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If climate change doesn’t kill you, it will bankrupt you.

It’s been about two months since the Lahaina fire, and the long term nature of their recovery is just starting to set in — for some at least. I know from first-hand experience that it takes months for some people to emerge enough from the fog of trauma to even start thinking about recovery.

Personally, I don’t like the word “recovery”.

It makes it sound like things can — and do — go back to the way they were before the fire (or the hurricane or the flood — pick your own mass climate disaster).

But they don’t. They can’t. Lahaina is gone. Forever.

Sure, something will come back — probably cookie-cutter multi-million dollar condos that the former residents can’t even dream of affording. But Lahaina is gone. Its residents can move forward, but they can’t “recover”. There is no going back.

And “moving forward” itself a long and cruelly painful process, and one during which I personally came to understand that the “system” — everything from FEMA to insurance companies to the tax system to banks to the government to the legal system — isn’t designed to help you, the disaster victim.

It isn’t that the system doesn’t work. It works exactly as designed.

But it’s just not designed to help you.

It helps others, or maybe no one at all, but if you manage to get what you need from the system, it’s almost by accident, or unintentional, or a byproduct of helping someone else.

I know a lot of people reading this will say, “you’re overreacting” or “you just had a bad experience”. I know that because I’ve been told this before by people who have never been through a climate disaster and who are just repeating the reassuring platitudes that we’re all programmed to repeat.

…click on the above link to read the rest…

The global bank credit crisis

August 24, 2023

The global bank credit crisis

Globally, further falls in consumer price inflation are now unlikely and there are yet further interest rate increases to come. Bond yields are already on the rise, and a new phase of a banking crisis will be triggered.

This article looks at the factors that have come together to drive interest rates higher, destabilising the entire global banking system. The contraction of bank credit is in its early stages, and that alone will push up interest costs for borrowers. We have an old fashioned credit crunch on our hands.

A new bout of price inflation, which more accurately is an acceleration of falling purchasing power for currencies, also leads to higher interest rates. Savage bear markets in financial and property values are bound to ensue, driving foreign investors to repatriate their funds.

This will unwind much of the $32 trillion of foreign investment in the fiat dollar which has accumulated in the last fifty-two years. And BRICS’s deliberations for replacing the dollar as a trade settlement medium could not come at a worse time.

Global banking risks are increasing

Gradually, the alarm bells over credit are beginning to ring. Monetarist and Austrian School economists are hammering the point home about broad money, which almost everywhere is contracting. It is overwhelmingly comprised of deposits at the commercial banks. And this week, even China’s command economy has had credit problems exposed, with another large property developer, Country Garden Holdings missing bond payments.

A global cyclical downturn in bank credit is long overdue, and that is what we currently face. Empirical evidence of previous cycles, particularly 1929—1932, is that fear can spread though the banking cohort like wildfire as interbank credit lines are cut, loans are called in, and collateral liquidated…

…click on the above link to read the rest…

Doug Casey on the Death of Privacy… and What Comes Next

May 28, 2023

Doug Casey on the Death of Privacy… and What Comes Next

International Man: In practically every country, the allowable limit for cash withdrawals and transactions continues to be lowered.

Further, rampant currency debasement is lowering the real value of these ridiculous limits.

Why are governments so intent on phasing out cash? What is really behind this coordinated effort?

Doug Casey: Let me draw your attention to three truths that my friend Nick Giambruno has pointed out about money in bank accounts.

#1. The money isn’t really yours. You’re just another unsecured creditor if the bank goes bust.

#2. The money isn’t actually there. It’s been lent out to borrowers who are illiquid or insolvent.

#3. The money isn’t really money. It’s credit created out of thin air.

The point is that cash is freedom. And when the State limits the utility of cash—physical dollars that don’t leave an electronic trail—they are limiting your personal freedom to act and compromising your privacy. Governments are naturally opposed to personal freedom and personal privacy because those things limit their control, and governments are all about control.

