"The Fed Will Seize All Your Money In This Crisis..." - Jim Rickards' Last WARNING
Summary
TLDRThe transcript discusses the current financial crisis and the role of central banks in managing it. Using a domino metaphor, it explains how each crisis has grown larger, necessitating bigger bailouts that central banks may no longer be able to manage. The speaker highlights the collapse of Silicon Valley Bank and other financial institutions, emphasizing that traditional methods like bailouts and monetary policies are becoming ineffective. The growing lack of confidence in currencies like the dollar signals a potential larger crisis, one that regulators and central banks may struggle to contain.
Takeaways
- 🌊 The domino metaphor highlights the uncontrollable nature of crises once they start, with each bailout needing to be bigger than the last.
- 🚧 Bailouts are like placing a barrier between falling dominoes to halt the crisis, but we're reaching the point where bailouts may no longer be effective.
- 💰 The bailout of Silicon Valley Bank is the largest in history, signaling that central banks may be running out of options to address crises.
- 🪙 A crisis of confidence in currencies like the dollar or euro could emerge, as printing more money to solve problems only erodes trust in those currencies.
- 💻 Technology has made financial crises more compressed, with large withdrawals happening quickly and leaving regulators little time to react.
- 🏦 A key metric for bank stability is the ratio of uninsured deposits to total deposits. A high uninsured rate, like Silicon Valley Bank’s 97%, signals risk of collapse.
- 🌱 Silicon Valley Bank had significant investments in green energy and climate tech, contributing to government pressure to intervene.
- 🏙️ There's an exodus from cities to suburbs or exurbs, with cities losing their cultural and economic advantages due to factors like rising crime and remote work.
- 📉 The commercial real estate market is under pressure due to the shift to remote work, leading to lower demand for office space and a ripple effect across related industries.
- ⚠️ Negative interest rates don't stimulate spending as intended, as people save more to meet long-term goals, making this policy ineffective in combating deflation.
Q & A
What does the metaphor of 'Dominoes falling' signify in the context of the financial crisis?
-The 'Dominoes falling' metaphor is used to describe how a financial crisis can escalate rapidly, where one failure leads to the next, similar to knocking over a row of dominoes. Each crisis builds upon the previous one, with larger bailouts needed each time.
What is meant by 'trunking' in the context of stopping a financial crisis?
-'Trunking' refers to the act of intervening in a financial crisis by placing a barrier between failing entities, such as a steel wall between dominoes. This is likened to a bailout that temporarily halts the spread of a crisis by protecting one entity from another's collapse.
Why does the speaker believe that central banks may no longer have the capacity to handle the next financial crisis?
-The speaker argues that each crisis has grown bigger, requiring larger bailouts, and central banks have exhausted their tools ('rabbits out of the hat'). The concern is that the need for future bailouts may exceed the capacity of central banks, especially if the crisis undermines confidence in the currency itself.
How does the speaker describe the bailout of Silicon Valley Bank (SVB), and why is it significant?
-The bailout of Silicon Valley Bank is described as the biggest bailout in history. The speaker emphasizes that the rapid collapse and subsequent bailout illustrate how compressed timeframes have become in financial crises, largely due to technology, making it difficult for regulators to respond quickly enough.
What role did technology play in the SVB crisis, according to the speaker?
-Technology accelerated the pace of the crisis by enabling swift withdrawal of funds. For example, Peter Thiel's call for businesses to pull their money from SVB resulted in $40 billion being withdrawn rapidly, a process that could happen instantly via digital means rather than people physically standing in lines at banks.
What is the importance of uninsured deposits in assessing the stability of a bank, according to the speaker?
-The speaker highlights that a high percentage of uninsured deposits can make a bank more vulnerable to a run, as uninsured depositors are more likely to withdraw their funds in a crisis. In the case of SVB, 97% of its deposits were uninsured, making it highly susceptible to rapid withdrawal.
