This article first appeared over a year ago, on February 8, 2016, but the teaser pitch is still making the rounds and I’m still getting questions about it, so I’m re-posting it here for your information.
The data below and my comments are all from a year ago, I have not updated or revised them (and the ad itself, though undated, still appears to be unchanged from a year ago as well). For what it’s worth, I did just go back and check on the performance of those investments over the past year — the five big Canadian banks are all up and all moving together, they’re up about 50% on average over the past year and, perhaps not surprisingly, have had almost exactly the same performance as the average big US financial institution (the XLF ETF, representing the financial sector, is also up 50% since February of last year). And Goldman Sachs, which is the bank they were (and are, apparently) predicting would go bankrupt is up even more, with a total return of just about 70%.
So, without further ado, the tale of woe and bankruptcy that we deciphered on February 8, 2016:
If you’d like an external indicator for the fear that many folks seem to have about the market, you need look no further than the world of newsletter teasers. There are almost always “doom is nigh” teaser pitches around, and they’ve been there since at least the 1980s, but they proliferate during times like right now, when things are looking uncertain or when the market is moving downward — that’s when we’re most likely to respond to “things are going to be terrible” sales pitches.
And, since we’re already in a somewhat pessimistic mood so far in 2016 for whatever reason — whether it be the presidential campaign’s cycle of exaggeration, or the drop in the S&P 500 over the past few months, or the failure of our “can’t miss” investments in gold or hot IPOs (or whatever) to save us — the copywriters can find fertile ground for weaving their magic. So far the ones that have caught our eye are David Stockman’s inaugural teaser pitch promising that Amazon will crash (that’s been a good call so far, with AMZN down 20% in the last two weeks), and today’s pitch from Michael Lombardi that “You’ll Never Guess Which BIG American Bank is Going Bankrupt NEXT.”
Lombardi’s ad, which is hawking subscriptions to the aptly named Judgement Day Profit Letter, is, in fact, similar to the ads he was running in January, 2012 about buying “New Swiss Bank Accounts” — which should probably come as no surprise, since 2011 and 2015 have been by far the worst years for the broad market since 2008 (and the financial sector, which is what he was talking about then, as now, was down by about 25% on the year as of December, 2011).
Here’s the “imagine yourself in a panic” spiel that opens the ad:
“70-times more leveraged than Lehman Brothers…
“You’ll Never Guess Which BIG American Bank is Going Bankrupt NEXT
And just like Lehman Brothers, the government won’t save them….“Imagine it’s 3 p.m. on a Friday afternoon and you’re sitting at your desk…
“The markets are about to close and you’re catching up on few things before the weekend arrives.
“A call comes in. It’s your wife. She wants to know when you’ll be home.
“Then this headline hits your computer screen…
“One of the World’s Biggest Banks Just Collapsed
“At first it seems like a hoax. Perhaps a misprint.“But the familiar face of a well-known financial journalist hits your favorite financial news site and says:
‘I don’t know how they didn’t see it before. The bank was leveraged 349-to-1′”
Cue the spooky music. Prepare the made-for-tv special.
So what’s Lombardi talking about? Well, my impression is that he thinks there’s a Lehman-like moment coming, and that he’s got your safe haven ready — here’s the hint on that:
“How You Could Protect Yourself and Profit From the Undoing of this Bank
“Although I believe the inevitable crisis will devastate the majority of unsuspecting investors…
“There are always ways you could safeguard your money… and even turn a profit—in any market.
“In a moment, I’ll reveal a handful of potential safe-haven investments I’ve recommended my readers use to shelter their money…
Are you getting our free Daily Update
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just click here...“…it includes a series of banks that have never collapsed, never needed a bailout, and are immune to any financial collapse…
“Banks that pay up to 400% more than the average bank CDs…
“Some have even grown their payouts as high as 36% in recent years.”
So what’s the story? Well, we can identify what his “Big American Bank to go Bankrupt” is by checking those clues — here’s what he thinks tells the story:
“‘The Smoking Gun’ of the Next Catastrophic Financial Scandal
“Buried deep on page 26 of the latest quarterly report from this government agency, we found something that made my jaw hit the floor.
“It was the same reaction I had when I first saw Lehman’s balance sheet.