International Man: Governments will probably mandate Central Bank Digital Currencies (CBDCs) as the “solution” when the next real or contrived crisis hits—which is likely not far off.

What’s your take? What are the implications for financial privacy?

Doug Casey: CBDCs are proposed as a solution, but in fact, they’re a gigantic problem.

Government is not your friend, and CBDCs are not a solution.

If they successfully implement CBDCs, it would mean that anything you buy or sell, and any income you earn, will go through CBDCs. You will have zero effective privacy. The Authorities will automatically know what you own, and they’ll be in a position to control your assets. Instantly.

…click on the above link to read the rest…

The US Banking System Is Sound?

May 4, 2023

The US Banking System Is Sound?

Treasury Secretary Janet Yellen keeps insisting that the banking system is “sound.” Is it though? Because it doesn’t look particularly sound.

In fact, we just witnessed the second-largest US bank failure ever.

Government regulators seized control of First Republic Bank over the weekend and sold the majority of the bank’s operations to JP Morgan Chase. It was the third major bank failure this year and the biggest bank to collapse since the 2008 financial crisis. It was the second-largest bank by assets to fail in US history.

First Republic went under after it revealed $100 billion in deposit losses in the first quarter.

The beleaguered bank has been struggling for a while. It was initially bailed out back in March with $30 billion in deposits from several large banks, including JP Morgan and Wells Fargo. The bank also borrowed heavily from the Federal Reserve’s bank bailout program. First Republic shares tumbled 75% last week before the FDIC stepped in.

While JP Morgan is taking over First Republic’s business, the FDIC will provide “shared-loss agreements.” As the FDIC website explains it, “the FDIC absorbs a portion of the loss on a specified pool of assets sold through the resolution of a failing bank – in effect sharing the loss with the purchaser of the failing bank.”

If we are to believe the mainstream narrative, the failures of Silicon Valley Bank, Signature Bank and First Republic Bank were isolated events and do not reflect a broader problem in the banking system. But as we have reported, these bank failures are just the tip of the iceberg. A report by the Wall Street Journal cites a study from Stanford and Columbia Universities that found 186 US banks are in distress.

…click on the above link to read the rest…

The Fed Cannot Fix Today’s Energy Inflation Problem

April 10, 2023

The Fed Cannot Fix Today’s Energy Inflation Problem

There is a reason for raising interest rates to try to fight inflation. This approach tends to squeeze out the most marginal players in the economy. Such businesses and governments tend to collapse, as interest rates rise, leaving less “demand” for oil and other energy products. The institutions that are squeezed out range from small businesses to financial institutions to governmental organizations. The lower demand tends to reduce inflationary pressure.

The amount of goods and services that the world’s economy can produce is largely determined by fossil fuel supplies, plus our ability to use “complexity” in many forms to produce the items that the world’s growing population requires. Adding debt helps add complexity of various types, such as more international trade, more advanced education, and more specialized tools. For a while, the combination of growing energy supplies and growing complexity have helped pull economies along.

Unfortunately, the world’s oil supply is no longer growing. Without an adequate oil supply, it becomes difficult to maintain complexity because complex solutions, such as international trade, require adequate oil supplies. Inasmuch as we seem to be reaching energy and complexity limits, nothing the regulators try to do to change the debt and money supplies–even reeling them back in–can fix the underlying oil (and total energy) problem.

I expect that the rich parts of the world, including the US, Europe, and Japan, are in line to be adversely affected by high interest rates this time. With their high levels of complexity, they are among the most vulnerable to disruption when there is not enough oil to go around.

Figure 1. World oil consumption divided into consuming areas, based on data of BP’s *2022 Statistical Review of World Energy*. Europe excludes Estonia, Latvia, Lithuania, and Ukraine.

…click on the above link to read the rest…

The schizophrenic understanding of money in economics

April 3, 2023

The schizophrenic understanding of money in economics

One of the great ironies of economics is that, while the public regards economists as experts on money, the issue of how money is created is still not settled within economics.