What does the speaker suggest about the long-term impact of people moving out of cities to suburbs and exurbs?
-The speaker warns that the exodus from cities to suburbs or exurbs, driven by rising crime and the loss of cultural attractions due to lockdowns, could depopulate cities. Since cities are historically wealth-generating engines, their depopulation could harm the broader economy in the long term.
How might the reduction in demand for commercial real estate affect the economy?
-With companies reducing office space due to remote work, demand for commercial real estate has declined. This could trigger a ripple effect, leading to fewer jobs in cleaning, hospitality, and transportation. It may also lead to landlords struggling to pay mortgages, ultimately affecting the banks and the broader financial system.
Why does the speaker believe that inflation concerns may be overblown in the near term?
-The speaker argues that while there has been concern about inflation due to government handouts, much of this money is being saved rather than spent. This lack of spending creates a 'liquidity trap,' meaning the economy may slow down rather than experience inflation, leading to falling interest rates.
What are the speaker's thoughts on negative interest rates and their effectiveness?
-The speaker believes negative interest rates do not work because they encourage people to save more, not spend. Negative rates signal deflation, causing people to delay purchases in hopes that prices will drop further. Additionally, people save more to achieve their long-term financial goals, undermining the desired stimulative effect.
Outlines
🟠 The Domino Effect of Financial Crises
The paragraph uses the metaphor of falling dominoes to illustrate how financial crises unfold, growing larger with each event. The speaker suggests that bailouts are a temporary solution, but crises are becoming too big for central banks to manage. They warn that we may be approaching a point where confidence in the currency itself is lost, leading to a crisis that cannot be solved by printing more money, particularly in the case of the dollar and the euro.
🟢 Uninsured Deposits: A New Risk Metric
This paragraph focuses on uninsured deposits as a critical indicator of a bank's risk. Silicon Valley Bank had 97% of its deposits uninsured, leading to a mass withdrawal that contributed to its collapse. The speaker contrasts this with safer banks, where a more balanced ratio of insured to uninsured deposits (e.g., 70% insured) provides more stability. The example underscores how startups and green energy investments, heavily subsidized, were part of the SVB's collapse and how political and economic pressures influenced government actions.
🔵 The Shift to Remote Work and Its Economic Consequences
Here, the speaker discusses the impact of remote work on commercial real estate and urban economies. Companies are reducing their office space needs, and this is leading to a domino effect: fewer cleaning staff, lower foot traffic for restaurants, and reduced demand for public transportation. The paragraph also explores the broader macroeconomic effects, such as depopulating cities and shrinking the 'wealth-generating engines' of civilization.
🟡 The Psychological Impact of Financial Policies
This section explains how fiscal and monetary policies, like quantitative easing and deficit spending, are failing to stimulate economies because people are saving rather than spending. The pandemic caused a psychological shift, leading to precautionary savings as individuals fear unemployment or economic instability. Despite central banks’ efforts to encourage spending, the speaker highlights that psychological factors, such as fear of the future, have led people to save more, further slowing the economy.
Mindmap
Keywords
💡Domino Effect
💡Bailout
💡Central Banks
💡Silicon Valley Bank
💡Uninsured Deposits
💡Liquidity Trap
💡Negative Interest Rates
💡Deflation
💡Commercial Real Estate
💡Precautionary Savings
Highlights
The metaphor of falling dominoes is used to describe a cascading financial crisis, where one event triggers a series of failures.
The problem with continuous bailouts is that each crisis becomes larger, eventually reaching a point where central banks may not have the capacity to bail out the system.
The Silicon Valley Bank (SVB) bailout was the largest in history, highlighting the increasing scale of financial crises.
Confidence in central banks and currencies, like the dollar and the euro, is eroding, and a dollar crisis cannot be resolved by simply printing more dollars.
The regulators are facing limits to their ability to contain future financial crises, with growing public skepticism about their effectiveness.
