Sometimes it is much better to go to someone who has worked in the banking industry and has been around a long time when you are experiencing financial instability. Here you go…
Here’s What I Learned From Watching 75 Years Of Bank Crises
March 13 (King World News) – James Turk: Given all the banking problems that are building, Eric, there are two questions that need to be answered about the world’s reserve currency, which of course is the title given to the dollar. First, does this title fit? And how does it relate to the Silicon Valley and Signature bank failures?
To answer these questions, we need to go back in history and look at origin of the word “reserve”.
Since the founding of the Bank of England (BoE) in 1694, bank crises have been recurring events. I’ve seen several in my lifetime in the US as well as in other countries…
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These crises are inevitable because in this BoE created system, banks are never able to meet their obligations to their depositors for one reason. Some bank assets that mature years in the future are funded with assets that depositors can withdraw at any time.
There exists an inherent asset/liability maturity mismatch on bank balance sheets. So if a preponderance of depositors ask for their money, banks either have to call in or sell outstanding loans to get the money the bank needs to repay the depositors withdrawing their money.
As we have just seen with Silicon Valley and Signature banks, depositor confidence can evaporate overnight. A crisis is the result, and that’s when the role of reserves come in. Reserves are held to restore confidence and thereby stop the banks run and end the crisis before the contagion spreads.
The actions by the Federal Reserve to bail out the collapsed Silicon Valley and Signature banks show that they are on the same track as before. They seem to think that throwing more credit at banks in a system already drowning in credit with a mountain of debt is going to solve the problem of insolvent banks. Further, where does this money the Fed is throwing at these banks come from?
It is conjured out of thin air. Picture Ben Bernanke’s helicopter drop as a furious typing of keystrokes on a computer…
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No Guarantee Fed’s Short-Term Fix Will Work
The Fed bought time this way in 2008 and just kicked the can down the road. But there’s no guarantee that trick will work this time around. More debt – more promises – is not solving the underlying asset/liability mismatch problem that plagues the banking system, which leads us to the role of reserves.
Monetary history shows that confidence is restored and more bank runs are stopped from happening with something tangible, which of course is why gold and silver have been money for thousands of years. They are the reserve, and physical gold and silver are something that everybody should own because they are money without counterparty risk, which brings us back to the dollar.
It became the world’s reserve currency at the end of World War II because it was thought back then to be ‘as good as gold’. It lost that title long ago, and as I see it, unless gold and silver – the money of the American Constitution – are returned as circulating currency, the dollar will in time lose its world reserve currency title too.
King World News note: For those of you who are dollar cost averaging your physical gold and silver purchases, continue to purchase at the same time each month or quarter. But for those of you who do not have any physical gold and silver, what you have just witnessed is a classic warning sign of systemic instability that will get much worse over time. And this problem is definitely going to spread to Europe, which has a much weaker banking system than the United States. The ECB is going to have to print massive quantities of money to halt the contagion whenever the shorts begin to attack the banking system in Europe. And they will. This primary beneficiary of all of this chaos and instability will be gold and silver, which have been money for thousands of years.
King World News will be continuing to update today as events unfold. In the meantime…
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***To listen to Matthew Piepenburg’s powerful KWN audio interview which has just been released CLICKING HERE OR ON THE IMAGE BELOW.
***To listen to Alasdair Macleod discuss the bank collapse, contagion and crisis as well as what this will mean for the gold market CLICK HERE OR ON THE IMAGE BELOW.
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