America Is On The Cusp Of A New Banking Crisis
You can’t just eat a couple of Pringles and call it a day. Once you pop the top, “the fun don’t stop,” or so claimed a Pringles ad from the late ’90s.
The same might be said these days of America’s banking industry: Once you pop the top, the bank runs don’t stop.
Since Silicon Valley Bank and Signature Bank collapsed back in March (two of the three biggest banking failures in U.S. history), things might appear to have quietened down.
But turmoil churns behind that seeming quietude.
The Wall Street Journal, my old stomping grounds, published a story this week under the headline: “First Republic Joins the Living Dead.”
The story revealed that First Republic, a bank that nearly died back in March, has been borrowing heavily from the Federal Reserve, the Federal Home Loan Bank, JPMorgan, and Three Fingered Vinnie, who runs a numbers racket in a back alley in the Meat Packing district.
That last lender might not be entirely accurate, but you get the picture.
First Republic is clamoring to borrow every dollar it can to stay afloat… and that’s a very expensive way to run a bank.
The situation is now critical.
First Republic’s stock price fell 30% in trading yesterday after the bank revealed that depositors had pulled $100 billion from their accounts.
My guess… First Republic isn’t long for this world.
It’s either gobbled up by a competitor at a steep discount, or it’s eulogized as the next great bank failure.
And it won’t be alone. More failures like this are on the way.
This whole affair underscores the precariousness of America’s banking system.
The U.S. has one of the riskiest banking systems in the world because of federal rules and regulations that allows American banks to essentially operate as depositor-sourced investment funds.
They can take our deposits, i.e. our money, and stick them in all sorts of exceedingly risky investments.
This is a terrible way to operate a banking industry… and it’s not normal. Other major banking centers, like Switzerland and the European Union, have stricter rules in place to prevent banks from playing Texas hold ’em with depositors’ cash.
Even Warren Buffet, one of the most effervescent cheerleaders of the American economy, recently told Bloomberg, “We’re not through with bank failures,” because of “dumb decisions” by banking executives over the last many years.
In this environment, you need to take steps to protect your wealth…
One way to achieve this is to move some of your money to a better banking environment, like Switzerland.
Another way is to own a different form of money that can protect yourself and your lifestyle in the event a bigger crisis careens through the U.S. banking industry.
And that’s the story of Homestake Mining…
Way back in the Great Depression, 9,000 U.S. banks failed, wiping out $7 billion in depositor wealth, the equivalent of $123.5 billion today.
But you know who was protected during that wipe-out?
Investors who owned exposure to gold. And the best exposure on Wall Street at that time was Homestake Mining, the largest publicly traded gold-mining company.
From 1929 to 1935, Homestake’s stock price raced to nearly $500 per share from $80. And the dividends? By 1935, Homestake was paying $56 per share in dividends, up from $7 in 1929.
Investors made big gains for owning Homestake because gold became the only money in the world that people actually trusted.
Gold was not—and still is not—controlled by any government, so it had no overlords manipulating it, like the Fed does with the dollar.
Savers and investors of the day were so hot for gold that, again per The Wall Street Journal of February 1933, global gold production hit an all-time high of nearly 24 million ounces.
Even central banks were snapping up gold, and ended up accumulating the largest quantity of gold in their histories to that point.
Hmm…
How very interesting.
Central banks today are accumulating gold at the fastest pace since at least the 1950s, and likely at an even greater pace than in the 1930s.
Funny (only, not really) how gold always seems to be the answer to a monetary crisis.
That has been the case across recorded history. The same will hold true this time around too.
What’s old is always new again.
Which is why I so regularly urge anyone who listens to me to go out and buy some gold— whether that’s physical bullion… or exposure to gold through the stock market by way of a physical fund or mining stocks.
Homestake Mining no longer exists, but there are other miners that could see similar gains as this modern banking crisis plays out.
Personally, 24% of every dollar I own in all my retirement and investment accounts combined is in some form of gold (and that doesn’t include all the raw gold coins I have stashed in a safe-deposit box).
America’s banking crisis is not over.
This is precisely the moment you want to be buying cheap, lifestyle insurance in the form of gold and those two other assets.
Because the second the markets realize a true banking or monetary crisis is afoot in America, the cost of insurance is going to soar dramatically.