In the Latin American debt crisis of the early 1980s, the intense phase lasted three years, showing that crises can take time to resolve.
Technological advancements, such as fast electronic transfers, have compressed the time frame for financial crises to unfold.
97% of deposits in Silicon Valley Bank were uninsured, leading to a large-scale bank run that contributed to its collapse.
Silicon Valley Bank heavily invested in green tech startups, many of which were subsidized by the government, increasing their exposure to risk.
The collapse of SVB was announced on a Friday, and regulators worked over the weekend to prevent further fallout, demonstrating the rapid pace of modern financial crises.
Residential real estate prices are rising in suburban and exurban areas as people move away from cities due to crime, lockdowns, and the shift to remote work.
Commercial real estate in cities is underutilized as remote work reduces the demand for office space, potentially leading to a long-term economic impact.
Negative interest rates don’t work because they signal deflation, leading people to save more rather than spend, exacerbating economic slowdowns.
Quantitative easing and deficit spending by governments may not be effective if consumer psychology leads to more saving and less spending.
The global pandemic has caused a psychological shift toward precautionary savings, leading to reduced consumer spending and slower economic recovery.
Transcripts
the Domino's falling is a good metaphor
it's you know you got 100 Dominoes you
knock the first one they're all going to
fall that's just physics how do you stop
that how do you stop that crisis well
you trunk it you drop a steel wall
between two dominoes this one hits the
wall and this one's Still Standing but
that's the bailout the problem is each
crisis tends to get bigger than the one
before which means each bailout gets
bigger than the one before my question
that we now at the point where the need
to bailout is bigger than the capacity
of the central banks that they've pulled
all the rabbits out of the Hat played
all their cards and again this goes back
to what I did say about the Silicon
Valley Bank it is the biggest bailout in
history and I can explain why but if
that's the case what else do they have
so now we're dangerously close to the
point where in as the crisis gets worse
it's no longer OG let's wait for the FED
to bail it out or let's wait for the ECB
to bail it out you get to the point I
think we're there where you say no these
guys actually can't stop it and you lose
confidence in the currency itself
the crisis is the dollar itself and the
Euro you know goes along with that and
then that's the crisis and there's no
way to bail out a dollar crisis with
dollars because you're just pumping more
of what people have lost confidence in
and then where do you go and there are
good answers to that we've seen it all
before this is big It's Not Over The
Regulators will attempt more bailouts
but we're at the point where I think you
can start to question The Regulators
themselves the Brazil Mexico Argentina
the Latin American debt crisis broadly
defined of the early 1980s that played
out the intense phase lasted about 3
years you know 82 83 84 it wasn't until
1990 that we got around to Brady bonds
which were the ultimate refinancing
technique but the intense period lasted
about 3 years come forward to 1998
long-term Capital Management that was
about three months that was July August
September 1998 spbb was three days or
less it was like Wednesday Thursday
Friday and done and you I talked to a
guy no reason to mention names but you
know uh runs a very one of the largest
endowments uh in the world and he said
Jim we moved we were moving $8 billion
out of the Silicon Valley Bank and we
got the wire transfer request in but we
didn't know because you know you get to
close business Thursday we didn't know
until Sunday that the money was going to
move we got a confirmation on Monday we
did end up moving the money but there
was this about a 48 hour period there
from Friday to Sunday when no one knew
the wires had been completed the
recipients didn't have them it was just
in limbo you know and it worked out one
of the big crypto promoters they had $3
billion in Silicon Valley bank and they
talked about you know all these small
entrepreneurs and startups they got 100
employees and 5 million working capital
and that money's gone and they're all
going to fail there was something to
that but the fact is you had Roku Cisco
uh eBay I mean there were huge companies
with multi-billion dollar deposits in
that bank it wasn't all bunch of little
guys but yeah you can uh in the old days
you have to line up around the block and
maybe it was raining you're standing
there in the rain waiting for your turn
to get up to the tower now you can be in
line of McDonald's you know with your
cell phone then just a couple hits QR