In 2014, the Bank of England published a landmark paper explicitly rejecting the textbook model of money creation, stating that:

Money creation in practice differs from some popular misconceptions—banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits…

The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. In normal times, the central bank does not fix the amount of money in circulation, nor is central bank ‘multiplied up’ into more loans and deposits. (McLeay, Radia, and Thomas 2014, p. 14)

Several other Central Banks published related papers, notably the Bundesbank in 2017, which stated that:

It suffices to look at the creation of (book) money as a set of straightforward accounting entries to grasp that money and credit are created as the result of complex interactions between banks, non- banks and the central bank. And a bank’s ability to grant loans and create money has nothing to do with whether it already has excess reserves or deposits at its disposal (Deutsche Bundesbank 2017, p. 17)

And yet, just five years later, the Nobel Prize in Economics was awarded to Bernanke, Diamond and Dybvig for work which, as the “Scientific Background” to the Prize noted, claimed that banks function as “financial intermediaries” which “channel funds from savers to investors, receiving funds from some customers and using the funds to finance others”….

…click on the above link to read the rest…

Fed, Central Banks Created the Current Crisis and Are on Course to Making Matters Worse

March 22, 2023

Fed, Central Banks Created the Current Crisis and Are on Course to Making Matters Worse

The incompetence of our financial regulators, most of all the Fed, is breathtaking. The great unwashed public and even wrongly-positioned members of the capitalist classes are suffering the consequences of Fed and other central banks being too fast out of the gate in unwinding years of asset-price goosing policies, namely QE and super low interest rates. The dislocations are proving to be worse than investors anticipated, apparently due to some banks having long-standing risk management and other weaknesses further stressed, and other banks that should have been able to navigate interest rate increases revealing themselves to be managed by monkeys.

What is happening now is the worst sort of policy meets supervisory failure, of not anticipating that the rapid rate increases would break some banks.¹ Here we are, in less than two weeks, at close to the same level of bank failures as in the 2007-2008 financial crisis. From CNN:

And even mainstream media outlets are fingering the Fed:

As we’ll explain in due course, the regulators’ habitual “bailout now, think about what if anything to do about taxpayer/systemic protection later” is the worst imaginable response to this mess. For instance, US authorities have put in place what is very close to a full backstop of uninsured deposits (with ironically a first failer, First Republic, with its deviant muni-bond-heavy balance sheet falling between the cracks). But they are not willing to say that. So many uninsured depositors remained in freakout mode, not understanding how the facilities work. Yet the close-to-complete backstop of uninsured deposits amounted to another massive extension of the bank safety net.²

The ultimate reason the Fed did something so dopey as to put through aggressive rate hikes despite obvious bank and financial system exposure was central bank mission creep, of taking up the mantle of economy-minder-in-chief.

…click on the above link to read the rest…

Unsound Banking: Why Most of the World’s Banks Are Headed for Collapse

March 16, 2023

Unsound Banking: Why Most of the World’s Banks Are Headed for Collapse

You’re likely thinking that a discussion of “sound banking” will be a bit boring. Well, banking should be boring. And we’re sure officials at central banks all over the world today—many of whom have trouble sleeping—wish it were.

This brief article will explain why the world’s banking system is unsound, and what differentiates a sound from an unsound bank. I suspect not one person in 1,000 actually understands the difference. As a result, the world’s economy is now based upon unsound banks dealing in unsound currencies. Both have degenerated considerably from their origins.

Modern banking emerged from the goldsmithing trade of the Middle Ages. Being a goldsmith required a working inventory of precious metal, and managing that inventory profitably required expertise in buying and selling metal and storing it securely. Those capacities segued easily into the business of lending and borrowing gold, which is to say the business of lending and borrowing money.

Most people today are only dimly aware that until the early 1930s, gold coins were used in everyday commerce by the general public. In addition, gold backed most national currencies at a fixed rate of convertibility. Banks were just another business—nothing special. They were distinguished from other enterprises only by the fact they stored, lent, and borrowed gold coins, not as a sideline but as a primary business. Bankers had become goldsmiths without the hammers.

