US Banking Crisis: A Ticking Time Bomb and how Bitcoin can help you in Swift Current.
The Looming Crisis in US Banking
The US commercial real estate and bond market crashes have collided with $9 trillion of uninsured deposits in the American banking system. These deposits can vanish overnight in the cyber age, and the US Treasury and Federal Reserve's attempts to downplay the situation as "idiosyncratic" are dangerously misleading.
Many of America's banks are in dire straits. Almost half of the country's 4,800 banks have depleted their capital buffers, and a report by a group of banking experts reveals that more than 2,315 US banks are currently worth less than their liabilities.
The Refinancing Cliff-Edge
The full impact of the Fed's monetary tightening has yet to be felt. A massive debt structure faces a refinancing cliff-edge over the next six quarters. Only then will we discover if the US financial system can safely deflate the excess leverage caused by extreme monetary stimulus during the pandemic.
The FDIC's Response
The US Treasury and the Federal Deposit Insurance Corporation (FDIC) thought they had stemmed the crisis by bailing out uninsured depositors of Silicon Valley Bank and Signature Bank after these lenders collapsed in March. However, their attempts to leave the matter vague and hope for an implicit guarantee failed, leading to a rapid exodus of depositors from First Republic Bank.
A Potential Credit Crunch
As more banks face insolvency, they will likely cut back on lending to avoid a similar fate. This could result in a credit crunch that further exacerbates the problem. Commercial property loans have exploded during the pandemic, and their short maturities mean that a significant portion of the debt comes due in late 2023 and 2024.
Comparing to the Subprime Crisis
While the potential losses from the current situation may not be as severe as the subprime crisis, they are not trivial. US commercial property prices have only fallen by 4-5% so far, but a peak-to-trough decline of 22% is expected. This would significantly impact regional banks that account for 70% of all commercial property financing.
The Role of the Fed and US Treasury
The root cause of this bond and banking crisis lies in the erratic behavior and perverse incentives created by the Fed and the US Treasury over many years, culminating in the violent shift from ultra-easy money to ultra-tight money. The central bank now faces a difficult choice: either capitulate on inflation or let the banking crisis reach systemic proportions. For now, they've chosen to risk a banking crisis.
Bitcoin and Cryptocurrency as a Potential Solution
In light of the looming banking crisis, cryptocurrencies like Bitcoin could offer an alternative financial avenue for individuals looking to protect their assets. As decentralized digital currencies, they are not directly impacted by the traditional banking system's instability. This independence from centralized financial institutions provides users with greater control over their wealth and reduced exposure to risks associated with the traditional banking sector. Additionally, cryptocurrencies can provide a hedge against inflation and currency devaluation, as their supply is typically limited and not subject to the whims of central banks. However, it is essential to remember that cryptocurrencies also come with their own set of risks, such as price volatility and regulatory uncertainties. As such, potential users should approach cryptocurrencies with caution and conduct thorough research before considering them as a means to safeguard their assets in times of financial turmoil.
Gold and Silver as Time-Tested Safe Havens
Gold and silver have long been considered safe-haven assets during times of economic uncertainty and financial instability. As precious metals, their value is not directly tied to the performance of the traditional banking sector or fiat currencies, which can make them a valuable hedge against banking risks. Unlike cryptocurrencies, gold and silver have a long history of maintaining their value, even during periods of inflation, currency devaluation, and market downturns. This stability has made them an attractive option for investors looking to diversify their portfolios and protect their wealth from potential financial crises. It is worth noting that physical gold and silver may require storage and insurance costs, which should be factored into any investment decision. Additionally, investing in gold and silver through exchange-traded funds (ETFs) or stocks in mining companies can offer a more convenient alternative, although these investments may still be subject to market fluctuations.