Do you think that money in your bank account is really, well, yours?
What happens if the bank doesn’t have the cash to operate and the Federal Reserve or other banks/entities won’t provide it with the liquidity to continue its operation?
Recall that in the 2008/2009 financial crash, the banks were bailed out by the US government. The government passed measures in order buy troubled assets that were in danger of defaulting. They injected a ton of liquidity into the system to keep the system afloat.
What if it’s not possible to inject enough liquidity?
What if laws were changed in recent years to prevent the governments of the world from injecting the liquidity?
This article is aimed at the US but I’ll outline global examples in recent times of this happening. And consider during an actual meltdown of the system, what kind of ‘emergency measures’ could be implemented...
Bank bail-ins
You’ll probably be surprised to hear this, but the money in your bank is technically an unsecured liability of the bank - it’s not really your money. It’s an IOU of sorts. You are considered an unsecured creditor to the bank. From Investopedia,
With bailouts, the government injects capital into banks, enabling them to continue their operations. During the financial crisis, the government bailed out major banks by injecting $700 billion into names like Bank of America (BAC), Citigroup (C), and American International Group (AIG). Since the government doesn't have its own money, it must use taxpayer funds.
Bail-ins work a little differently, providing immediate relief. Banks use money from their unsecured creditors, including depositors and bondholders, to restructure their capital to stay afloat. Put simply, they can convert their debt into equity to increase their capital requirements.
Converting debt into equity means using your money to stay afloat in times of crisis.
Is this legal in the US?
Bank bail-ins are legal in the United States. They became the new norm with the passing of the Dodd-Frank Wall Street Reform and Consumer Act, which was ushered in as a response to the Great Recession. The federal government will no longer inject taxpayer dollars to prevent big bank failure. Instead, banks now have the authority to use debt capital as equity to avoid going under.
And from International Man we get this description,
Once a deposit is made at the bank, it’s no longer your property. It’s the bank’s. What you own is a promise from the bank to repay. It’s an unsecured liability. That’s a very different thing from owning physical cash stuffed under your mattress. Money deposited into the bank technically makes you a creditor of the bank. You’re liable to get burned from a bail-in should the bank get into trouble.
Cyprus, 2013
The people of Cyprus had a rude awakening in 2013. They experienced first hand what a bail-in looks like when their bank accounts had been taken to recapitalize the banks.
A bailout wasn't possible, as the federal government didn't have access to global financial markets or loans. Instead, it instituted the bail-in policy, forcing depositors with more than 100,000 euros to write off a portion of their holdings—a levy of 47.5%.
Although the action prevented bank failures, it led to unease among the financial markets in Europe over the possibility that these bail-ins may become more widespread. Investors are concerned that the increased risk to bondholders will drive yields higher and discourage bank deposits. With the banking systems in many European countries distressed by low or negative interest rates, more bank bail-ins are a strong possibility.
Italy, 2015
In 2015, a few Italian banks become insolvent and chose bail-ins, similar to the Cyprus example. From International Man,
One shot from a pistol pierced the night right before Antonio Bedin collapsed, dead.
Antonio, a 67 year-old retired Italian, had just committed suicide. He was plagued by health problems and by the loss of his savings.
Last year, four small Italian banks became insolvent and immediately needed capital. They turned to a bail-in.
Antonio was one of thousands of small savers who were wiped out. Antonio lost everything. Then he shot himself.
He wasn’t alone.
There was another pensioner who hung himself at his home near Rome after he lost more than $100,000.
The government promised to make the investors whole. I couldn’t find evidence that they actually did.
FDIC covers your money though, right?
The Federal Deposit Insurance Corporation, or FDIC, is supposed to cover checking accounts, savings accounts, money market accounts, Certificates of Deposit accounts, and other related accounts issued by a bank up to $250,000 per depositor.
They’ll supposedly only use bail-ins for funds above the FDIC covered limit of $250,000 but in a real financial collapse, they’ll be various justifications to change this. It’ll be lowered to $200k, then 100k, and so on.
The fundamental issue is that the FDIC only has about 1.5% of the funds available to cover if there was a catastrophic banking failure.
From a recent Kitco News interview with Lynette Zang,
She added that, based on recent meetings, the Federal Deposit Insurance Corporation (FDIC) is aware that there could be a major issue in the U.S. financial system, and is openly discussing the likelihood of implementing bail-ins. There are discussions and deliberations over whether making retail bankers explicitly aware of the legal bail-in stipulations would create panic and exacerbate the potential problem.
"They're laughing at us," she said. "[They're saying that] normal retail clients don't need to understand that there's really no money in the FDIC deposit insurance fund, and they should be expected to be bailed in."
Credit unions do not fall under the FDIC’s purview – they’re insured by the National Credit Union Administration (NCUA). The NCUA is also supposedly able to cover up to $250,000 of funds per depositor.
Extrapolating this concept to a global financial crisis
Much of the global financial system stems from the US. The Federal Reserve’s policies don’t just impact Americans, but the entire world. The world has become much more interconnected in many ways as well, not just with the financial system.
Many countries with weak currencies denominate and settle in US dollars in order to trade on the international stage, because the trading partners don’t want their weak currency which is also likely more prone to wild fluctuations in value.
From what I (and many others) can tell, the system is going to collapse. It must. The debt has become too much so just servicing it is taking up evermore of national budget’s – it simply can’t continue as-is.
If we connect the dots to another globalist agenda item – the CBDC – we can see the future in a sense. While they can slow-roll the release of a CBDC and simultaneously phase out physical cash, a true meltdown/collapse of the system provides a fantastic opportunity for them.
People will be clamoring for relief, and the government – who created the problems in the first place – will be the willing saviors to step-in and provide ‘the solution’.
Governments around the world will say “well this crisis means we need an overhaul of the system – coincidentally we’ve been piloting a CBDC and it’s nearly complete. Let’s skip some of the regulatory hurdles (much like with COVID) and get this rolled out ASAP”. That’s certainly one scenario, and a very plausible one as far as I can tell.
Along with this I’d also expect various levels of bank bail-ins – it just depends on how badly it melts down. Certain parts of the world will fare worse, particularly those with a lot of debt.
I expect the parasite class to siphon even more wealth of the 99% in terms of 401ks/IRAs and other physical assets as well. There’s historical precedent for this. They want people as dependent on the system as possible.
Conclusion
While scary to consider, it must be part of any investor’s strategy to protect their wealth through all likely scenarios. With potential bail-ins looming, there are a few prudent steps to take.
Hold as little cash as possible in the bank/credit union. For depositors with over $250,000 USD, this should be a top priority.
Diversify your assets – precious metals, crypto, real estate, other asset classes depending on one’s risk profile.
Diversifying internationally could be another good option. Real estate, foreign bank accounts, residencies/citizenships already setup before the crash.
Avoid banks that have large amounts of derivatives, which pose additional risks in an already risky time
Put money in short-term US Treasury bills. These are providing about a 4% return currently and are a safer bet than a bank account.
Pay attention to additional rhetoric coming from central banks and politicians about liquidity issues and/or bail-ins
Of course, for legal purposes, I need to mention this isn’t financial advice. But I think after doing one’s own research and reading this article these are the correct steps, or at least a solid step in the right direction.
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Good advice, keep these articles coming.