The US banking system broke this past week, and in a BIG way! This is the first time this has happened since the 2008 financial crisis. Interestingly, that crisis began in a similar way.
Unfortunately, the news media is yawning over this significant event just as they did in 2007/08 when the banking system was breaking then!
On Tuesday morning (Sept 17), the Federal Reserve had to intervene in the “repo” market, by injecting $53 billion into the large commercial banks. The repo market is the overnight lending market, where banks needing cash borrow from banks having cash, and they utilize “repurchase agreements” to facilitate the borrowing. Strangely, there was NO CASH AVAILABLE TO BORROW! As a result, interest rates on such borrowing spiked from a very stable 2% up to as high as 10% in minutes, at which time Fed intervened with the $53 billion rescue package.
The Fed, upon injecting the $53 billion stated that it was a one-time event. Apparently it was not! On Tuesday, another $75 billion was injected. On Wednesday, a further $75 billion was injected. On Thursday, yet another $75 billion was injected! And on Friday, still another $75 billion was put into the overnight markets!! In JUST A SINGLE WEEK, nearly 1/2 of a TRILLION DOLLARS WAS HANDED TO THE BANKS!!!
And these injections of cash are on top of the 1/4 point interest rate reduction the Fed announced the same week, which itself was strange considering how strong they “claim” the economy is!
PUTTING THIS IN PERSPECTIVE:
Consider the fact that the Fed injected $4 Trillion using “quantitative easing” into the economy over the course of a couple years to get us out of the 2008 financial crisis. Yet in JUST ONE WEEK, they injected almost 1/2 a TRILLION DOLLARS to keep the overnight lending market from seizing? This is a MASSIVE injection of cash! The kind of injection that only a CRISIS would warrant!
WHAT DO THEY KNOW THAT WE DO NOT?
Unfortunately, we don’t know why the banks don’t have the cash they need to operate. Unfortunately, nobody at the Fed is talking. Unfortunately, some of us could be banking at a large commercial bank that is actually bankrupt, and nobody knows it…….that is until it becomes too late!
We do know that debt levels around the world are out of control. Our governmental debt load is off the charts. Corporate debt loads are the highest ever. And finally, individual debt loads are also the highest ever!
Maybe these negative interest rates around the world are starting to impact the banks and the banking system as a whole! There is $17 Trillion of negative yielding bonds out there, and $2.5 Trillion of them are corporate bonds! I cannot imagine being a bank and having to PAY borrowers to borrow! Yet that is where many banks are at, particularly in Europe and Japan. Maybe that’s why they all don’t have cash!
Of course, if interest rates were raised, the economy would dive into a deep recession, much deeper than that in 2008. The economy can’t be sustained on rates at even 0% let alone higher! This explains why the European Central Bank (ECB) just lowered rates further into negative territory.
Why are they so afraid of a recession? What will collapse if we enter one? Are they afraid of the credit bubble popping?
WHAT I AM DOING:
Quite frankly, I don’t trust the banks. With the fallout of prior bailouts and rescue missions, they have forced interest rates to historical lows, with the result being that bond prices are at historical highs. An analyst at Bank of America in 2016 showed that bond prices are at 5000 year highs! (you read that correct!): https://www.businessinsider.com/chart-5000-years-of-interest-rates-history-2016-6
This is risk, on an unprecedented scale! If this avalanche risk starts to slide, it will mean the collapse of currencies and “paper” markets, including the dollar!
The only safe place to be is GOLD and similar precious metals such as silver. That is where I am now. As currencies collapse, the price of gold in those currencies will increase dramatically.
I doubt the banks will pop the credit bubble. Instead, they will monetize this debt by printing cash at historic rates. This IS inflation (they are inflating the money supply). The inflation will silently steal from every man, woman, and child. Prices will rise, but your paycheck will not. It will be like 6-figure earners living in San Francisco who cannot afford a home to live in!
WHAT IS A REPO (OR REPURCHASE) AGREEMENT:
As I mentioned earlier, it was the overnight lending market that seized, a market known for “repos” (Repurchase Agreements). An example can best illustrate what this is…..
Let’s suppose you have a car (with no loan), and you need cash. Let’s say I have cash. I agree to purchase your car using my cash. Now you have cash, and I have a car I don’t want. The second part of our agreement is that you will repurchase your car for the price I paid, plus a small amount of interest. If for some reason you don’t make good on the repurchase, the car is mine and I can sell it.
With banks, it works the same way except instead of a car, the asset is treasury bonds or similar valuable securities.