“You’re thinking of this place all wrong as if I had the money back in the safe. The money is not here. Your money is in Joe’s house, right next to yours. And in the Kennedy house, and Mrs. Macklin’s house, and a hundred others…”
–George Bailey (Jimmy Stewart), It’s a Wonderful Life
December 24, 2024— American life has gotten more complex since the 1946 holiday classic It’s a Wonderful Life.
Indeed, your small-town bank or savings and loan may primarily be in the business of 3-6-3 lending. That’s where a banker gives its depositors a 3% interest rate, lends out at 6%, pocketing the spread, and closes at 3 p.m. to hit the golf course.
But 21st-century America is far more complex. Banks engage in far riskier behavior. In 2023, for instance, we learned that banks could go bankrupt from investing in U.S. Treasury bonds.
Remember, by definition, U.S. Treasury bonds are considered the only truly “risk-free” investment.
But that’s clearly not the case. Rapidly rising interest rates in 2022 meant that longer-dated Treasury bonds dropped significantly to match those higher rates.
So when Silicon Valley Bank needed to sell its bonds for liquidity, it turned paper losses into real ones, kicking off the second, third, and fourth-largest bank failures in U.S. history.
The Fed stepped in, offering to buy those bonds at their par value. This is part of our next Grey Swan event…
Grey Swan #6: The Gradual “Nationalization” of America’s Banking System
We’re watching the slow-motion nationalization of our banking system.
From problem banks to presidential overreach.
From digital currencies to massive repo operations – I believe it all points to a government preparing to take total control of our financial lives.
But here’s the kicker – they won’t call it nationalization.
Oh no, they’re far too clever for that.
They’ll dress it up as “stability measures” or “consumer protection.” That’s what they did when they started overpaying for Treasury bonds from banks in 2023.
While that move kicked the can down the road, it left more risk on the Fed’s balance sheet at the expense of avoiding a bigger banking crisis.
When the banking system gets into a crisis, things can be changed on a dime. Contracts can be ripped up. And bankers will tell you it’s for your own good, that it’s necessary to prevent another financial crisis.
But make no mistake, once the government has its fingers in the banking pie, your financial freedom will never be the same.
Let’s take a moment to consider the broader implications of this financial power grab.
The U.S. dollar, long the world’s reserve currency, is under threat like never before.
Our national debt has exploded to over $36 trillion, more than triple what it was just 15 years ago.
And what’s the result of all this fiscal irresponsibility? Inflation.
We’re seeing a banking system that’s increasingly fragile, propped up by government interventions and easy money policies.
As Grey Swan Investment Fraternity contributor Mark Jeftovic notes:
Treasury yields seem to have gone the wrong direction after the Fed cut in September – and a half-point one at that. Here’s a visual depiction of the anomaly:
It’s clear that the bond market doesn’t like what’s happening in the economy right now.
And it’s urgent you take measures to shield yourself from another crisis. That’s why we continue to like gold, for its long-term stability against inflation. And why bitcoin, which is far more volatile, could still make sense as a small part of your investment portfolio.
Going into 2025 and the possibility of a banking crisis, it’s important to ensure that you’re not overexposed to bank stocks. And that you keep your cash in the bank under the FDIC insurance maximum of $250,000.
We’re carefully watching the banking sector for signs of stress in the new year, especially as interest rates are adjusting to stay higher for longer.
Regards,
Addison Wiggin,
Grey Swan
P.S. Panic hit the banking world in March 2023 when Silicon Valley Bank went belly-up after a catastrophic bank run. Like dominoes, Signature Bank toppled next, and Credit Suisse got scooped up by UBS in a fire sale. Regulators swooped in with emergency fixes to stop the financial world from melting down.
We were covering the event in real-time with live seminars. Our premise goes back to the days of It’s A Wonderful Life and Garet Garrett’s Anatomy of a Bubble in which he outlines the successive banking crises that followed the Roaring ‘20s and the aftermath of the stock market crash in 1929.
In a crisis, as we also saw in 2008, banks go first. The Fed’s balance sheet is negative now… so we’re keen to see what happens to banks after the current Wall Street fixation with Superchips finds its own pin.
Your thoughts on the top Grey Swan events of 2025 are welcome here: addison@greyswanfraternity.com