“Only this time it could be a whole lot worse.
“A much bigger catalyst that could devastate the global economy… unraveling every market, every stock, and every retirement account.”
That quarterly report he’s talking about is called “Notional Amount of Derivative Contracts: Top 25 Commercial Banks, Savings Associations and Trust Companies in Derivatives”
Sounds fun, right? It’s a report from the Office of the Comptroller of the Currency, in the Treasury Department, which tracks bank derivatives activity. And the images they lift from those reports indicate that the bank they’re talking about is Goldman Sachs (GS), the big investment bank that does indeed have much higher derivative exposure than most commercial banks (though we don’t know what the derivatives are based on, or to what degree they balance each other out or are hedged on the books at GS).
So… is Goldman Sachs going to be the next canary in the coal mine? Will they go bankrupt and bring us back into another dark age? I have no idea. Goldman does have a large exposure to derivatives relative to its assets, and that relative exposure in those reports from OCC is much larger than most of the big commercial banks, but GS is not really a commercial bank and they don’t work from that huge asset base or have the same business model — they’re traders and facilitators, not lenders. There’s a pretty good explanation of what the interest rate swap derivative exposure for Goldman might mean from a SeekingAlpha author here — they might not be right, but they can explain it better than I can. And the spiel about Goldman being 70X more levered than Lehman Brothers and having $44 trillion in obligations is comparing apples to hand grenades, from what I can tell — the quarterly derivatives activity report isn’t really about the health or safety of Goldman’s balance sheet, or even their net exposure.
I’m not rushing out to buy GS, but neither am I assuming that it will collapse into bankruptcy — that seems like a leap to me, given the fact that Goldman has much the same leadership now as it did in 2007 and presumably is not taking ludicrous risks. Maybe that’s pollyannish of me, I don’t know, but I don’t expect Goldman Sachs to bring down the economy if interest rates rise and the interest rate swaps market loses a lot of money for poorly-positioned banks. I don’t think there’s ever been an interest rate change as widely expected or thoroughly telegraphed as the current (and presumably continuing) rise in the Fed Funds rate, so the notion that rates rising this year will shock and rock Goldman Sachs (or anyone else) seems absurd.
But you can form your own opinion on that, what I’m interested in sniffing out are the safe haven investments that Lombardi talks about as his antidote for this Goldman-led crash. Here’s how he catches our interest:
“4 Elite Banks That Will Save You
“I’m talking about a unique set of banks that have been tested and proven to withstand the tide of economic destruction…
“…a group of banks that went through the 2008 financial collapse with no worse than a minor hiccup.
“You see, while traditional investment banks like JPMorgan, Citibank, Wells Fargo and Bank of America received help during the Lehman Brothers’ collapse…
“These financial institutions had no failures, no bailouts and no losses.
“In fact, they are ‘derivative-proof.’
“They are regulated tightly by a benevolent power with no ties to the Fed and no history of financial volatility…
“And over the past 150 years, they’ve avoided the intermittent crises other banks have experienced.
“In fact, the reason why banks like Lehman and the colossal giant I have been telling you about in this presentation fail is the exact reason why these banks are so safe.
“They are regulated and run by a strict team that makes sure they balance their books and forbids them to over-leverage.
“The Swiss Banks of America.“
What else do we learn about this? A bit more hinting:
“In fact, these banks offer a unique income program that pays multiple times more than average bank CDs…
“…a program that has paid out reliably and consistently every year going back as far as 1829.
“And in recent years the 4 elite banks you will learn about in my report have boosted their payouts by as much as 25% to 36%.
“They provide the most consistent and reliable and fastest-growing income stream I’ve ever seen.
“I consider them a MUST-have for both safety and income, especially in a crisis situation like the one I’m predicting will happen.”
So… we are not overly laden with hints here about who these “Swiss Banks of America” are, but that language leads me to think that we are very likely again being teased about… dum dum dum… Canadian banks.
The one that has “paid out reliably and consistently every year going back as far as 1829” is Bank of Montreal (BMO), which has indeed paid out a dividend for 187 years now. It hasn’t necessarily grown every year (they kept the dividend flat for several years following the credit crisis, for example), but the dividend has been paid every year and has reportedly never been reduced.