code and boom uh you know $10 million is
gone and what Peter teal did uh and he
was right I mean I'm not criticizing him
he got his own money out but he sent out
like an SOS to Silicon Valley he said
all of you whoever you are get your
money out now and a lot lot of people
did and that was that $40 billion so the
time frame is becoming more compressed
because of Technology you're exactly
right about that which means that the
response function has to be equally
compressed or else you are going to have
all the consequences of a you know
honestly goodness Global financial
crisis and I'm not sure if everyone
knows the sequence but on Friday night
March 10th the FDIC took over Silicon
Valley bank and they issued a press
release and they said here's what we're
doing we're taking over uh we're putting
it into what's called receivership
anyone with $250,000 or less your
deposits are fully insured no wores
you'll have your money Monday morning
and over
$250,000 your deposits are gone they
didn't say Frozen they didn't say
suspended they said gone and they gave
you a receivership certificate basically
an unsecured printed up IOU from the
FDIC but not money and as a reive a ship
certificate and they said hang on to
them we're going to sell assets uh and
as and when we realize proceed some
assets we'll give you something we'll
give you distributions on these things
don't know how much don't know when
we'll do the best we can remember in the
RTC days in the early '90s it took them
two years and they were very efficient I
worked with them at at the time that we
were in their offices we were sitting on
boxes cuz they didn't even have
furniture but they were doing deals so
they had write attitude but that took
two years and that was it that's when I
call the billionaire crybabies came out
and force you know Bill acman all these
guys oh you got to save us you know I
like well you got to trade on Bill me
five billion is not enough but anyway
they pounded on the White House all
weekend here's something that very few
people say almost nobody knew at the
time except the management although they
seem to be asleep with the switch
everyone's like yeah startups venture
capital there's a lot of Truth to that
97% of the deposits of silon Valley Bank
were uninsured and by the way that's my
new metric for assessing Banks you used
to look at you know working capital and
debt Equity ratios and you know Bad
Assets government there are lots of ways
to measure the health of a bank but the
most relevant way right now is and this
is publicly available take the ratio of
uninsured deposits to Total deposits 30%
is comfortable if you're like I you know
70% of my deposits are insured which
means they're not panicky they're not
necessarily going to run for the hills
30% okay unassured but I have assets I
have that much cash or more that's a
comfortable ratio when you get over 50
you're in the danger zone well silicon
value Bank was
97% uninsured which meant all the money
was going to run and it did so that's a
way if you're looking at these big Banks
or uh any institution or your own
savings institution to look at it but
Silicon Valley Bank was a climate Bank
were they investing in startups yes were
they investing in Tech technology yes
but these were climate these were green
new scam startups looking at you know
Battery Technology uh chemistry physics
you know to try to make a better battery
but not much improvement in the battery
in 200 years but they're working on it
you know wind turbines you know other
sustainable fuel Alternatives Etc again
I'm not do that if you like if that's
your field of research but so much is is
subsidized by the government and then
further subsidized by Silicon Valley
Bank and that's where the assets were
that's where the loans were by and large
and so the white house is getting
hammered not only because of
entrepreneurs job losses and by the way
we are in an election cycle here in the
United States but from the Greenies who
are extremely powerful so that was
Friday night so Saturday everyone's
crying to the White House Sunday night
at 6 o00 by the way Mark that on your
calendar Sunday 6 p.m. is when they tell
you what they're going to do you know 6
p.m. Sunday March 12th they came out on
Silicon Valley Bank the following week
19th that was credit Swiss and then the
week after that or something else but
they always they always announce the
collapse on Friday and they
relief on Sunday so they have the
weekend to work on it you got to be
careful about 3-day weekends we you know
Easter is an example but um why are
those residential real estate prices
going up and the same thing's happening
in the United States the answer is that
there is an exodus and I don't think
that's too strong a word out of the
Cities people are put off by I mean
cities have always been a tradeoff
cities are okay you have a lot of noise
and some dirt and some hassles and maybe
