Why the price on deposit insurance is too low – at least in the US

So the deposit insurance schemes being introduced around the world have the explicit aim of “saving the world economy from Armageddon”.  Even so, when I spent a couple of weeks in the US I got the distinct impression that this scheme will lead to more (even more substantive) issues down the track.

Here is a list of interesting things I heard on Ads (or saw on billboards) in the US:

  1. Now, thanks to the deposit insurance scheme, we don’t have to check your credit (Ad),
  2. The world is America’s ATM (Billboard),
  3. Need a $200,000 loan to start a business – with no credit check? (Ad).

Add to this the already poor nature of savings in the US, and the fact that there is no individual responsibility in the housing market or even in the realm of taxes (every third ad is either about getting a lawyer to lower your taxes or getting a lawyer to push the government to give you extra benefits).

Ultimately, I think the US has some structural issues that need sorting – trying to keep consumers borrowing to maintain short-term growth feels like the government is creating a ponzi game in favour of the initial consumers that were involved.