Are we at the early stages of another financial crisis?
Last weekend featured both the second and the third largest bank collapses in American history. Then just yesterday Swiss banking giant Credit Suisse plunged 25% on concerns that it’s on the verge of collapse as well.
What’s incredible here is that Credit Suisse was founded in 1856. It’s been in operation for nearly 170 years. And I’ll add that Switzerland has been known as a banking safe haven for much of its history.
Yet Credit Suisse is teetering. And with the stock tanking yesterday, Credit Suisse shares have lost over 87% of their value in the last twenty-four months. Ouch.
Naturally this begs the question – are we watching another financial crisis unfold here? Is this 2008 all over again?
Nope. To the contrary…
What we are witnessing is the restoration of America’s economy. This is all part of the battle between the Federal Reserve (the Fed) and the globalists that we discussed last week.
Remember, the Fed represents the New York banking interests. In fact, it’s almost certainly owned by those same interests.
So the Fed’s incentive is for America to have a healthy, functioning economy. That’s how the New York banks maintain their wealth, power, and influence.
Meanwhile, the globalists have actively worked to undermine the legacy economy. Both in Europe and here in the United States. One could argue that every government policy we saw imposed upon us in response to the COVID-19 hysteria was all part of this plan.
There’s a lot of chatter out there about how the Fed “broke” the banking system by raising rates too far too fast. Perhaps that’s true. But I have a different perspective.
The Fed is forcing fiscal responsibility upon the system. That’s what’s happening right now.
Simply put, an economy needs real interest rates in order to function properly.
Interest rates are the price of money. The higher the rate, the more expensive it is to borrow money.
So when rates are high, only the most important, high quality companies and projects can get financing.
And the opposite is true as well. When rates are low, even questionable companies and projects can get financed.
We’ve been stuck in a world where interest rates have been next to zero for the better part of the last fifteen years. That’s led to the “financialization” of everything.
It’s also enabled the U.S. government to borrow over $31 trillion dollars… and largely blow it all on stupid and destructive programs.
And on the commercial banking front, funny money and zero-bound interest rates destroyed the fundamentals of risk assessment.
Instead of funding solid top-tier projects in this country, lenders poured trillions of dollars into high-flying projects that promised nothing more than a quick buck. Many banks also funded uneconomical “environmental, social, and governance” (ESG) programs in the name of political correctness.
As a result there’s an onslaught of zombie companies out there. We’re talking companies that hemorrhage money every year because they don’t do anything important.
These zombie companies have survived simply because they’ve been able to float new bonds at ridiculously low rates. In some cases less than 1%. That’s enabled them to raise more and more money to keep themselves alive.
Those days are over.
We are going to see an absolute avalanche of corporate bankruptcies in the coming years. The financial media will play it up as a tragedy and demand something be done about it.
In reality this is exactly what needs to happen.
We need to stop pouring trillions into fly-by-night operations. Then we can focus on the real economy.
We can make sure that those companies who actually do important work get the financing they need…
We can make sure that business owners and homeowners have access to capital to properly maintain their buildings, tools, and equipment…
And we can make sure that we take care of our critical infrastructure. We can fix our roads and bridges like we should have been doing all along.
You know, a friend of mine did a tour of the Rust Belt several years ago. With a few exceptions, it’s amazing how much of America has fallen into disrepair.
Our infrastructure is outdated. And once illustrious Main Streets now sit deserted and disheveled.
Many of these Main Streets feature brick and stone buildings that date back a century or more. And most were once the center of vibrant local communities.
Of course, there are a lot of contributing factors here. But economics had a big part to play in what’s happened to our country.
With near-zero interest rates, we’ve “financialized” everything. And in the process we’ve denied individuals and small businesses the ability to earn any yield on their savings.
The path back to a healthy economy requires the Fed to do exactly what it’s doing right now. It must continue to raise interest rates and then let all the zombie companies go bankrupt.
When that happens the banks will get back to doing proper risk assessment on every loan they make. They’ll have to.
And what follows will be the restoration of the American economy. Believe it or not, that’s the path we’re on right now.
So the big takeaway is this…
We’re entering into what’s going to be a chaotic transition period.
The media will likely stoke the flames of fear and worry… but we should ignore them. Getting back to normal is going to be a painful process.
-Joe Withrow
P.S. The restoration of our economy is great news. But that doesn’t mean we’re going back to the days where the U.S. stock market always goes up. Quite the opposite.
The fact is, the Age of Paper Wealth is over.
The Fed has supported the stock market by pushing interest rates lower and pumping easy money into the financial system for the last forty years. That’s why U.S. equities have been the staple of pretty much all retirement plans for decades now.
We’re entering a new era today.
Hard assets and “bearer” assets are making a comeback. They are the backbone of a strong economy.
As such, it’s time to rethink financial planning 101. We can do so right here: Finance for Freedom