Unless, of course, you’re a US investor — Bank of Montreal is an international company, and they’re listed in NY as well as in Toronto, but they report in Canadian dollars and pay their dividend in Canadian dollars, so for US investors the dividend they receive has been disappointing in recent years. The US$ payout has fallen perhaps 15-20% or so since 2013, entirely because the Canadian dollar has fallen so precipitously against the US$.
And BMO did, of course, take a huge hit in 2008 along with almost all the other banks in the world. It’s true that their financials were much stronger than many US banks back then, but that didn’t prevent the shares from falling 60% or so while the crisis was roiling markets. The stock has been significantly less volatile than the average big US bank, and better than some — over the past ten years BMO has a total gain for US investors (dividends included) of about 45%. That’s better than the broad financials ETF XLF, which is down 20% and never really recovered from the 2008 crash, and it’s better than Goldman Sachs, which is up 17% over that time, but it’s not as strong as JP Morgan (JPM, up 84%) or Wells Fargo (WFC, up 97%). As financials have taken a big hit over the last month or few, BMO has been much more solid than the big US banks — down only 5% or so versus declines of 15% for JPM, WFC, etc. So yes, “solid and less volatile” seems a reasonable assessment.
Banking regulators have been widely considered to be stronger and more conservative in Canada in the US, and banks weren’t allowed to do some of the riskier things that brought down Bear Stearns and Lehman or to issue mortgages as freely as their US counterparts in the mid-2000s, but they are also inexorably tied to the Canadian economy and the Canadian dollar — they’re global banks, but they still do a large part of their business at home.
And while BMO does pay a solid dividend, and has for an incredibly long time, that’s not the same as getting income from a CD — so yes, of course BMO’s annual dividend is “multiple times more” than the average bank CD… but unlike an investment in a CD, buying BMO does not guarantee you any return of principal when the CD matures. The yield on bank stocks is higher than the income you earn from a bank account or CD because the risk is much higher.
Perhaps more relevant as a comparison would be the dividend yield of BMO compared to the dividend yield from the big US banks — and on that front BMO looks pretty decent, too, with a current yield of almost 4.5% versus the 2.5-3.5% that’s typical of large US banks. Of course, part of this is because of an intentional plan to pay out more of their income (and to the still fairly depressed dividends from US banks, since many of them have been putting excess cash flow toward rebuilding their reserves over the past several years). BMO has a payout ratio of about 50%, versus 30-40% for JPM, WFC or USB (to name just a few US bank examples).
Canadian stocks in general tend to pay higher dividends, over the last five years or so the average yield on large cap Canadian stocks has been about one percentage point higher (100 basis points) than the average yield on S&P 500 companies, so presumably it’s in part a tradition and an investor demand for yield (and a high weighting to energy and natural resources businesses, some of which were built as income-focused companies), so I guess it’s no surprise that Canadian bank stocks have somewhat higher yields than their US counterparts.
What might the other “Swiss Banks of America” be? Well, the three likely ones are the three larger Canadian banks that are listed in the US — Bank of Montreal is one of the “big five” Canadian banks that dominate the business north of the border, but it’s actually the fourth largest, the bigger ones are are Bank of Nova Scotia, sometimes called Scotiabank (BNS), Royal Bank of Canada, sometimes called RBC (RY) and Toronto-Dominion Bank (TD). The smallest of the “big five,” the only one smaller than BMO, is Canadian Imperial Bank, also called CIBC (ticker CM).
Here’s a chart of how those stocks have done for US investors, in terms of total return (dividends included) over the past ten years:
All of them have similar payout ratios in the high-40% range, and the dividend yield ranges from a low of 4% (CM) to a high of 5.25% (BNS). They have all been dividend raisers since the financial crisis, but they’re all in the same boat when it comes to their currency — so the effective dividend for US investors has been dropping for 12-18 months for all of them. That would presumably turn around if the Canadian dollar recovers against the US dollar, though predicting that would require knowing what will happen with the Federal Reserve and interest rates, the “flight to safety” that has everyone still rushing to the US$, and oil prices, among other things.
