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Slumping Rand Drives Silver Down
8 March 2023Stock Rotation Into Gold & Silver
24 March 2023Banks are safe right? Put your money in the bank because it is safe. That is what we do. We have been taught to do the right thing all our lives. To be honest, it is a good thing to put your money in the bank to keep it safe so that it is available when we need it for the plans we all have. Just not all your money! You need to keep some money in hard assets like gold and silver.
Last week we saw two American banks hit the wall. Silicon Valley Bank (SVB) and Signature Bank went into business rescue on Friday and Signature on Monday. Shock waves ran thru the world markets and stocks tumbles across the globe. The banking sector got hit very hard.
I have included the stock charts of the said two banks below.
On Monday Congress women Maxine Waters was on CNBC trying to calm the markets regarding the two failed banks. On June 23, 2022, the Federal Reserve in the US released a statement that all banks were stress tested and were in good shape. Now look what happened. We really can not trust the Feds at all. The US Central bank has now put into place a guarantee facility to protect US banks from a potential $600 billion losses on their bond portfolios. The Fed has actually provided SVB with a guarantee to convert their $1.8 billion bond portfolio loss into cash without taking a loss. Hell, I wish they were my bank.
Let us not forget all the tech companies who banked with SVB that will be taking huge losses as these things take quite a while to wind up.
At this point it might be a good thing to find out how banks actually work.
The primary function of a bank is to take in money ( deposits ) from depositors, and loan that money out to debtors ( loans ). The interest they charge debtors is more than the interest they pay to depositors. That is mainly how they make their money. Here is the kicker. Once the depositor gives his money to the bank, the banks becomes the owner of your money. You are now a creditor of the bank. If you give them a R1,000 rand, they will create R9,000 to give out in loans.
Banks actually create money out of nothing. When you get a bank loan to buy a house for one million rand, the bank does not actually give you a million rand in cash. It simply creates an electronic credit balance of a million rand in your account. In the banks books you now become a debtor to the tune of a million rand. It is therefore clear that banks do not have much cash on hand at any given time. Most of their money is invested in hard assets like property and long term investments. They are not liquid at all!
So, what happens if things get tough and the debtors cannot pay back the interest on their loans? The bank will now not be able to pay the interest to their depositors. The depositors get angry and starts to withdraw their deposits. Being illiquid the bank now does not have enough cash to pay depositors and walla, you have a run on the bank! Once there is a run on a bank, it is finished!
If you own physical gold and silver of course, you do not have to worry about the bank going bust. In fact, gold and silver prices have increased nicely due to the bank crisis.