I haven’t thought much about bank runs in recent years. The Federal Reserve came to the rescue during the 2008 financial crisis and restored confidence in the markets. Stock valuations have soared to all-time highs, nearly quadrupling from the bottom in early 2009. Home prices is many regions have doubled or tripled and investor sentiment is as bullish as can be.
Market participants are essentially pricing zero risk of another stock market and/or housing market crash. It is usually only around the holidays, when my wife insists on watching the 1946 film, “Its A Wonderful Life,” that I am reminded of the instability of the banking system and potential for bank runs.
George Bailey calmed the fears of his customers, but there are few modern day George Bailey-style small banks. They have been bought out or forced out of business by the big banks and their political stooges. Amazingly, fractional reserve banking practices have continued and the too big to fail (TBTF) banks have only increased their risk profiles since the financial crisis. Moral hazard continues unabated.
Beneath the surface of rising stock prices and home values, there is a very fragile and unsustainable system that best resembles a ticking time bomb. In fact, Reuters just reported that the European Union has been exploring account freezes to prevent runs at troubled banks:
EU states are considering measures which would allow them to temporarily stop people withdrawing money from their accounts to prevent bank runs, a recent EU document reviewed by Reuters revealed.
The move is aimed at helping rescue lenders that are deemed failing or likely to fail, but critics say it could hit confidence and might even hasten withdrawals at the first rumors of a bank being in trouble.
The proposal, which has been in the works since the beginning of this year, comes less than two months after a run on deposits at Banco Popular contributed to the collapse of the Spanish lender.
Giving supervisors the power to temporarily block bank accounts at ailing lenders is “a feasible option,” a paper prepared by the Estonian presidency of the EU said, acknowledging that member states were divided on the issue.
EU countries which already allow a moratorium on bank payouts in insolvency procedures at national level, like Germany, support the measure, officials said.
“The desire is to prevent a bank run, so that when a bank is in a critical situation it is not pushed over the edge,” a person familiar with German government’s thinking said.
The Estonian proposal was discussed by EU envoys on July 13 but no decision was made, an EU official said. Discussions were due to continue in September. Approval of EU lawmakers would be required for any final decision.
Under the plan discussed by EU states, pay-outs could be suspended for five working days and the block could be extended to a maximum of 20 days in exceptional circumstances, the Estonian document said.
The entire European banking system is over-leveraged, under-capitalized, and propped up by QE from the ECB. Simply put, the EU banking system is insolvent. Italy, Greece, Spain, Portugal, and Ireland have a combined €606 billion in non-performing loans. Relative to the size of the Eurozone economy, Draghi’s stimulus has been far more aggressive then the Fed’s QE. It has pushed both deeper, with negative interest rates, and wider, by including corporate bonds.
Many will write this off as fear-mongering and place their head back in the sand believing that banks runs in Western nations are highly unlikely. But the fact that the EU has to consider such drastic measures should give the doubters pause.
The fractional reserve fiat monetary system is essentially a Ponzi scheme and if the EU banks collapse, interconnected banks in the United States and other nations are not far behind. Savvy investors should therefore consider mitigating this risk by reducing the percentage of their overall wealth trusted to the banks or any third parties.
Otherwise, you could end up like Stan:
Protect Your ASSets by Becoming Your Own Bank
If you are concerned about bank runs, the possibility of having your hard-earned wealth vanish in the banking system or seizure of your funds from corrupt and desperate governments during a crisis, there are viable ways to protect your wealth.
At Gold Stock Bull, we advocate for the combination of precious metals and cryptocurrencies like Bitcoin.
Gold and silver have been money for thousands of years and are a proven store of value. They tend to perform particularly well during times of monetary crisis and are an effective hedge against both high inflation and deflation.
Obtaining precious metals require energy and work to mine, they are limited in quantity and they have utility in various industrial and technological applications. Gold and silver fit many of the key characteristics of money, including durability, divisibility, portability, acceptability, limited supply and uniformity. Gold and silver can serve as a store of value, a unit of account and as a medium of exchange to varying degrees.
If you study the cycles and buy during periods of undervaluation, precious metals can also be very effective at generating wealth and increasing your purchasing power. Leveraged gains can be realized via investing in quality mining companies that enjoy significant increases in their profit margins as prices for gold and silver rise. And of course, the potential gains are enormous if you are able to pick explorers prior to large discoveries.
Those leaving their money as cash in the bank and collecting miniscule interest would have lost purchasing power since the year 2000. Those investing in stocks (via the S&P 500 index) would be up around 65%, but inflation would have wiped out much of those gains.
On the other hand, those that invested in gold would be up 350%, even with the significant correction over the past seven years. Gold has served to not only maintain the purchasing power of those that invested in it, but actually increased their wealth substantially.