And none of them are dirt cheap, as banks go — if you go by their tangible book value, they trade in a range of 1.6-2.1X tangible book (that is, book value without including “goodwill” from acquisitions), which is substantially less than some superstar banks like US Bancorp (USB) at 2.3X tangible book, but also a much richer valuation than JP Morgan or PNC, for example (both around 1.2X tangible book). The trailing PE ratios for the Canadian banks are in the range of 9-11 mostly, so on that metric they’re perhaps slightly cheaper than the big US banks I looked at, but only marginally so.
Will they be the “New Swiss Banks of America?” I have no idea. I suspect that, as a group, the “big five” Canadian banks will probably continue to be a bit less volatile than US banks, and will continue to pay higher dividends. I also suspect that if there’s a huge derivatives counterparty crisis again and Goldman Sachs goes bankrupt, Canadian banks would not be a particularly comfortable hiding place — as we can see from that chart, they fell plenty hard in late 2008. They didn’t go out of business, and their actual financial results might be described as experiencing a “hiccup,” but their stocks collapsed along with everyone else. They did recover fairly sharply — but that’s actually true of the strongest US banks as well, and investors aren’t necessarily strong enough of stomach to plan to hold through a 60% crash before a recovery comes.
And no, I don’t think it will be derivatives on Goldman Sachs’ balance sheet that bring the whole house of cards down upon us — not because I think that’s impossible, but because it’s the kind of thing regulators and investors are looking for. The next “shock” crisis that brings us down will just as likely be something that no one is really thinking about today, and I’m substantially more worried about a global deflationary spiral than I am about inflation forcing a rise in interest rates and possibly hurting the swaps trading of some of the investment banks. But that’s just me, and I ain’t no expert.
Have a guess as to what our next crisis might be? Or any sentiment about whether Canadian banks will be a good hiding place when it hits? Let us know with a comment below.
The Sky is falling? Well it is,really big white snowflakes here too. The reality is the markets may tank further and the recession will get worse[we’re in one now according to my business] but if we keep plodding along doing the right things like living below our means maybe we’ll survive. I consolidated a bit stashed a bit more in cash if the money gets tight for living expenses to last a little longer and have reduced debt to basically only a few dollars because of business.AM I scared? of course ALL good savers are ALWAYS scared. We wouldn’t save otherwise (-:
If it’s really deflation,then you need cash/t-bills rather than Gold.[Bonds have bad risk-reward as yields are too low].
Re: GS…they may have the most derivatives but I would bet a dollar to a donut that they are just about delta neutral. The only ones going bankrupt are the ones who bet against GS.
I think the next bank to go bust is Deutsche Bank. 44 trillion in derivatives set to explode. Have you seen their stock price recently?
Brian is right – Deutsche Bank is insolvent. stock now lower than crash of 2008
to many cocos
Wow! I didn’t realize that your comment is over 4 years old, but I still agree. A close runner up will probably be HSBC!
GS going bankrupt is pretty far-fetched. They’re hedged out the wazoo, to be sure, but they routinely send out very mixed messages and bet in many different directions.
The Canadian banks are *not* havens this time in any way — Canada is just starting to go through the wringer of collapsing oil and gas prices, and Canada has a serious housing and consumer credit bubble. Take caution.
I live in Toronto and houses are really expensive are we in a housing bubble? wish we were but we are not prices just keep going up and the oil slump out west does not effect us since we don’t have any oil, lots of condos being built and everything is selling any old house is around a million downtown, our banks make every quarter a few billion they are solid cause the nickel and dime people to death
D: Please explain the W5 of why you believe and posted this. I am interested in your explanation of the Great White North credit bubble. Not in agreement or disagreement but yours is simply a statement with nothing to support it.
Kinda like a belly button, we all have one but it is of no use.
Thank you
A belly button was a life line at one time and every time you look at your belly button you should be reminded of your origin of becoming a human being. Miricle!
A few news writers have pointed to the Deutsche bank as being the one that could create an international economic crisis due to huge derivatives, poor management and a plummeting stock. Any thots on that?
Could just as easily be the big 4 Australian banks, “The Four Pillars”. [ANZ (ANZBY OTC), CBA (CMWAY OTC), NAB (NABZY OTC) and WBC] But the A$ has fallen in step with the loony. But if you don’t already own them they are 30% or more cheaper in US$ than a year ago with decent dividends.
