3 Min. Gold News
Thinking of the future. Of changes. Of safely getting from here to there.
An interview synopsis of Jim Rickards, New York Times bestselling author of The New Case for Gold, The Death of Money, Currency Wars, The Road to Ruin, Aftermath and The New Great Depression, with Matt Insley at Paradigm Press and Dan Amoss, Jim’s Senior Analyst.
Jim’s book “Sold Out: How Broken Supply Chains, Surging Inflation and Political Instability Will Sink the Global Economy”, is available now.
Jim is the Editor of Strategic Intelligence, former general counsel for Long Term Capital Management, and a consultant to the U.S. Intelligence community and U.S. Department of Defence.
Topics:
Silicon Valley Bank Failure
Narrow Timeline
Bond Risk
Start Ups
Fed, Treasury & FDIC Meet
New Plan
Bail In
Bank Term Funding Program
Bail Out
3 Fiascos In the Making
Long Timeline
Future
SILICON VALLEY BANK FAILURE
NARROW TIMELINE
Silicon Valley Bank (SVB) is the leading bank to the tech industry.
There are large customers with $100s of millions if not billions in deposits.
There are also a lot of tech startups with maybe $5 million each in seed money.
SVB is the darling bank of Silicon Valley.
When SVB took in all these deposits they needed to do something with the capital. They could give loans or invest in bonds – SVB did both. They had about $75 billion in loans and $75 billion in bonds, where they bought mostly Treasury securities.
But a lot of the loans were to the same companies that were making the deposits. In fact, SVB would lend to a start up and deposit the funds into that same company’s SVB bank account.
The assets and liabilities were both very heavily oriented to tech firms of all kinds.
The bonds they bought were very long maturity, high duration, very volitile U.S. Treasury bonds, and a lot of these were 30-Year bonds.
BOND RISK
There’s almost no credit risk in a 30-Year Treasury but there’s a ton of market risk.
There is a bundle of risks with bonds – including credit risk, market risk, settlement risk and foreign exchange risk.
There’s a ton of market risk because the longer the maturity the more volitile the bond is.
When interest rates start to go up the value of the bond goes down. Or, when rates go down then the value of the bond goes up.
What’s been happening to interest rates? They’ve been going up.
A lot. Like 5%.
That means if you bought a 30-Year bond more than a year ago that bond has lost a lot of value.
So, SVB has huge losses.
Why didn’t the collapse happen a year ago?
Banks can put bonds in something called “Hold to Maturity” (HTM).
It’s an accounting loophole where they don’t have to mark it to market price. In other words, they can mark it on their balance sheet at the price they bought it for instead of today’s market price.
You don’t have to record that it’s going down in value. Hedge funds have to use market price but banks do not.
So, SVB had large losses but they were hidden.
Then something happened.
Jim suspects there was a leak by an insider. The CEO and some top officers started dumping their own stock in January. That looks suspicious, and Jim says to let the wheels of justice turn but he’s not accusing them of anything.
Word got out and people started pulling their deposits out.
Well, if the money is walking out the door, and it was by the billions, at some point you have to sell the bonds to pay the depositers.
The minute you sell then that loss is booked at market price. It hits you all at once.
They’re a bank and so they’re regulated and had to report the major loss of about $2 billion.
This shocked the market.
The CEO, Greg Becker (now removed and part of a class action lawsuit by shareholders), went on TV and said everything is fine. Don’t worry. When the CEO of Bear Stearns did that in 2008 the company went bankrupt three days later. So, if a CEO if usually quiet and suddenly announces everything is fine? Get your money out.
Last Wed. into Thurs. morning the CEO said they were going to raise capital. The ‘helper’ was Goldman Sachs. A kiss of death – if Goldman is trying to help you out they’re probably trying to stab you in the back.
SVB tried to get a group of investors together, it fell apart, and more depositors pulled out their money.
By Friday morning it was over, and the Federal Deposit Insurance Corporation (FDIC) shut the bank Friday afternoon.
On Friday the FDIC said: All deposits up to $250,000 are fully insured and you’ll get your money on Monday morning.
Everybody else? You’re wiped out.
Those deposits weren’t frozen – they were gone. Even those insured were to be given a certificate to exchange at some point for a value the depositor would be informed of in the future. Illiquid.
They were going to sell off SVB assets and then pay the certificates. Maybe in a year. Maybe longer.
START UPS
Start ups with $5 million in capital in SVB? Your money is gone. You can’t make payroll. You can’t pay vendors or rent.
There would have been a wave of bankrupcies that rippled to venture capital companies and on and on.
PRO TIP – always on a Friday. They do this on a Friday to give them the weekend to figure it out.
WEEKEND FED & TREASURY
Janet Yellen, who is clueless, Jay Powell, who knows a lot, met with the FDIC, with lots of input from the White House (Lael Brainard just moved from the Fed to the Treasury).
NEW PLAN
They came up with a new plan announced on Sunday night.
New plan:
They removed the $250,000 limit to be insured. Blew it away. ALL depositors were covered for all their money.
