If you still have PTSD from the 2008 financial crisis, this past week has not been fun for you. With just the second-largest bank failure in U.S. history and his third-largest, including the nation’s 16th-largest bank, the fragility of the nation’s banking system is once again at the forefront.
Fifteen years after the last financial crisis, after years of being told there was no remedy, after being told that the banking system was perfectly safe and sound, we already know that the banking system is not sound. I doubted. And for many Americans, it’s a sobering wake-up call.
Most Americans may not have deposits in Silicon Valley or signature banks, but the risk of contagion spreading throughout the financial system remains. And now that the banks have failed, the challenges facing the financial system are once again in the spotlight.
If you’re nervous about what’s going on, you’re not alone. Anyone who remembers what happened in 2008 is in the same boat. And one of the things we are determined to do is not to experience the loss that we did back then. So, are you ready for your investment crisis?
Banking system vulnerabilities
The underlying vulnerability of the banking system in the United States, and indeed around the world, is its reliance on fractional reserve banking. As the name suggests, banks only keep a portion of deposits on hand as a reserve to cover withdrawals and check clearing cases. They’re betting that enough depositors won’t be willing to withdraw their money so that the bank can lend or invest that money and make money on those loans and investments. .
The system works relatively well until it fails. And when it fails, a bank crackdown begins, raising concerns about the instability of the banking system.
In the US, banks no longer need to hold reserves against deposits since March 2020. This increases your chances of getting a loan, but it can put your bank at risk if it gets run over.
The recently failed Silicon Valley Bank (SVB) is an example of a bank that has been caught up in the fractional reserve banking problem despite being relatively conservative by banking standards. Securities held by banks lost value due to rising interest rates. how does that happen? Let’s use government bonds as an example.
Here’s how to buy government bonds: You choose to purchase a certain amount of debt. For example, let’s say $1,000. You choose to purchase a note that matures in one month. When you sell, you pay a price of say $995.85. This equates to an annual interest rate of approximately 5%. At the end of the month, the bond matures and pays out $1,000.
$4.15 is the interest received on that bond. Also, because you hold the bond to maturity, you get the full face value of the bond ($995.85 principal + $4.15 interest). However, between the time you buy a bond and the time you sell it, its value can fluctuate up and down from the purchase price of $995.85.
If you run into financial trouble that month, you may be forced to sell the bond to raise cash. And if the bond’s value goes down, you’ll make a loss on that purchase.
Now let’s look at the SVB and its government bonds. According to media reports, the average yield on that bond was his 1.79% and the average maturity of his holdings was 6.2 years. So if the bank had been able to hold onto its holdings for a few more years, it would have been able to recoup its funds and interest.
However, because interest rates are rising, the value of your bond holdings is declining. The bank had no intention of selling those bonds, but had to report the market value of the bonds and report that there was an “unrealized loss.” SVB unrealized loss was close to $16 billion, approximately equal to $16 billion in capital. This was risky and banks faced potential wipeouts if the outflow of deposits required them to sell their securities.
Underlying vulnerabilities in the technology sector, which makes up the bulk of the bank’s customer base, forced the bank to try to raise billions more in capital. Regulators hijacked banks and the FDIC swooped in to make depositors complete.
How will this affect the banking system?
One of the interesting consequences of these failures is that the country’s largest bank See major deposit inflows As depositors flee smaller banks. Apparently depositors think these big banks are too big to fail. But is it?
Bank of America is $114 billion in unrealized losses, among most of its large peers. Yet depositors are still in a rush to fund banks. Apparently they think it’s right to keep your money in the biggest and most systemically important banks, thinking the government will never let those banks go bankrupt.
One of the most important lessons to be learned from this incident is the fact that crises develop slowly and then burst. Apparently his SVB problems were already recognized by analysts in his November, but it was only last week that most started to act on the information. And once the deposits started draining, we left for the race. Within about two days, SVB went bankrupt.
This is a reminder that crises like this can occur incredibly quickly. Perhaps even before you can handle it. That’s why it’s important to be prepared in advance so that when a crisis strikes, you can survive it.
With so many assets digitized in today’s financial system, from bank accounts to stocks held in 401(k)s to stocks of funds in brokerage firms, the rate at which they disappear is unprecedented. It looks as fast as it can be. Imagine going to bed at night thinking your money is safe in the bank and then waking up the next morning to find your bank bankrupt.
protect yourself with precious metals
This is why so many Americans today want to invest in things that are tangible and physical. We are starting to turn our attention to things that are full of
One of them is gold, which has a long history as a safe-haven asset and store of value. Its nature as a tangible physical asset continues to appeal to those looking for a source of value during difficult times.
Goldco offers customers the opportunity to purchase gold. Gold IRAs Or through direct purchase of gold and silver. A Gold IRA allows you to rollover or transfer existing retirement assets from your 401(k), TSP, IRA, or similar retirement account to physical gold held within his IRA account. This gives you the safety and security of your gold while giving you the same tax and tax benefits as your existing retirement savings.
If you prefer to keep your gold to yourself and believe that being able to keep it is the only way you can truly say you own it, Goldco also offers: Direct sales of gold and silver coinsRegardless of how you buy your gold and silver, Goldco has a wide variety of options.
With the U.S. economy and financial system facing increasing challenges, now is the time to ensure a financial crisis is prevented. If you’re worried about the 2008 repeat, call Goldco today to learn how gold and silver can help protect your wealth.
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Trevor Gersht is the founder and CEO of Goldco, Los Angeles Precious Metals Dealer. For over 20 years, Trevor has explored ways to help people build long-term wealth through the safety and stability of precious metals and other alternative assets. Goldco awarded the INC 500 an A+ rating for his five-time award-winning Better Business Bureau, and countless five for its quality customer service, reliability, and strong reputation. It has stellar reviews.
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