The Old, The New, and the FDIC

Unprecedented times?

With everything going digital, it's becoming very difficult to conceptualize physical value. So, are we living in unprecedented times? In the late 1800s, a young American man was working as a mine manager in Western Australia.  His name was Herbert Hoover, who would later become US President.  After his stint in Australia he went on to China and sold shares in gold mines across the country, which appeared to be a fantastic investment for the buyers.  The only issue was that the gold mines turned out to be empty.  This is where the term comes from "being given the shaft".  

Similarly Mark Twain reportedly described a gold mine as "a hole in the ground owned by a liar."

It appears that some things never change.  Markets are now filled with even more derivatives, and we have gone from low interest rates and easy money into a rising interest rate environment globally. 

Physical gold, silver and platinum bullion remove that miner ‘fib’ or management risk and indeed any third party or counterparty ‘promissory’ risk.

Speaking of counterparty irks, as an unsecured creditor when you deposit money into a bank, the banking crisis is one that potentially affects all of us…

Will AI save us?

Cathie wood recently commented that AI is unlikely to fix the banking crisis. Elon Musk chimed in and seconded her opinion on Twitter. Although it's an extremely powerful tool, the effects of interest rate hikes take time to ripple throughout the economy and Cathie noted that the Fed has potentially gone too far. This is a surprising statement as Wood was previously a strong proponent of powerful technology driven stocks carrying investors out of the 2020 crash.

FDIC: Bailout or deal?

The Federal Deposit Insurance Corporation, or FDIC, has featured quite highly in the news recently for helping organise the sale of First Republic to the US's largest bank: JP Morgan.  What is not being focused on is that JP Morgan received $295 billion from First Republic in the form of assets, securities and deposits, while only investing a small fraction of that to take ownership of the bank.  JPM reportedly books around a $26b profit whilst the FDIC lost $13b… Thanks to the American tax payers…

There are 2 major possible outcomes from these bank failures:

1. Consolidation of banks.  The fear of failure could incentivise people to move their money out of small banks and into bigger banks.  In the harshest scenario of bank failure, this would be one of the only options. That consolidates more power into a few who clearly have a cosy relationship with the FDIC.

2. With potential runs happening on banks, regulators have been eying ways to prevent them.  The G7 are apparently already meeting to draw up plans for a more robust response to bank runs.  One simple way to do this would be to implement a CBDC, which is digital only and cannot be removed from a bank as cash or maybe even the dreaded ‘app’ which removes their gates of control.

And so as we started, the alternative is REAL money, real precious metals, otherwise known as ‘outside money’ whilst these games and unknowns continue with the ‘inside money’ of Fiat currency. 

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