I was going to write a piece today about the current Fed meeting which we will hear a statement tomorrow. It used to be that the term used was “exit plan” from QE (monetization) now the politically correct term is “tapering.” “Exit plan” I guess just sounded too scary, too final to be used. It sounded like throwing a 5 year old into the water with no life preserver and walking away (my Dad did this but didn’t walk away…yes, I learned how to swim). Neither the markets nor the economies can deal with this because of the lead weight tied to their necks…debt, too much of it.
“Tapering?” Nope, it cannot happen. They might talk about it and maybe even try it for a week…until both the stock and bond markets lock up like a crack addict going cold turkey. It is either pedal to the metal or the markets will implode within 72 hours. The economy which is merely treading water will slip below the surface and drown. I have written several times, “What can they say?” when referring to these Fed meetings. Unfortunately the answer is not much, unless they want to upset and turn over the apple cart. I would not expect anything Earth shattering as the Fed understands the fine line that they’ve confined themselves too.
Rather than harp on the Fed’s lack of options, I’d like to mention that we stand before THE greatest and most pre-advertised bank run in history, let me explain. If you have kept your ear to the ground then you know that Europe, Canada, New Zealand and most importantly the U.S. have all legislated “bail ins” for future bank failures. The BIS (the central bank’s central bank) even publicly put forth their own “simple” (as they call it) plan to handle bank failures. The new “plan” is that there will be no more taxpayer bailouts, no more central bank bailouts…no, let Mother Nature rule! Stockholders, bondholders AND depositors will now be on the hook and “fund” any bank reorg’s. In other words, Cyprus is the future and can be used as a pretty close roadmap to what’s coming!
I used the term “well advertised” which has actually happened. With any due diligence at all you can see exactly what’s coming and you can bet your bottom dollar that you will hear after the fact “we tried to tell you.” Well yes they have, they did, but few have listened and fewer have acted so far. As with any bank run, it starts slowly with just a trickle (the smartest money), then it will gain pace. My only question is of the “chicken or the egg” type. Does a bank run force the banks to close? …or does a bank closure get blamed for a systemic bank run? It’s really a stupid question because the “result” is exactly the same, banks close and people lose money so who cares “why?”
The “noise” about bail ins is getting louder and louder every day which as I’ve said will actually cause bank runs on its own, but, there is another “run” which is getting very little to no press at all. This is the “run” on vaults. If you just look at the Shanghai metals exchange, they have delivered nearly as much gold so far year to date as all of the world’s mines have produced. If you look at the NY Fed and even though there are numbers to look at showing “tons upon tons” of gold, they told Germany that they’d have to wait 7 years to get theirs back…good luck with this! GLD has seen its inventory drop about 25% since the beginning of the year and even JP Morgan shows a nearly 70% drop. Can you imagine that JP Morgan holds only a “whopping” 136,000 gold ounces for their customers? The echoes inside of this vault must be deafening!
In any case, it’s pretty easy to see the “warnings” (if you’re listening) have been quite straightforward and loud. They are telling you in no uncertain terms to “get your money out of the banks” because when push comes to shove no more bail “outs” will exist…only bail “ins” which unfortunately will include YOUR money that you thought you “had.”
Bill, First of all, I would like you to know I read everything you publish on this website. I know your right about what’s coming. I’m a little late but I’m start to purchase PM’s. In this article you recommend that I get my money out of banks. Where do I put it if its not all in PM? Trying to get my wife to do that would be near impossible.
Hi Dennis, I advocate keeping only about 6 months of spending in the bank, some cash on hand and metals vaulted outside of the banks. They have left us with very few choices where to invest.
Your dad and my dad must have gratudated from the same school of child rearing. I remember when my older brother was being chased by the neighborhood bully. My dad saw him running for home and locked the door, his only option was to turn and fight. The bully got a licking and never bullied my brother again. That is just one example of his teaching methods… In today’s word both our fathers might be locked up for child abuse. But the fact is that, much as they may try to end run it, survival of the fitest has not gone away, and personally – I hope it never does. It’s part of the grand design and it makes us stronger. Everyone should not get a trophy, and in the real world they don’t.
I get how we protect our own assets–we get them into our hands. Any advice on how to handle a business checking account? Is there a better place to have one. My concern is that when the bail in starts, I will have to shut my business doors or demand cash only–because any credit card payments I take will end up flowing through my bank and getting stuck in the bail in. Any good ideas?
Hi Trevor, just look at Greece or Cyprus and you’ll see that the economies went to cash only as some cards did not work and no one knew if they would get paid if they did. As for “business balances”, any amounts above what you think you’ll need you might think about short term T-Bills, those should be outside of any bail in.
Another great posting and I totally agree more with your logic. However – one question for you – Do you really believe that Obama will not use every legal and illegal trick to prevent any bail-ins before the mid-term elections? After the elections, possibly the day after, I believe the banks will bail away and we can kiss the life we once knew here in the U.S. good bye.
Bob, I don’t see how we make it until the mid terms which are NEXT year…16 months away. That is too long to hold this game together, if I had to guess, there may not even be a 2014 election as things will be so chaotic by then. Just my opinion …and everyone has one.