BAIL IN
In 2014 it was decided that depositors would lose their money above $250,000 to save the company. It was called a bail in, as opposed to a bail out where the taxpayers paid to save the company.
This is the first test of the bail in idea and the FDIC did a 180 degree turn – no bail in and instead another bail out by taxpayers.
BANK TERM FUNDING PROGRAM
The US government didn’t just bail out SVB. They made this BTFP available to every bank in the US.
They said, “The door’s open! Send us all your Treasury bonds, your mortgage backed securities, whatever you’ve got. We’ll give you 100% of what you got them for. Not market price.”
They offered it all banks and they’re all in the same position as SVB.
You’re going to get a wave of bonds, notes, crappy mortgage backed securities where the governement gives them an ultra-low interest rate one year loan for 100% value.
Jim says they’ll extend that when the year is up.
WORSE THAN THAT
The Fed doesn’t mark to market.
That means they put that bond, note and security on their books at 100% when it’s not worth that. They’re going to mask the losses.
So, the Fed is going to mask the losses. The banks are going to mask the losses. The banks are going to take the cash they get from the Fed and turn around and give it back to the Fed, who will hold it as excess reserves (savings).
It’s going to blow up the Fed’s balance sheet. Assets are going to go up as bonds, and liabilities are going to go up as reserves.
But for the last 15 months the Fed has been shrinking the balance sheet.
Now they’ve given an open invitation for every bank to shoot their bonds into the Fed.
This destroyed the Fed’s credibility.
We’re already seeing this in the price of gold. It’s already risen.
They bailed out the SVB depositors.
They bailed out every bank in the US.
They bailed out the billionaire owners who lent money to the start ups.
All the billionaire cry babies got bailed out.
Who pays?
US taxpayers.
Biden said not a nickel from the taxpayer. A complete lie.
WHERE’S THE MONEY COMING FROM
The Exchange Stablization Fund was set up in 1934 based on insider trading profits by FDR.
He stole all the gold from the Ameriican people, gave them $20 in paper money and then marked the price at $35 on the government’s books (a 75% profit). That profit is the Exchange Stablization Fund.
They’re using that fund almost 90 years later to bail out billionaires again.
Plus, they’re increasing the fees for FDIC insurance, which will be passed on to citizens as fees or lower interest rates on their savings.
Dan Amoss, Jim’s Senior Analyst, says $40 – 50 billion dollars was pulled out of SVB in 48 hours.
This wasn’t private mortgage backed securities like 2008, this was government backed HTM that was fine if they could hold the bonds until the maturity date. But they needed the cash and couldn’t sell at the HTM price to pay the $50 billion being withdrawn in a bank run.
This is going to force the Fed to cut interest rates in 6 – 9 months because regional banks won’t be able to survive as they’ll have less funds to cover bad loans.
CORRUPTION
Jim wants to add that the CEO of SVB, Greg Becker, was on the Board of Directors of the San Fransisco Federal Reserve. He’s a Fed insider.
The second bank that just failed is called Signature Bank. One of the Directors of Signature Bank is Barney Frank. He was the Chairman of the House Banking Committee when they wrote Dodd-Frank. Dodd-Frank is Barney Frank. He is the ultimate Washington insider.
So the Washington insider and the Fed insider are the two guys gettting bailed out. Insiders are bailing out insiders.
3 FIASCOS-IN-THE-MAKING
Each of these three issues is bigger than what just happened.
1. The Fed was expected to raise rates, maybe another 50 basis points, in March because inflation is still hot. Now it could be zero. How big a hole do they want to dig?
Jim believes they’ll raise 25 basis points to show they’re still sticking to their plan. But it’s going to make the situation worse.
2. There’s about to be $10s – 100s of billions, maybe $1 trillion, worth of bonds coming onto the Fed’s balance sheet. They need to print the money to (over) pay for those bonds.
What’s that going to do to inflation? It might come roaring back.
The biggest possibility?
LONG TIMELINE
Number 3. Go back to November 2021. Bitcoin was over $69,000 and crashed 70% over the next year.
There was contagion in the crypto world with the blow up of 3 Hours Hedge Fund, FTX (biggest financial fraud in history) and a custodian Genesis.
So, there’s a meltdown in the financial world in the West, and it will get worse.
On top of that is there a risk that the meltdown in the crypto world will go over to the mainstream financial world through contagion and sets off a bigger crisis?
Silvergate Bank failed a week before SVB failed. Silvergate specialized in crypto but was part of the regular banking system.
It failed and the contagion spread to the regular banking system.
Now it’s a feed-back loop as Signature Bank failed and it was also a regular bank that offered crypto services using a stablecoin called USDC which is a crypto that is kept at par with the US dollar.
That melted down and the stablecoin traded down at $.83. Jim suspects that the whole stablecoin industry is a giant fraud, backed by non-trasparentt paper,
If that all melts down you’re talking about $500 billion – $1 trillion. It’s just waiting to happen.