The 1829 date is what drives me to BMO, but in other ways they could match. Westpac paid its first dividend before BMO, in 1817, but I don’t know about the other Aussie banks. Three Canadian banks have paid dividends since the 1800s (TD and BNS are the others)
Hotfoot the press:
Commonwealth Bank of Australia (CBA), the country’s top mortgage lender, on Wednesday posted a 4 percent gain in first-half cash profit, in line with expectations, while revenues slipped and loan impairment expenses increased.
Cash profit for the six months ended Dec. 31 rose to a record A$4.80 billion ($3.39 billion) compared with A$4.62 billion a year ago and A$4.77 billion estimate of six analysts polled by Reuters.
The board declared a dividend of A$1.98 a share, unchanged from a year ago.
I’d like to know which bank(s) are on the hook for the massive losses in infrastructure and industry interruptions associated with “Renewable Energy” in Southern Australia:
https://wattsupwiththat.com/2016/11/30/more-south-australian-grid-instability-no-way-renewable-energy-can-be-blamed/ Misleading title. In resource rich Australia, why S. Australia has followed the Greens in to chaos.
Check those loan portfolios before investing.
For the 12 (1967 – 1979) years of my banking career when I had responsibility for investing excess (weekly) reserves or borrowing to cover deficits, it was considered bad form to borrow from the “Discount Window” of the Federal Reserve Bank (FED). Generally one could borrow from or lend to other bankers by buying or selling “fed funds”. The “Discount Window” was for the weak and crippled. At that time, the Savings and Loan companies were strongly encouraged to borrow from the Federal Home Loan Bank – the thrift industry equivalent of the FED. How did that work out?
When the FED began encouraging banks to use the “Discount Window” in early 2008, I sold all my bank stocks including WAMU and advised my family members who had investments to do the same. That worked out pretty good and a lot better than the FHLB. It also gave me some money to invest in 2009 and that has worked out pretty good so far.
Today, banks are encouraged to borrow from the FED both in US and Japan. The central banks will pay you to borrow their money. I have no idea how this is going to shake out, but I think that encouraging banks to lend by paying them to do it might result in some pretty dumb investments – kinda like making home loans to people who could not afford to buy a home.
Yeah, the economy needs stimulation, but an old banker saying is, “trying to stimulate loan demand is like trying to push a rope”. Just saying
This Is What Central Bank Failure Looks Like: http://www.zerohedge.com/news/2016-02-08/what-central-bank-failure-looks Best2You-Ben
Maybe I should make my point clearer. Although the Canadian banks are pretty strong, if there is a shake out in the financial industry, it is likely that all financial institutions will get tarred with the same brush.
Remember that you buy canadian banks with an $US dollar whose value is approx. 35% greater in value than the Canadian $. Therefore receiving dividends in $Can is a wash when in comes to factoring in the ultimate yield since you are able to buy approx 35% more stock than a Canadian investor with your dollar vs. $Canadian
Very true, the yield today is the same for investors on either side of the border — it’s just that Canadian investors have experienced a growing dividend in recent years but US investors have seen a declining dividend. If the Canadian dollar rises against the US$ or stays steady, US investors may well see dividend growth.
Reminds me of Henny Penny…regulators and central bankers have much more ammo than most people imagine to spur growth–or at least inflate asset prices. (like increasing fractional reserves or flooding the world with more liquidity..China will probably do a major write-down…take all the bad debt on its books, reduce capital requirements for banks and shadow banks, and then growth will continue—remember populations are growing and have needs…this drives long term growth issues, not quarterly visions of sugarplums…
Except that the population in China is aging fast and potential workforce has dropped in recent years. Should be good for health-care related companies but growth probably not.
e.g. http://thediplomat.com/2015/10/chinas-population-is-growing-more-slowly-than-beijing-predicted/
” Thanks to that low fertility rate, China’s population is aging rapidly. According to South China Morning Post, from the end of 2013 to the end of 2014, China’s population between the ages of 16 and 59 – identified as the potential workforce – dropped by 3.7 million. Meanwhile, the over-60 demographic grew by over 10 million, and now represents 15.5 percent of China’s total population. China’s workforce will continue to shrink – and its elderly population will continue to rise, to a predicted 25 percent of China’s total population by 2030.”