slightly higher crime rate but on the
other hand you have art and culture
museums and shows and restaurants and
bars so you you make the tradeoff you
say I'll accept these annoyances in
exchange for all this you know culture
and Buzz and cities attract you know the
brightest people so whether it's uh you
Bankers or lawyers or doctors or artists
playwrights actors whatever it's just
there's a lot of Buzz that's why people
go to cities with these lockdowns we've
Amplified all the negatives and taken
away all the positives we've shut the
museum the restaurants the bars the
plays Office Buildings things that
attract the people but meanwhile uh
again probably not as bad in Australia
as it is here but crime has On The Rise
murder rate in New York has doubled
rates across the country have tripled
and that's New York s race National
there are all these dysfunctions and of
course when you have highly concentrated
populations which you do in cities a lot
of that so what people are doing I say
people it's the people who can afford it
they getting out the cities and they're
going to nearby suburbs or even further
out what we call exurbs which are you
know the the next ring beyond the
suburbs and so there is that demand for
housing I I'll I'd be willing to bet
money that the place you're describing
is a pretty attractive neighborhood so
they're they're booming and the same
thing's true in the United States but
what's the other side of that we're
depopulating our cities cities are the
greatest wealth generating phenomena in
the history of civilization I mean
that's what civilization means it means
cities and so so if we're depopulating
and draining our wealth creating engine
what does that do to the economy long
run so is as an individual Choice it
makes sense and I understand it but the
macro effect is we're depopulating these
wealth generating places I mean just
take any downtown area could be
Melbourne or Adelaide or Sydney or New
York for that matter if there's an
attractive downtown office building
let's say you're a large company
insurance company whatever and used to
have 10 floors as your corporate
headquarters well now everyone's working
from home that's nothing that anyone
would have recommended but we were
forced to do it and guess what it works
uh employers employeers are finding that
hey it works you can communicate and get
stuff done and maybe there's some
attractions to it so this work from home
thing is here to stay what companies
will do they'll say well instead of 10
floors I only need two floors and I'll
have attractive offices but you'll
reserve them you'll call up say hey I
need an office two days next week to
meet some clients Don they'll build
locker rooms that won't be like high
school locker rooms they'll be very
attractive you'll keep your laptop and
your sweater and your scarf or whatever
and your locker you'll show up take your
stuff out of your locker some receptions
will tell you which office is yours for
those two days set yourself up meet your
clients go home and work from home what
does that mean if you cut commercial
real estate capacity or utilization by
80% uh we'll start with the cleaning
crew and the reception but what about
the food trucks the restaurants the
shopping the public transportation
drinks after work you know on and on and
on all the things that are ancillary to
that downtown office location you cut
that by 50 to 80% what does that tell
you your economy so these are examples
and by the way this will take a year to
play out this is not an overnight thing
so the tenants are not paying rent if
they are they've called up and
negotiated a 50% increase I'm I have
some involvement in commercial real
estate and I see this in real time so
rents are down by perhaps half or all
the way to zero if they're not paying
everyone says well landlords take the
rents but they have mortgages so if the
tenants aren't paying the landlords the
landlords can't pay the mortgage e and
that falls on the banks right except the
banks are clever they've securitized it
and sold it probably to you and me we
have our 401ks is like a super uation
fund but you look in the fund and do you
have some uh you know commercial real
estate or something that Morgan Stanley
sold you well maybe you do and what's
inside no one knows but take a look but
that ripple effect I just described can
take a year to to play out so we haven't
seen the end of this so the bottom line
in all this is that in anticipation of
inflation based on handouts the reality
is the handouts are not being spent
they're being saved which does nothing
for inflation and it's also not
sustainable which is what are you going
to do hand out a$2 trillion doll Debs of
spending package every six months
because that's kind of what we've been
doing since last summer they keep saying
this is the last one it'll be
sustainable it's not sustainable it's a
handout and people need the money but if