With this new bail out the Fed is in effect bailing out the crypto world.
THE FUTURE
This is going to get a lot worse and will become bigger than the Fed has the capacity to deal with.
Jim Rickards can be found on Twitter and at James Rickards Project.
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Thank you to Jim Rickards for including me in his bestselling book The New Case for Gold.
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Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.
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Coins and Crowns
words and music Elaine Diane Taylor
SOCAN/ASCAP
from the album Coins and Crowns
Coins and Crowns is featured in Episode 1 of Mike Maloney’s documentary series Hidden Secrets of Money.
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Not Much of a Holiday (Bank Holidays and Media Persuasion)
words and music Elaine Diane Taylor
Single available on iTunes
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A Terrible Breeze (War and Social Media)
The news comes down
A little bluebird sings
Words of war
Fire and furious things
Of testing might
‘Til no patience knows
If keeping still
Still keeps you safe at home
It’s a terrible breeze
They speak of today
Of threats that used to live a world away
We all know wind
Can blow both ways
And a terrible breeze can blow it all away
A worldwide net
Sees our village grow
Until we all forget
What each one used to know
How a blind bird’s wings
Can reach the shore
And turn the wheel of peace and war
Village fools sinking down, down, down
Debt and gold wound in numbered shrouds
Deal of a life it’s bread and clowns
Can we afford another go around?
The news comes down.
It’s a terrible breeze. The news comes down.
words and music Elaine Diane Taylor
Single available on iTunes
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Preparing for the Fall is a live boutique album available for digital download — featuring Wag the Dog, Black Swan Dive, American Pie and Gods of the Copybook Headings. Also available on iTunes, Google Music, Amazon Music and major digital distributors.
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The Gods of the Copybook Headings
words by Rudyard Kipling and music by Elaine Diane Taylor
from the album Preparing for the Fall.
The copybooks of the early 1900s gave us all the wisdom we need. The sayings that were copied are the truths, the gods of our world. All the empires who followed the gods of the marketplace have fallen, and there’s terror and slaughter when the gods of the copybook headings return. The lyrics are by Rudyard Kipling. One of my gurus.
Another Week on Wall Street
words and music Elaine Diane Taylor
from the album Coins and Crowns.
“A little grease (Greece) is floating out to sea, and little pigs (Portugal, Italy, Greece and Spain) are bobbing up and down, they’ll send a storm and we’ll see, when the tide goes out who’s naked on the beach“. The world is changing as we know it.
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Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.
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My thoughts….
New technology always brings new forms of money.
Primitive societies used commodities to trade a surplus of a valuable item in exchange for items they desired.
But these societies sometimes built up an enormous surplus of the commodity in season, which they destroyed in works of art or ritual, to avoid changes in the traditional class structure.
Who would like to keep the present class structure? The ones who have power and advantage now. So, enormous amounts of money being created with new technology need to be destroyed in art or ritual. How are they going to manage that without those with that technology seeing and overthrowing that idea?
Money is a social construct.
Once that money became currency it extended the reach from those in front of you trading item for item, to those far beyond your shores.
The alphabet took words and divided them into repeatable units to be separated and strung along, carried at distance and then reformed in the quiet of one’s own mind while reading.
So currency separates commodities and other items of value into concise repeatable units.
Packaged, shipped, identical.
What a shame when people are viewed as repeatable units, all the same.
The oral societies are not led by the alphabet; they are led by the voice and ear. Each item is different, unique, and so bartered over. These countries will not easily move to digital wallets and identical purchases.
The mechanical age pushed humans into repeatable units, learning by rote, driving down straight line highways from here to there.
The electric age changed it all. The electric world see everything at once. Instant on and off. Insight. Frames of information all at once. Ratios of space instead of a line up of information one-after-another.
To keep this central bank system going, those running it must have ever expanding borrowing and debt. This system takes a toll from the users. The users must need to borrow to make the fees.
They have failed to keep inflation reigned in because of the greed of a few. Their system has failed and they know it. They are rushing to use the new technology of digital money to cement in control before the changing structure from centralized to decentralized bring inevitable loss of power to them.
In the past there was a push to war to cover the crash of a financial system. The economics of war bought so many things to build and blow up. New debt was needed and the resulting chaos was a cover for those with power shifting their assets and sometimes location to a new system.
My biggest thoughts at the moment come from the book Understanding Media, written by Marshall McLuhan. He writes of Nobel prize winning author Alias Canneti’s book, Crowds and Power, talking about the psychic effects of the Germany inflation after the First World War.
The depreciation of the citizen went along with that of the German Mark.
There was a loss of face and of worth, in which the personal and the monetary units became confused.
“Janet Louise” is the new song coming soon.
This one is about Yellen, Summers, Dimon, punch bowls, musical chairs, hidden backdoors, keys and the hurricane building outside.
Hush little citizen, sway, sway, sway, while the music still plays.
This little piggy went to market…
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Nothing on this site is intended as individual investment advice. We’re all watching which way the wind is blowing.
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Elaine Diane Taylor 