Big Banks Failing Is Not Normal!
No one wants to believe the sky is falling until after the sky has already fallen. And by then, of course, it’s much too late to do anything but run around like a chicken with its head cut off.
I am not Chicken Little… but I am telling you there are cracks in the sky.
And sooner or later (most definitely sooner) the sky is going to come crashing down. Those who are not prepared… well, good luck to them.
What are you on about now, Jeff?
Well, over the last several weeks, we’ve seen three of the four biggest banking failures in the history of our country.
Before we go on, let’s be really clear about the fact that this is not normal.
Banks don’t just randomly fail in any given year, particularly big banks.
Yes, failures do happen, but it’s usually a tiny number of tiny banks holding a tiny amount of assets. In the last five years, a total of eight banks in the U.S. have failed, holding a cumulative asset base of $602 million.
The three banks that have failed since March—Silicon Valley Bank, Signature Bank, and most recently First Republic—held combined assets of nearly $620 billion… more than 1,000x larger than the eight small failures.
Again, let me reiterate that this is not normal!
But it gets worse.
Some reporting indicates that almost half of America’s 4,800 banks are tearing through their capital as they race to remain afloat.
That’s led Amit Seru, a professor and banking expert at Stanford University, to offer up this dandy assurance of America’s financial stability: “It’s spooky. Thousands of banks are underwater. Let’s not pretend that this is just about Silicon Valley Bank and First Republic. A lot of the U.S. banking system is potentially insolvent.”
Like I said … the sky is soon to fall.
Or rephrased in a way that doesn’t play off a childhood fairy tale…
The. System. Is. Broken.
I tell you this because recognizing this fact—that our economic system is failing—is the first step toward protecting yourself, your assets, your financial life, your lifestyle, and your retirement from Yet Another American Crisis.
The problem is that this banking crisis we’re slip-sliding into is just one of several breakages in our economy. We have Trouble with a capital T coming our way on at least three fronts.
We have the perfidious green lobby that has snookered the political class into a series of actions that mean an energy crisis is now baked into the cake and there’s no way to avoid it.
We have a Federal Reserve that, keeping with a century of tradition, mistakenly believes it’s the tail that wags the economic dog. As part of that faulty mental construct, the Fed has engineered a disaster through more than two decades of interest-rate mismanagement.
The banking crisis we’re now going through—and which promises to expand from here—is a direct result of radically low interest rates over the last many years, followed by a radically and historically aggressive rate-hike cycle over the last year that has seen interest rates soar to more than 5% from near 0%.
That’s the most extreme rate expansion in U.S. history.
The mental image for you: Take a wine glass that has been sitting in boiling water and then plunge it into ice water. What happens?
Just like that wine glass, we’re watching in real-time as the banking industry now shatters.
We also have a monetary crisis centered on the dollar pending as well, likely before the end of this decade, as I’ve mentioned many times here in Field Notes and our monthly Global Intelligence Letter.
Weekly I read about all the glad-handing and cheerleading in the U.S. economy. Low unemployment. Bureaucrats spouting off about “continued resilience” because GDP rose at a mindboggling (extreme sarcasm) 1.1% rate in the first quarter.
Yet behind the distraction (delusion) that “this porridge is just right,” there are these realities we have to consider:
- Credit card delinquencies are at multi-year highs and continuing to rise, which proves consumers are struggling badly. Banks are now cautioning Wall Street to expect declining earnings as they’re forced to write off bad loans.
- Real estate foreclosure rates in the first quarter of 2023 are up 29% from a year ago and continue to climb. That says homeowners are in deep trouble, and so too are the lenders behind those mortgages.
- Moody’s reports that corporate defaults on bond payments are at their highest level in years. Which says that Corporate America—which holds more debt than it ever has in history—is now struggling to repay its loans.
These are not signs that all is copasetic in the economy.
These are signs that something is fundamentally broken in the economy.
They are signs that your assets, your wealth, and your retirement nest egg are at risk as this crisis gathers pace.
So here at the end, we come to my usual prescription. Own gold. Own bitcoin. And own exposure to safe-haven currencies like the Swiss franc.
At some point, we’re going to wake up to find that the sky fell—unexpectedly for some… and not-so-unexpectedly for those who took the time to prepare.
Now is that time.
Prepare for a falling sky.