Bank deposits, until quite recently, fell strictly into two classes, depending on the preference of the depositor and the terms offered by banks: time deposits, and demand deposits. Although the distinction between them has been lost in recent years, respecting the difference is a critical element of sound banking practice.

…click on the above link to read the rest…

If You Can’t Hold It, It’s Not Really Yours

March 14, 2023

If You Can’t Hold It, It’s Not Really Yours

The failure of Silicon Valley Bank and Signature Bank reminds us of a very important truth — if you can’t hold it in your hand, you don’t really own it.

That’s why it’s wise to hold at least some of your wealth in hard assets like gold and silver that are in your direct possession or at least stored in a secure, allocated, segregated, and insured storage facility.

The FDIC insures bank deposits up to $250,000. If you have more than that in a financial institution, you could lose everything above that limit if a bank fails.

Depositors at SVB and Signature Bank lucked out. The government has made provisions to cover uninsured deposits. But there’s no guarantee that will happen when the next bank goes under.

And even if you don’t have more than $250,000 in the bank, you could easily find yourself locked out of your account. Just last week, a computer glitch caused money in some Wells Fargo accounts to disappear.

There are also more nefarious reasons you could lose access to funds. The Nigerian central bank recently limited bank withdrawals in order to incentivize people to use its new central bank digital currency. In 2017, India faced cash shortages when the government declared that 1,000 and 500 rupee notes would no longer be valid with just a four-hour notice. And during its crisis, the Greek government shuttered banks and seized some bank deposits.

Most people assume “that can’t happen here” in the US. But as we saw over last week, the US banking system is vulnerable to collapse.

…click on the above link to read the rest…

Silicon Valley Bank Crisis: The Liquidity Crunch We Predicted Has Now Begun

March 13, 2023

Silicon Valley Bank Crisis: The Liquidity Crunch We Predicted Has Now Begun

There has been an avalanche of information and numerous theories circulating the past few days about the fate of a bank in California know as SVB (Silicon Valley Bank). SVB was the 16^th largest bank in the US until it abruptly failed and went into insolvency on March 10^th. The impetus for the collapse of the bank is tied to a $2 billion liquidity loss on bond sales which caused the institution’s stock value to plummet over 60%, triggering a bank run by customers fearful of losing some or most of their deposits.

There are many fine articles out there covering the details of the SVB situation, but what I want to talk about more is the root of it all. The bank’s shortfalls are not really the cause of the crisis, they are a symptom of a wider liquidity drought that I predicted here at Alt-Market months ago, including the timing of the event.

First, though, let’s discuss the core issue, which is fiscal tightening and the Federal Reserve. In my article ‘The Fed’s Catch-22 Taper Is A Weapon, Not A Policy Error’, published in December of 2021, I noted that the Fed was on a clear path towards tightening into economic weakness, very similar to what they did in the early 1980s during the stagflation era and also somewhat similar to what they did at the onset of the Great Depression. Former Fed Chairman Ben Bernanke even openly admitted that the Fed caused the depression to spiral out of control due to their tightening policies.

In that same article I discussed the “yield curve” being a red flag for an incoming crisis:

…click on the above link to read the rest…

“Worst Since Lehman”: Banks Break The World Again

March 10, 2023

“Worst Since Lehman”: Banks Break The World Again

Last week we detailed BofA’s Michael Hartnett’s warning that “The Fed will tighten until something breaks”.

Well, something just broke…

SVB’s collapse – the second biggest US bank failure in history – dominated any reaction to this morning’s mixed bag from the BLS (hotter than expected earnings growth, rising unemployment (especially for Latinos), better than expected payrolls gains).

