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Rumbling Markets: Warnings to Brace for Another Financial Collapse

Rumbling Markets: Warnings to Brace for Another Financial Collapse
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Friday, 25 October 2019 02:49 PM Current | Bio | Archive

Twelve years isn't enough time to forget the pain endured by main street America from the too-big-to-fail banking failures like Lehman Brothers, Bear Stearns, Washington Mutual, et al.

In fact, it's still fresh in the minds of those who lost 45% of their investment capital or had 15 years or less until retirement.

History Always Has a Way of Repeating Itself

On September 16, without a word, the Federal Reserve started pumping $75 billion a day into the banking system through its REPO (Repurchase Agreements) Credit Market. The Credit Market, for short term or overnight borrowing, came to a screeching halt. Money availability to lend to one another dried up.

Suddenly banks could not borrow money to cover their daily balance sheet requirements. The short-term lending rate skyrocketed from 2% per annum to 10% overnight. To reduce panic in the credit markets, the Fed quietly stepped in and began lending money. It took them four days to publicly announce their intervention to fix the money liquidity enigma of no money?

Between September 16 and November 4, $2.6 trillion will be injected into the credit markets. That's almost another $3 trillion dollars of debt added to what we have now. Stop and pause for a moment, think about this, that does not include interest. We could talk inflation, we could also speak about the new landmark achievement of $25 trillion of debt, but those tangents are for another time.

That last time the credit markets needed Fed intervention to prevent the too-big-to-fail banks from running out of money was 2007, just 12 months before the 2008 banking disaster. Well, I need not digress, we look back with 20-20 vision, we know who failed — the biggest.

Adding Fuel to the Fire

JPMorgan Chase & Co. analyst Joshua Younger believes despite the Federal Reserve's attempts to inject billions of dollars into the financial system, the stress in the credit markets are going to get worse before it gets better.

"Given the benefits of our newfound perspective, we recommend viewing these moves as highlighting the limitations of the Fed's chosen solution to their operational issues," Younger wrote. "With year-end coming up, this is all likely to get much worse, in our view, before it gets better."

No sooner did he get that phrase out of his mouth, two days ago, October 23, the New York Fed announced that it is increasing its temporary overnight (credit market) repo operations to $120 billion a day from the current $75 billion.

We are witnessing history about to repeat itself. But this isn't the only reason why JP Morgan is in the news,

The 'Biggest' Today Are Beginning to Falter

If that's not alarming enough, we know that JP Morgan Chase has pled guilty to three criminal felonies in the last five years, they've recently been indicted on RICO charges by the U.S. Justice Department, and if that doesn't tip the scales to capture your attention, earlier this year they failed their congressionally mandated 'Stress Test.'

Why is that so important to you? If you have money in that bank, it's "every penny important" to you. Investopedia gives us a definitive description of what the stress test is;

"A bank stress test is an analysis conducted under hypothetical unfavorable economic scenarios, such as a deep recession or financial market crisis, designed to determine whether a bank has enough capital to withstand the impact of adverse economic developments. In the United States, banks with $50 billion or more in assets are required to undergo internal stress tests conducted by their own risk management teams as well as by the Federal Reserve."

They failed, and despite their failing, the Federal Reserve granted them a second opportunity to undergo another test. Would a smaller bank be given that same opportunity? Let's ask Heritage Community Bank in Glenwood, IL. They had $200 million in assets and five bank locations. They were undercapitalized and couldn't come up with the necessary means to make up the shortfall, they weren't too-big-to-fail, and the United States Government seized the bank.

The answer to that question is a clear resounding no. The fact that JP Morgan just barely passed by the skin of their teeth the second time is no consolation. The writing is on the wall once again. The indications of market deterioration are clearly showing signs of decay. It's only a matter of time before the implosion concussion reverberates within the very walls of your own home.

If the credit markets are out of cash, the largest of the large banks don't have enough money to pass their stress tests, and now the banks are telling us things are going to get worse, that sounds to me like we're headed towards another 2008 financial crisis.

If that's the case, Jim Rickards said it best when he penned the following forecast about the looming collapse in his January 2019 newsletter;

"The case for a pending financial collapse is well grounded. Financial crises occur on a regular basis including 1987, 1994, 1998, 2000, and 2007-08. That averages out to about once every five years for the past thirty years. There has not been a financial crisis for ten years so the world is overdue."

He also points out, "It's also the case that each crisis is bigger than the one before and requires more intervention by the central banks." By all appearance's sake, it looks like the Fed is intervening. If it looks like a duck, quacks like a duck...

How Should Savers Prepare?

There is one asset class that has stood the test of 6,000 years of time, and that's gold. Think of "gold" as car insurance for your nest egg. You don't risk driving on major public freeways and streets without protecting yourself in the case of an accident. Protect your financial portfolio by allocating 20%-40% of long term savings to gold.

Owning gold as part of your savings plan is an insurance policy against inflation, a declining stock market, a dollar that is rapidly dropping in value, and a Dodd-Frank Act bank seizure.

It's time to pull our heads out of the sand and take action to prepare now before the next crisis hits. Benjamin Franklin once said, "An ounce of prevention is worth a pound of cure." Those words could not be any more valid than they are today.

David Schroeder is an investor with more than 25 years of experience, investing in Stocks, Options, Metals, Futures, and Real Estate and is a strategist at Monetary Gold. 

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DavidSchroeder
That last time the credit markets needed Fed intervention to prevent the too-big-to-fail banks from running out of money was 2007, just 12 months before the 2008 banking disaster. Well, I need not digress, we look back with 20-20 vision, we know who failed — the biggest.
rumbling, markets, warnings, financial, collapse, gold
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2019-49-25
Friday, 25 October 2019 02:49 PM
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