We in the U.S.A. are beginning to see babyboomers coming of age to retire and with the robbing of Social Security over the years face a bigger problems. The money we put in FICA has been used for many IOU’s. The generations after baby boomer’s are not near the amount of those retiring baby boomer’s. What will happen?
It could very well be a bank failure somewhere that could spark the start of a severe financial collapse. But how about a whole country deciding to renege on its financial obligations? Would this not be even worse? The country I’m thinking about is Argentina, whose economy currently seems so hopeless that I suspect its leaders are about ready to give up and throw in the towel!
Could be, but Argentina is at least pushing a reform agenda at the moment and their reform-minded president is very new still. No idea where it will end up.
The USA is already bankrupt, but it is being papered over while they try to inflate away the pain.
The government could default honestly but will probably do so dishonestly by continuing efforts to generate inflation and deny reality. They will prop up housing, student and consumer debt, and other major bubbles like the stock market; they will continue to stonewall inquiries into the actual gold in Fort Knox, which is an important balance sheet asset; they will continue to spend beyond their means.
Years and years of corruption, financial hocus-pokus, wasteful social programs, and debt need to be cleaned out, but the can will be kicked down the road for as long as possible.
The Fed has been trying to generate inflation for years and has failed. Trump’s stated policies are mostly inflationary, and my guess is that inflation will recommence in earnest under his Presidency. He will likely be criticised for this, even though the prior regime tried to accomplish the same thing and failed.
Travis, good article. Glad to see
Lombardi has “branched” out from
“the world is coming to an end, so
buy gold because it’s going to $5,000
an ounce”; the agenda he pushed for
several years.
Regards,
Frank
Great point. We have invested in physical gold.
Scotia Bank is in Belize C.A where usa dollar is 2 to 1….they pay 2.6 interest,so double that for 5.2 !!!! The best I have seen!!!!!
Good morning, Travis.
Thank you.
I am a bit worried about the auto loan situation, which, when coupled with soured energy loans, could do some damage to the banking system. Just a thought.
Interest rate rises should help bank earnings, but will that be enough to ameliorate bad loan losses?
Subprime auto loans don’t worry me on a systemic level, though the business has seemingly gotten pretty foolish (with 8-year car loans, etc.) — it’s not nearly as big or high-friction as the subprime home mortgage business, because cars can get repossessed almost immediately. Those who are focused on subprime auto loans would have losses if the economy weakens, I expect, since their customers are close to the edge in some cases, but in my opinion they would be casualties of a weak economy, not the cause of a weak economy. I don’t see the contagion being an issue from that market, but that’s just my opinion — I certainly haven’t scoured the books of the major banks to try to figure that out.
Car loans are now being financed with 120 month payment plans. Crazy.
Surprised nobody has labelled this “Goldman SUCKS” but they certainly deserve the title. They were involved in fudging the financial situation in Greece to get them into the European Union when they didn’t really qualify and they have been involved in numerous other such nefarious manipulations and along with J Morgan Chase and other bullion banks have paid out billions in fines for manipulating the Libor rate and in cahoots with some European banks, notably Deutsche Bank ( having the highest exposure to derivavtives in the world) suppressing the prices of precious metals, they consider as competition to their fiat money creation. Deutsche Bank has actually officially admitted to these “manipulations” and implicated other bullion banks including Canada’s Bank of Nova Scotia. All four and other participants in the conspiracy are deserving of failure and in fact until regulators get some backbone and start throwing some leading bankers in jail for their white collar crimes as Iceland did with positive results, it will be “business as usual” because their crimes are so obscenely profitable even billions in fines are just a slap on the wrist.
But then, what should one expect when International Bankers are given license to effectively rape a country financially through their private bank monopoly of Central Banking that allows them to create unlimited currency and charge interest on it for literally little more than the cost of ink and paper to print counterfeit (FIAT) currency and call it money.
This scam started with the Federal Reserve Act of 1913, (nothing Federal about it) and was further exacerbated by Nixon removing the ties to gold in 1971 removing all restraint from government spending. This elaborate Ponzi scheme will come to an end no matter which bank is the first to fail. It is no longer a question of “maybe it could happen” it is now just a question of WHEN, it is a mathematical certainty given the structure of the debt creating fractional reserve system that brings all of our currency needs into existence as perpetual DEBT that even future generations will be unable to liquidate, effectively DOUBLING the price of everything we buy and stealing our earnings through inflation.