Things started off badly as SVB crashed 65% in the pre-market before being halted. SVB bonds were puking hard and when the FDIC headline hit, the bonds collapsed further…

Source: Bloomberg

A number of small/medium sized banks were clubbed like a baby seal…

Source: Bloomberg

And the KBW regional bank index crashed (down 9 of the last 10 days and 20% in that period). The 18% drop this week was the index’s worst drop since Lehman (Sept 2008)…

Source: Bloomberg

And as you’ll see below, that started to have some notable impacts on the most arcane of global systemic risk red flag signals…

TED Spread at YTD highs (systemic risk rising)
Global USD Liquidity tightest in 2023 (foreigners paying up for USDollars)
Global Bank Credit Risk rising

The worst week for stocks in 2023… On the week, all the US majors were down hard with Small Caps crashing 9%, S&P, Dow, and Nasdaq over 4% lower…

The Dow has been underwater on the year for over a week and is now down 4% in 2023. Today’s ugliness smashed the S&P 500 and Russell 2000 down to unchanged on the year…

Source: Bloomberg

All the US Majors are now back below their 200DMAs…

Unsurprisingly, financials were the week’s biggest sector laggards but all were red on the week…

VIX exploded higher on the day, back above 28 and recoupling with equity weakness…

Source: Bloomberg

…click on the above link to read the rest…

The Big Stiff: Russia-Iran dump the dollar and bust US sanctions

February 11, 2023

The Big Stiff: Russia-Iran dump the dollar and bust US sanctions

News of Russian banks connecting to Iran’s financial messaging system strengthens the resistance against US-imposed sanctions on both countries and accelerates global de-dollarization.

https://media.thecradle.co/wp-content/uploads/2023/02/Iran-Russia-4.jpg

Photo credit: The Cradle

The agreement between the Central Banks of Russia and Iran formally signed on 29 January connecting their interbank transfer systems is a game-changer in more ways than one.

Technically, from now on 52 Iranian banks already using SEPAM, Iran’s interbank telecom system, are connecting with 106 banks using SPFS, Russia’s equivalent to the western banking messaging system SWIFT.

Less than a week before the deal, State Duma Chairman Vyachslav Volodin was in Tehran overseeing the last-minute details, part of a meeting of the Russia-Iran Inter-Parliamentary Commission on Cooperation: he was adamant both nations should quickly increase trade in their own currencies.

Ruble-rial trade

Confirming that the share of ruble and rial in mutual settlements already exceeds 60 percent, Volodin ratified the success of “joint use of the Mir and Shetab national payment systems.” Not only does this bypass western sanctions, but it is able to “solve issues related to mutually beneficial cooperation, and increasing trade.”

It is quite possible that the ruble will eventually become the main currency in bilateral trade, according to Iran’s ambassador in Moscow, Kazem Jalali: “Now more than 40 percent of trade between our countries is in rubles.”

Jalali also confirmed, crucially, that Tehran is in favor of the ruble as the main currency in all regional integration mechanisms. He was referring particularly to the Russian-led Eurasian Economic Union (EAEU), with which Iran is clinching a free trade deal.

…click on the above link to read the rest…

Hyperinflationary Hell: Lebanese Central Bank Devalues ‘Lira’ By 90%

February 1, 2023

Hyperinflationary Hell: Lebanese Central Bank Devalues ‘Lira’ By 90%

Cash is now king in Lebanon, where a three-year economic meltdown has led the country’s once-lauded financial sector to atrophy and turned the country into a Venezuelan-esque hyperinflationary hell. The country has been hit hard by events over the past few years, starting with COVID.

In August 2020, the city of Beiruit was practically destroyed by a massive blast which killed at least 200 people and triggered as much as $15 billion in damage…

In March 2021, violent protests erupted across Lebanon as the currency collapse accelerated and with it the economy and people’s living standards.

And most recently, In December 2022, the Lebanese parliament failed for the eighth consecutive time to elect a new president, as a majority of lawmakers opposed the options laid on the table.

The prolonged power vacuum only exacerbates the situation, as Beirut is currently unable to enact sweeping reforms demanded by international lenders as a condition for releasing billions of dollars in loans.

