|No matter how they spin this thing… it is 100% a bail out for silicon valley wealthy billionaires and reckless bankers.
To understand the real cause of our systemic bank failures that keep occurring, you have to go to the root of the problem. And while its purposefully complicated, its actually very simple to understand. Dollars are actually created out of thin air in the form of debt that has to be repaid with interest…. more than what was borrowed.
Using todays interest rates from the FED, 1 dollar is loaned into existence and needs to be repaid with $1.05. Where does that extra 5 cents come from? Well, another dollar has to be loaned into existence by the banking system… otherwise there is no way for that borrower to pay that loan back without defaulting.
What we’re seeing today is that because the FED has been tightening the money supply (destroying dollars back into thin air), there aren’t enough dollars being created anymore to payback all of the loans. And because of a recent law created in 2020, the banks no longer have to hold reserves of 10%. So there are no more dollars back in the vault, so to speak, to cover a bank run.
Ernie from its a wonderful life quote – “Don’t look now, but there’s something funny going on over at the bank George. I’ve never seen one, but thats got all the earmarks of a run.”
But why is the FED tightening when this reduces the amount of dollars for borrowers to pay back loans? Because the government has been the borrowing massive amounts of debt which has caused the inflation that the FED is trying to snuff out. This inflation is caused by too many dollars sloshing around in the system. This was exacerbated by the government’s “solution” to the pandemic by locking people in their homes, killing businesses and productive output. This limits the supply and at the same time increasing demand by handing out a bunch of free money. More money chasing fewer goods causes prices to skyrocket.
But the recent government bone headed mistakes are just speeding up the process of a rotten system at its core. And that is because of the debt based system as mentioned in the first paragraph.
This system that was created by the Federal Reserve Act in 1913, which began to collapse soon after in massive bank crisis’s leading up to the Great Depression…. which was papered over and made worse by the Bretton Woods Accord in 1944, saying the US dollar is the reserve currency of the world. This led to a bank run on the dollar in 1971 when Nixon took us off the gold standard to paper over the rot once again… which went into over drive of massive currency printing out of thin air with zero gold backing…. which led to many crisis’s like the 1980’s savings an loan crisis, the 1998 Russian Ruble crisis, the 2008 GFC, and today’s financial crisis.
Every time it gets papered over, the bubble gets bigger than before creating even more rot because the system is inherently flawed. It requires an exponential amount of currency to be created through credit in order to sustain itself.
So lets look at whats happening now. 3 banks have failed. 2 were crypto based and one is a normal bank in SVB. The government is now saying they will backstop all deposits so depositors can withdraw as much as they need and supposedly not at the expense of the tax payers. Well, thats a half truth. Because if they print more money out of thin air to backstop this crisis, that leads to more inflation. And inflation is a hidden tax on everyone. So it’s tax payers AND the 50% of the population that is too poor to pay taxes that are bailing out the billionaires through the hidden tax of inflation. Here is what they’re calling it, Bank Term Funding Program, and here is the link straight from the horse’s mouth. This isn’t just a bailout for this one bank… it’s another bailout to every bank in the system. What does that do? Its an open invitation again for every “wealthy” corporate and government bad actor to act even more foolishly and dump all of this bad debt on the American tax payer as well as the poorest of the poor. Meanwhile you still get a paltry 0.25% on your savings while inflation eats away at the value of your dollar that you worked so hard for.
Will this stop the bleeding? We’ll see. If it does, it’s only temporary. But again, if it does stop the bleeding for now, it’s just adding more rot to the system by not fixing the problem at its core. The central bank system. Remember, Bear Stearns collapse happened in March of 2008 and everyone thought it was a liquidity issue… then the bigger collapse happened in the fall of that year. Will history repeat itself?
There will be an end game to all of this and it won’t be pretty. And it may not be this crisis. They may paper over it again with even MORE debt based money. My bet is they will use this as an excuse to create a dollar based CBDC, Central Bank Digital Currency. They’ll blame this crisis on crypto, which was the snowflake that triggered the avalanche, but crypto was born out of the free market trying to find a solution to this current money problem… but crypto was taken over by hedge funds and fell into the current money system, using its debt leverage to pump it up into the atmosphere. Crypto is junk unfortunately, because anyone can create a coin. There are currently thousands of different crypto coins out there. Even Bitcoin is not limited like it claims to be. If you haven’t watched my video linking Bitcoin to the Marvel series Loki, take a look and you’ll see how even Bitcoin has an unlimited supply and therefore useless. Anyway, my point is, crypto will get the blame even though the real blame is the dollar system itself. We need to end central bank currencies for good and go back to a gold backed currency. A gold backed crypto would be the answer, but that will only happen when governments release control over the money supply which will never happen.
The problem with CBDC’s is they will make paper dollars illegal and you will be forced to bank digitally. There will be no escape, except for gold. In situations like this current bank failure, they could just freeze the accounts and limit the amount of withdrawals. Since there is only one bank (The Fed) you can’t transfer your money to another bank. They can charge negative interest rates and you have to deal with whatever it is. They can watch every move you make with your money and create some sort of social credit score like China and lock you out of your funds as they see fit like what Trudeau did last year to the truckers in Canada.
But if you understand this basic concept on how money works (and I tried to make it as simple as possible in the opening paragraph) then you’re ahead of most people and can prepare for the inevitable. It could go really badly, but usually governments get together and come to an agreement to change the rules of money before systemic collapse happens. My bet is it has to go back to some sort of gold standard. And if you do what the central banks around the world are doing right now… not what they say to do… then you can be somewhat prepared. They’re loading up on gold. Get it while you still can.
A gold back decentralized money system wouldn’t be perfect, but like the great economist Thomas Sowell once said, “There are no solutions, there are only trade offs. And you try to get the best trade off you can get.”
Second point is sort of contradictory to an inflation spike, but could be the beginning of a deflationary depression. Because this was triggered by lack of cash to pay depositors their money when they ask for it. Until a CBDC comes along, banks around the world are probably going to tighten lending to store some sort of reserve. This means a whole lot of things like more downward pressure on the housing market even if rates start to drop. But also contracting loans to businesses and start ups which could exacerbate this current problem in the short term. Regular borrowers will also back away in fear of losing their job due to recession and therefore start saving money instead of spending it, therefore adding more to the recession feedback loop.
It’s hard to see how this plays out further until we see what more the FED does or doesn’t do. The market is expecting a smaller rate increase or even a pause in rate hikes. Because it isnt a free market, but rather a market that is pegged on the whims of a few central planners who have created a massive forced ponzi scheme, socializing the private economy to constantly beg for bailouts of free money, it is harder and harder to predict until they tell us their next move.
For more information on how you can find your way through this confusing system and thrive, check out my free e-course on the Moneyball system. Its a nice way to build consistent residuals using this current crappy system against itself and purchase real assets that get your money out of the banking system.