Originally a “DOLLAR” had a defined value of specific grams of gold and/or silver, in other words it had intrinsic value and buying power but to-day it exists merely on the faith and credit of a bankrupt government run by corrupt politicians who have sold out their citizens to International PRIVATE bankers who fraudulently got Congress to pass the Federal Reserve Act giving them a monopoly on currency creation that they have now spread to the whole world fomenting wars as needed to keep their monopoly alive. The result is what is still (fraudulently in my view) called a dollar to-day has the purchasing power of 2=3 cents at best while gold and silver have retained their purchasing power, so if you want to know what something is really worth, don’t measure it in fiat currency, price it in oz’s of gold or silver and check what the same goods or services cost 10 years ago, a hundred years ago or even a thousand years ago. It will be quite a revelation and if you still have faith that the government and FED have everything under control and can get us back on an even keel then ask yourself the key question, what is their RECORD so far? Are you really so gullible as to think a $20.Trillion dollar DEBT in the U.S. to say nothing of hundreds of trillions in unfunded liabilities, personal debt and corporate debt constitutes good stewardship, or does it indicate a badly flawed monetary system?
DOUBT my thesis, you haven’t studied the issues or asked the right questions to counter banker and politicians propaganda and probably still believe the MYTH that bankers merely collect a small fee for acting as facilitators between borrowers and lenders. The claim is that banks make their money on the SPREAD between the paltry interest they pay on deposits and what they charge for loans, the convenient AND distorted half-truth being that they keep 10% of deposits as a RESERVE to meet withdrawals, and loan out the other 90% at a higher rate.
Nothing could be further from the truth, this is a total distortion of reality
that was addressed by no less an authority than Canada’s Governor of our Central Bank, Graham Towers who testified under oath before a Parliamentary Banking Commission in 1939 that “every bank loan is A NEW CREATION of Money, and when it is paid back it ceases to exist” i.e is cancelled out. Two things should stand out from that statement;
1) it means that interest required to be paid is never created, therefore it necessarily follows that NEW LOANS must constantly be taken out that not only REPLACE loans paid back, PLUS THE ACCUMULATED INTEREST, otherwise there would be insufficient currency in circulation to support a growing economy.and population, so add at least another 5% yearly to the ever growing DEBT PYRAMID, which addresses the concept of the “velocity of money”and 2), banks do NOT loan out their depositors money, in fact until recently they were considered a LIABILITY, (so how can you loan out a liability of the Bank?)
HOWEVER, CANADA’S BANK ACT WAS A LITTLE DIFFERENT IN THAT IT REQUIRED OUR CENTRAL BANK TO FURNISH THE GOVERNMENT WITH INTEREST FREE LOANS AND IS NOW BEING SUED FOR FAILING TO MEET THAT RESPONSIBILITY. a reality the “controlled press is not reporting because as Henry Ford once said; “if the masses understood how the banking system really works there would be a revolution by morning” indeed our spineless politicians are afraid to tell the truth and have sold us out to the banker cabal.
The BANK ACT however allowed the liability of deposits to actually be considered as “reserves” against which they could create with a journal entry, (or key strokes on a computer) $10. new dollars (out of thin air) for every one in reserve and loan them out at interest, and if you think 10 X1 leverage is BAD, it is much worse than that, Many times when someone takes out a loan, they make payments that end up in another financial institution as a new DEPOSIT and so the charade is compounded into more fake money not earned or saved by anyone, so who knows the REAL level of honest money that will be available when the bubble finally bursts. Worse yet, how many savers know that under recent corrupt new legislation their deposits are now considered “loans to their bank” and should the bank fail through loans going bad they will be considered just another unsecured creditor with no guarantee of ever getting their savings as even the Federal Deposit Insurance is just another “fractional reserve” scam that would be unable to pay more than a small fraction of deposits if their were a systemic failure of the whole fraudulent system.