All of which has sent the ‘parallel’ FX rate to a stunning 60,000/USD (compared to the official Pound – often nicknamed ‘Lira’ – rate of 1500/USD)…

Source: LiraRate.org

As Reuters reports, Zombie banks have frozen depositors out of tens of billions of dollars in their accounts, halting basic services and even prompting some customers to hold up tellers at gunpoint to access their money.

This has prompted bank runs…

Not a week goes by without Lebanese depositors storming their own banks in a desperate attempt to access savings frozen after the country’s economy collapsed.

Banks began imposing draconian limits on withdrawals and transfers in 2019, leaving depositors able to access only a fraction of their savings in dollars and Lebanese pounds.

and heists…

The National has recorded 27 depositor bank “heists” since the start of the year, including armed and unarmed hold-ups and sit-ins.

…click on the above link to read the rest…

The evolution of credit and debt in 2023

January 15, 2023

The evolution of credit and debt in 2023

The evidence strongly suggests that a combined interest rate, economic and currency crisis for the US and its western alliance will continue in 2023.

This article focuses on credit, its constraints, and why quantitative easing has already crowded out private sector activity. Adjusting M2 money supply for accumulating QE indicates the degree to which this has driven the US tax base into deep recession. And the wider effects on credit in the economy should not be ignored.

After a brief partial recovery from the covid crisis in US government finances, they are likely to start deteriorating again due to a deepening recession of private sector activity. Funding these deficits depends on foreign inward investment flows, which are faltering. Rising interest rates and an ongoing bear market make funding from this source hard to envisage.

Meanwhile, from his public statements President Putin is fully aware of these difficulties, and a consequence of the western alliance increasing their support and involvement in Ukraine makes it almost certain that Putin will take the opportunity to push the dollar over the edge.

Credit is much more than bank deposits

Economics is about credit, and its balance sheet twin, debt. Debt is either productive, in which case it can extinguish credit in due course, or it is not, and credit must be extended or written off. Money almost never comes into it. Money is distinguished from credit by having no counterparty risk, which credit always has. The role of money is to stabilise the purchasing power of credit. And the only legal form of money is metallic; gold, silver, or copper usually rendered into coin for enhanced fungibility.

…click on the above link to read the rest…

Zoltan Pozsar’s Gold-mageddon Deconstructed

December 27, 2022

Zoltan Pozsar’s Gold-mageddon Deconstructed

“[B]anks have been managing their paper gold books with one assumption, which is that [Nation] states would ensure gold wouldn’t come back as a settlement medium.” -Zoltan Pozsar

Before we go any further, we read ZeroHedge’s report on this letter Dec 7th entitled: Zoltan Pozsar: Gold To Soar…When Putin Unveils Petrogold (ZH Prem) and have been thinking on it since. Here is one of those thoughts pertaining to Gold’s evolving market structure

The statement at top is arguably the most important sentence in Zoltan’s recent post entitled: Oil, Gold ,and LCL(SP)R. It is how he closes that note.

If you have read his letter (excerpt below) you may prefer quotes pertaining to Gold’s price jump from $1800 to $3600 or Pozsar’s follow up statement to the price of Gold potentially doubling where he wrote: Crazy? Yes. Improbable? No.

Those statements certainly are nice to read for real-money advocates; especially coming from one of the most respected economists on the street these days. We cannot lie it makes us smile as well.

However, for anyone with precious metals exposure, like a bank or presumably you reading this piece (thank you for that), the quote at top should rule them all. Here’s why…

Why Banks Short Gold

Zoltan, possibly inadvertently, gives readers the rationale by which banks have been profitably shorting Gold since the 1990s. Here is our translation of that same sentence at top.

Translated from the original Zoltanese:

Banks have been using rehypothecation for decades fearlessly with approval of global governments who promised them Gold would never be used as a settlement medium—i.e. have a practical use — again.

…click on the above link to read the rest…

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