Silver has also outperformed equities by a wide margin. Despite the price collapsing more than 50% since 2011, silver has still registered a gain of 225% since the start of 2000.
Investing in gold and silver ensures that your wealth and purchasing power grow over time. Holding precious metals in your possession ensures that you will have access to the funds when you need them and that no third party can refuse access or turn over your bullion to governments that attempt confiscation.
But precious metals are not best for everyday transactions and certainly not for ordering goods online or transferring funds across borders. There are some interesting solutions worth considering, such as gold-backed debit cards that draw against accounts in which you hold precious metals.
The second key asset that can help you protect your funds from a bank run, financial crisis, fraud or confiscation is cryptocurrencies. With bitcoin and other cryptocurrencies you can become your own bank, transact online or in person, send money around the globe instantly and at no cost, while retaining control of the private keys at all times.
Like gold, bitcoins are limited in supply and require work/energy in order to create them. They allow you to transact outside of the banking system and outside of government control. Other cryptocurrencies with a greater focus on privacy can allow you to carry out transactions completely anonymously.
Cryptocurrencies are still emerging, the technology is evolving and prices are anything but stable. This volatility is not necessarily a bad thing. It can be your friend if you are a trader and presents longer-term investors with excellent opportunities to buy dips. And despite all of the volatility, Bitcoin is still up 3X year-to-date in 2017 from around $900 to $2,700.
The #2 cryptocurrency by market cap, Ethereum, is up an eye-popping 25X since the start of 2017! It was up 50X to over $400, before correcting back to $200 over the past six weeks. I remain bullish and think we will see Ethereum back above $400 at some point in the next 12 months.
This is clearly an opportunity to build wealth, as countless cryptocurrencies millionaires have been created over the past year. Some compare investing in cryptocurrencies today to investing in Microsoft or Google in their early years. Indeed, blockchain technology might be the biggest innovation since the Internet.
While the returns from bitcoin and ethereum have been impressive, there are a handful of other cryptocurrencies (altcoins) that we track which have outperformed. Many new coins are building on top of the ethereum infrastructure to create truly innovative and industry-targeted solutions.
And there are a few other coins that are looking to be “ethereum killers” in the sense that they believe they can address the scaling issues of ethereum and build a better smart-contract platform. If they are successful and climb towards the current valuation of ethereum, the upside potential in these smaller altcoins is staggering. Subscribe here to get our specific cryptocurrency picks and mining stock picks.
I like holding physical precious metals to anchor my portfolio, mining stocks for the leveraged returns and cryptocurrencies for the unmatched gains, financial independence and technological revolution they are enabling.
Owning both of these assets together will allow you to control your financial destiny, reduce third party risk and voluntarily opt out of the corrupt legacy financial system. I also believe these assets will help to grow your wealth and purchasing power over time and I have put my money where my mouth is with personal investments.
The most exciting part is that I believe both precious metals and cryptocurrencies have hit interim bottoms are about to embark on massive uptrends that will propel prices significantly higher over the next 6 to 12 months.
Precious metals are heading into their strongest seasonal months, have strong technicals and bullish COT (commitment of traders) reports. Mining stocks had become severely undervalued, carved out bottoming patterns and started rocketing higher over the past few weeks. If gold and silver move back toward their 2011 highs, I believe we will see many 5 and 10 baggers amongst the mining stocks we cover in The GSB Contrarian Report newsletter.
Cryptocurrencies have been suffering due to overblown FUD (fear, uncertainty and doubt) over the various bitcoin scaling solutions and bitcoin cash hard fork. Much of this FUD will fade away after August 1st and bitcoin will become faster, leaner and more efficient with Segwit and the later implementation of the Lightning Network.
Those holding bitcoin before the fork will receive an equal amount of bitcoin cash post-fork. This doesn’t mean there will not be some panic selling and volatility, but I do not believe it will change the long-term trajectory of the bitcoin price. I believe bitcoin is likely to end 2017 well above $3,000 and potentially as high as $5,000.
We are diversified into several quality altcoin projects that will finally be free to rise again following the bitcoin scaling drama. I believe we will see a massive influx of institutional money and investments from the wealthy that are eager to get into this emerging and (relatively) small space.
Whether you are seeking to reduce third-party risk, remove your support of the banks, transact free from the prying eyes of government or simply maximize your investment returns, the complementary assets of precious metals and cryptocurrencies should help you to accomplish these goals.
You can of course do it all on your own and I believe you will achieve the above stated goals. Or you can let us do the legwork and research for you by subscribing below. We will send you fundamental and technical research, our top picks, the monthly newsletter and buy/sell trade alerts. I believe that right now is an excellent time to be positioning yourself ahead of the curve.