For anyone wanting further education on the subject I highly recommend the book “The Creature From Jekyll Island” which you can order on the author’s website. Just “google” the title, or G. Edward Griffin and as well there is an excellent video series on YOU TUBE titled, “The Hidden Secrets of Money” by Mike Maloney, that explains this corrupt system of
debt creation very well. There is simply no logical reason why our currency needs should require the creation of DEBT, after all the raw materials we need to create anything that is physically possible and desirable were given to us by the Creator of the Universe to which we add our labour, and that means WE collectively should reap the benefits rather than 50% going to a privileged 1% who contribute no labour or raw materials, merely printing numbers on coloured paper to siphon off HALF through their “monopoly money” via interest and inflation.
Some will dismiss this as a “conspiracy theory” but it is not a theory when the FACTS support the premise. My challenge is, give me JUST ONE logical reason WHY a privileged few should be allowed to hold the 99% hostage to DEBT they are allowed to effectively create out of thin air? when they contribute nothing to the collective wealth by their own labor?
Myron Kudos for the courage to post this. It is all true despite being often disparaged by the cronies of big finance in all political stripes.
GS is well stocked with persons who rotate in and out of government so new faces are seen with changing party control but GS always has a presence.
As for the fact that the system is based on debt and the money supply is manipulated there can be no doubt. One facet not often commented on is that every charge on a credit card is a loan and increases the money supply and the banks net worth to issue more debt. That money can disappear like a vapor at any time leaving nothing in the vaults but dust and cobwebs,, where gold once was.
I am basically of the same view. Even worse, I do not see how the system will be reformed. In the U.S., the Fed masquerades as a Federal entity but is owned by the member banks. So the Wall Street banks are really calling the shots, they are part and parcel of the actual government and will have to be bailed out by the so-called democratically elected government, which has been co-opted, bought out, doesn’t understand, or is terrified of the consequences of reigning in The Creature from Jekyll Island.
The US Constitution gives power to the Congress to regulate money and the currency. This responsibility has been abdicated to the big banks, masquerading as a government entity known as the Fed. Once in a while the Fed Chairperson is called into Congress to be asked questions. is about the limit of Congress’ involvement. Congress have surrendered their responsibility to an unelected Presidential appointee, who serves as a fig leaf for the real owners of the Fed.
So it’s a pretty bad situation. As I said I think it is inherently unreformable.
The elite banks can take unlimited risk by printing or keystroking or “borrowing” their way to as many currency units as they want, and if the bets go bad even after they manipulate them, they will be bailed out. Whatever administration is “in power” will go along, and explain to us all why it is vital to perform the rescue.
So…what will happen, and what can we do about protecting ourselves ?
I am in the Black Swan/complexity persuasion. I think the thing will get out of control of the Powers, in circumstances no one can predict. Til then, I want hard assets, and enough cash to take advantage of the bargains if there is a deflation or really messy crisis.
The only way – ONLY WAY, for the system to be reformed is a total systemic collapse requiring barter be reintroduced. Where the cities crumble, and the countryside is over-run by citizens trying to find food, water, and provide services that the farmer needs but doesn’t have. Food growing in the fields will be stolen, and people who appear to have more (or most) will be on the receiving end of the wrong end of a gun or knife blade… In the U.S., thankfully you haven’t had your teeth pulled yet… Here in the UK and most of Europe, carrying anything that might be considered an offensive weapon, carries a potential prison sentence, so only the villains will be able to protect themselves.
Unfortunately, the sheeple here can’t see that they have potentially neutered themselves from an over-bearing political class, who will be surrounded by armed personnel, and their meal-tickets kept alive until just about everyone else’s has expired.
Only a complete collapse will do it… Sadly, I am at the tail end of my life, so may not be around to see the fun when it starts…
If nothing is done to insure it won’t happen by rebuilding and replacing; the next major crisis will be the destruction of our power grid by terrorist, from countries that hate America. Hundreds of millions of people will perish. Destruction does not have to take place on the ground, One EMP could destroy the power grid and we better be preparing a defense system against this sort of attack
I lost a Bundle shorting $BMO in 2008/09 listening to Stansberry who said it was sure to fail.
I have since learned that major banks have friends in very high places who will not let them fail. Deutsche Bank would be most likely but only if the Euro crashes along with the Eurozone.
I later bought Citibank at a $1 and sold at $3,,, Big mistake.
I like the bacon