they put it in the bank which they're
doing this is a classic liquidity trap
so what's going to hen that's going to
slow the economy further we're already
seeing mortgage applications dry up uh
we're seeing the housing bubble not
bubble but pretty steep increase in
residential housing starting to level up
so by you know hard to say but I would
say by March or April this whole thing
is going to go in reverse everything we
just talked about is going to go in
reverse the econom is not going to have
the traction unemployment is going to
remain high velocity is going to
continue to drop there's not going to be
in inflation those interest rates are
headwind they're going to drop and the
price of gold is going to shoot up so my
advice to uh the potential gold
investors is uh it's on sale go get some
right now it's always better to buy low
and sell high and but I would expect the
price to be much higher in theory you
can go to negative rates but negative
rates don't work we have experience from
the ECB uh Sweden Japan Switzerland
elsewhere the negative rates don't work
they're negative rates but they don't
it's not more the saying cutting rates
from 3% to you know zero has a
beneficial effect but cutting them from
0 to1 now you're through the Looking
Glass you don't get any more pop you
don't get any more buying for The Bu and
there are reasons for that which are
what as a central bank what signal are
you sending see the idea of negative
rates is you're going to spend the money
because if I'm going to take it away you
put money in the bank even at zero you
put money in the bank you go away for a
year come back the same amount of money
should be there that's the zero interest
rate but a negative interest rate
negative 1% you put uh $100,000 in the
bank you go away for year to come back
you only have
$99,000 because I took $1,000 that's 1%
negative interest so the idea is I'm
going to take your money you're going to
spend it fast because you don't want me
to take your money and that's going to
have the stimulative effect that we
talked about that's not actually what
happens what happens two things number
one people have lifetime goals um their
retirement their health care their
parents healthare their children's
education buying a house there's some
large lifetime goal you have and that's
why you save money in the first place if
I'm taking your money away you're going
to save more not less you still want to
achieve that goal I've made it more
difficult but you're actually going to
save more they want you to spend it but
now you're saving more and the second
thing is what signal is the Central Bank
sending when they have negative interest
rates they're saying that they're
worried about deflation not inflation
deflation so if they're telling me if
central bank is telling me that
deflation is problem I'm going to wait
and why should I buy anything right now
wait till the price drops and by the way
a negative interest rate negative 1% my
example is a nominal phenomena but in
real terms if you have deflation my
money is worth more so even though my
dollar amount may be less my purchasing
power went up because prices went down
and so that's why negative interest
rates don't work because a you're
sending a deflation signal so people
defer spending and B they have lifetime
goals so they actually save more so
negative R don't work so you see you're
right you're stuck at zero there you are
pardon you can do QE you can do
quantitative easing and usually what
happens is they hand the ball over I
it's a rugby match or whatever but they
they hand the ball from monetary policy
which is now impotent to fiscal policy
which is deficit spending but there you
have other kinds of headwinds having to
do with very high debt levels more to
the point uh in terms of what a central
bank can actually do they can't
stimulate they can print money and
governments can spend money and incur
deficit spending but again none of it
does any good if people don't actually
spend it and that's a psychological
phenomena and the fed or The Reserve
Bank of Australia or any Central Bank
can print money uh no doubt about it but
they can't change people's psychology
you need we had an external shock an
exogenous shock in the form of the
pandemic that caused people to stop
spending say more or they were
unemployed or if you're the unemployed
individual you're you're not taking your
friends out for dinner these days you're
putting money in the bank and even if
you still have your job you're going to
save money because you're worried you
might be next you might be the next one
to get laid off or your company might
shut down next week or next month and so
you're going to save more it's what
economists call precautionary savings or
you know in plain English saving for a
rainy day and that's what's going on
it's going on all over the world
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