011


Hi David,

My Co-op was invested with almost $1 million in reserves in short-term US Treasuries. However, with the US at its debt ceiling and the potential for near maturity bonds to be defaulted, we are holding all investments as cash. We rejected Money Market accounts for the near term too as they are also heavily invested in short-term US Treasuries. Also, with the FDIC fund in the shape it is in (it is currently negative), the US guarantee of “full faith and CREDIT of the US” rings a little hollow so CD’s are out. The FDIC fund’s own projections do not call for a positive balance until 2012 and will not reach the statutory minimum until 2017 as per here: http://www.fdic.gov/deposit/insurance/memo3.pdf

Let's be honest, I don't believe that even if the US defaults, that the funds would never be repaid. However, getting access to the funds could be delayed - and my Co-op needs those funds this year for Capital Projects. My Co-op can’t afford to delay a roof project while Congress debates the broader issues.

My Co-op has decided not to reinvest until the debt ceiling debate has been answered. To us, a lousy 1% return or even a 4% return is not worth the current risks.

Sincerely,

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