I received an e-mail over the weekend with a list of questions regarding what I thought the financial world might look like during and after the coming re set/bank holiday. I first read the questions and thought to myself, I thought I’ve written about each of these questions several times over like a broken record, haven’t they already heard my opinion on all of these? To wit, here are the questions…
Will ATM machines shut down?
Will personal checks cease to be honored?
Will business and personal deposits be lost for long periods with little recourse?
Will mortgage companies accept late payments when mail ceases to be delivered?
Will lenders accept pay off of loans with dollars of reduced value?
Will it still be possible to borrow money?
Will one be able to make purchases with junk silver even though one’s state does not (yet) recognize gold and silver as legal currency?
No one whom we read seems to have addressed these practical concerns of those of us who have taken recommended steps to “get out of the system” and invest in bullion. As always your comments would be much valued by those of us lucky enough to know you!
While beginning to write this I realize that yes, I have answered all of these questions many times before but maybe not all at one sitting so here it goes.
Will ATM’s stay open? Of course not, unlike a Saturday or Sunday holiday, when the banks close so will the ATM’s (and no access to your safe deposit boxes either). If you recall the Cyprus “bail in,” ATM’s did not distribute cash; afterwards we may even see an “Argentina style” closure where you are limited to something like $60 per week in withdrawals.
How about personal (or corporate) checks? Good luck here, if bank A doesn’t trust bank B or bank C, how will anyone trust that the check will ever get cleared? And if a new currency is announced? Who in their right mind would accept a check which is actually a form of overnight credit when we are at a point where even central banks don’t trust each other?
Mortgages and payments are another question. This one is tough because it will be a moving target. Government decision making and “rules” will enter the equation and no one can forecast what their “wisdom” will be. I would guess that mortgage balances will be readjusted for the new currency or ratio’d to any devaluation. Will you be able to pay your mortgage off with a couple of gold coins? Probably not but I would be willing to guess that it will require far fewer ounces than it takes right now. Another question here would be what if you do enter a reset with a big balance? Suppose you have $100K sitting in the bank, how long can you make your “new” mortgage payments if you get “bailed in” and your new balance is only $15K? Also, will mortgage balances be altered 1 for 1 with the introduction of a new currency? Will mortgage balances and account balances be “reset” equally?
The next question asks if we will be able to borrow money. I would surely think “yes”…but not right away. Lending will cease for a time until lenders and borrowers understand what the terms are. I would also say that debt will be “shunned” just as it was after the Great Depression. It is well known that credit outstanding is always at its highest at the wrong time (peak asset valuations) and unused at bottoms when it makes the most sense to use credit. I would also say that once lending reboots that lenders will actually get paid for lending and borrowers will have to think long and hard about borrowing. I think that the yield curve will initially be quite high until confidence fully returns but today’s interest rates will go down in the history books as an all-time anomaly.
The last question pertains to whether or not you will be able to make purchases using silver (gold). I have a 3 word answer…”Silver will spend.” You have to understand that without credit, distribution will break down. For example, the farmer uses credit to purchase seed, fertilizer and diesel fuel (and in some cases even water). He then moves his product to the Coop which transfers them to trucks (or rail), sent to other regions and then dispersed to the final stores. All of this depends on credit. Without credit none of these transactions will take place and even one failure will stop the product from getting onto the shelves. Under this scenario (which I do believe will happen at some point and to some undetermined degree), do you think a farmer will accept a check, credit card, dollar bills or a Bitcoin transfer? How about a silver dime for a dozen eggs? In the absolute worst of times, silver will spend and even be the preferred medium over almost anything else.
I do want to mention that we as a nation have “advanced …so far” that individually we cannot feed ourselves as well as someone from the Middle Ages could. How many people have ever shot a hog or deer? How many have field dressed an animal? Does anyone know how to kill and prepare a chicken before cooking it? What about people in the cities? Where can they even contemplate growing tomatoes or anything else? Think for a moment about how many survived the Great Depression with help from their neighbors? Do neighbors help each other today? ..Like they once did before we got “so advanced.”
You might also contemplate a world where credit breaks down and affects other things. Things like electricity, natural gas and gasoline distribution or even clean water to drink. Will the internet even stay up? In a scenario where credit breaks down…everything we know will break down with it as everything runs on and is paid for with credit.
We live in a world where every single day it’s “something for nothing” because our currencies and “credit” are backed by nothing. The coming reset will return us to a world where it is “something for something.” Any new currency introduced must, in order to be accepted through confidence…have some worth or backing on its own. I have said that the coming crisis will look like “Lehman Bros. on steroids.” I say this because not only will individuals, corporations and banks not trust each other…central banks won’t either. This is the great leap from 2008, back then the belief was that “governments won’t let it happen.” Not only will “it happen” but governments will be seen as powerless to remedy and even part of the problem. No one will know who is solvent or insolvent. It will be like a giant celebration where it is well known that several (many) are infected with the HIV virus…how much “business” do you think will be done? I know that this is a very crude analogy but it is important to understand that the credit market only works when there is confidence and the real economy only works when there is credit. No confidence=no credit= no production nor distribution. A “cash and carry world” is something that none (very very few) of us know or have never known. The “lifestyle” will change no matter who or where you are. All you can do is ask yourself these questions and do the best that you can with the means available.