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Question: If there’s another financial catastrophe, can the government save the day again?
Until recently, nearly all experts would have responded with a stubborn “yes.” They used to think that the Fed and the Treasury, along with their cohorts overseas, could simply spend, print and pump as much money as needed to avoid another global meltdown.
Now, though, they’re not so sure. And some astute analysts are saying the true answer is a flat “no.”
I’ll tell you who in just a moment. But first, I want you to remember one thing: Over the last two weeks, I’ve shown you precisely how to achieve maximum protection from such a disaster. I gave you 5 ETFs for Protection in Another 2008 and my 7-Step Portfolio Protection Strategy.
Today, I’m taking this story one step further. I will show precisely why you can’t rely on anyone else — especially the government — to provide that kind of protection for you. If you want it, you must build it yourself.
The Pundits Throw in the Towel
Let’s not forget who these experts are: They’re the same guys who swore on a stack of Bibles that the almighty Fed would always keep the economy afloat.
Now, however, Barron’s writes, “Based on what is happening in global markets today, central banks won’t be able to ride to the rescue this time.” The Telegraph declares that “the lifeboats are all used up.” And most seem to agree that the next big government rescue could fail — or even fail to materialize — for three reasons.
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Reason #1. The central banks’ latest weapon of mass desperation — below-zero interest rates — could cause more fright than fight … and more market panic than market rally.
Barron’s put it succinctly…
“Negative interest rates are a sign of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored.”
Reason #2. Instead of prodding banks to make more loans, below-zero interest rates will kill bank profit margins and prod banks to make fewer loans. Instead of easy money, they’ll bring tighter money.
Reason #3. Bank share prices will plunge, weaker banks will go bankrupt and the whole rescue scheme of recent years will backfire.
How big is that scheme? Â Brace yourself for the answer …
Since the Big Bang of all financial disasters — the collapse of Lehman Brothers on Sept. 15, 2008 — central banks have been expanding their rescue mission at a mind-boggling pace, creating a whole new universe of monetary excess.
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The U.S. Federal Reserve went stark, raving mad, abandoning any semblance of restraint, and expanding its assets by a mammoth $3.6 trillion.
Two prior emergency expansions — on the eve of the Y2K turnover and immediately after the terrorist attacks of 9/11 — were minuscule by comparison.
And in just a matter of weeks, all the rule books of Fed policy, written by generations of Fed chairmen, were dumped into the Potomac River.
A set of completely new rules was created on the fly.
And quantitative easing (QE) was born.
The European Central Bank immediately followed in the Fed’s footsteps, expanding their assets by $1.5 trillion.
At one point, they also tried massive lending to banks in a different form, which temporarily replaced their central bank expansion. But now they’ve resumed their quantitative easing, throwing in below-zero interest rates for extra measure.
The Bank of England, although smaller, was equally aggressive, expanding its balance sheet by $435 billion since 2008.
After the Lehman Brothers failure, their money printing went ballistic; and during the European debt crisis, it went ballistic again.
Now it’s on hold temporarily. But the $435 billion in new money is locked in place with no sign whatsoever of retreat.
If you think all of the above is crazy, wait till you see what the Bank of Japan has done:
Since the Lehman Brothers blow-up in 2008, the BOJ has expanded its balance sheet by a whopping $2.5 trillion.
Adjusted for the smaller size of Japan’s economy, that’s the equivalent of a $9.4 trillion expansion in the United States, or more than 2½ times more than the Fed’s.
Even excluding all the other central banks of the world, this big-bang expansion is absolutely unprecedented in all of recorded history:
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The Fed’s $3.6 trillion … PLUS … the Bank of England’s $435 billion … PLUS … the European Central Bank’s $1.5 trillion … PLUS the Bank of Japan’s $2.5 trillion … add up to a grand total of more than 8 trillion dollars in monetary expansion just since the Lehman Brothers big bang.
This $8-trillion monster is what had been fueling all the government rescues since the 2008 debt crisis.
This is what’s not working anymore.
This is fundamentally what the experts are now so worried about.
And this is why you need your own portfolio defenses.
Whatever you do, don’t get caught off guard.
Good luck and God bless!
Martin
P.S. Our membership rolls for Global Currency Investor are filling up fast! The good news is that there is still time to get on board so you don’t miss Boris and Kathy’s next recos, and STILL receive a $2,100 discount on your risk-free membership.
Fair warning, though: Enrollment may close at any time without notice … the minute we hit our membership goal … and you owe it to yourself to get the facts before you make your final decision.
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Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
{ 33 comments }
Good morning, and thank you for your timely help. Given the situation you have outlined above and the previously exposed derivative situation, what does one do with their cash assets ? Given the 30 thousand page banking bill of circa 2010 which apparently gives the bank ownership of your/my deposits are credit unions or banks without investment services exempted from the ‘bail in” provisions of this bill? If not where is a safe haven ?
how about real assets, like land? i’d say buy dirt. get a dump truck and start collecting piles of dirt. get top soil, clay, loam, etc., and when the dollar collapses you plant and sell tulips. you’ve heard of tulipmania? bubbles in cycles and could happen again.
The Bail In agenda, actually created by the Bank for International Settlements (The Godfather of the Global Financial Mafia) is the “creative” force behind the Bail in Strategy.
It’s primary purpose is the protect the large banks that are pregnant with derivatives.
John Truman Wolfe
Thank you Dr Weiss! Of the 100s of financial emails I’ve read in the last few weeks ,THIS explains “The BIG picture” ! I’m taking your (Short)ETFs in serious consideration Keep up the good work Gary
Hi Martin
There are two events this year, either one of which could trigger a change in market place confidence. Firstly, there is a growing mood swing against Washington and the party elite establishment. Both Mr. Sanders and Mr. Trump represent a voting block that is fed up and wants change. If this is thwarted and is seen to be clearly manipulated then markets might perceive this as destructive. Secondly, the NYT is trying to make a case for Britain to remain in the EU. If Brexit were to occur, then this could hasten Europe’s collapse. interesting times ahead for sure.
you’re a very smart guy, howard. way too smart to be working for weiss.
Your analysis is spot-on but for one small detail, it’s Sen. Sanders, not Mr.
i doubt if europe is going to collapse. the uk will probably be ok, especially britain, but i’m sure greece is in deep do-do.
…but don’t get me wrong. i have as much fear as everyone else about the unknown effect the brexit will have.
I will illustrate my question with two scenarios:
1) I deposit $100 in my bank; it pays me interest of 1%, or $1. It lends my money out at 6%, gaining a positive spread of five basis points.
2) I deposit the same $100 in my bank; but this time they charge me negative interest of 1%, or $1. They lend out my money at the same 6% producing a spread of seven basis points, which is 40% greater than their spread in the first scenario.
So, as I see it, banks make 40% more ( 7 versus 5 basis points) under negative interest rates–where is this huge downside for banks??
you just answered your own question. you’re smart enough to see the increased margins negative rates creates for banks, but you can’t see how this is a form i qe for the economy. come on?
I did “come on” but fail to see your logic. Using YOUR own words:
Reason #2. Instead of prodding banks to make more loans, below-zero interest rates will kill bank profit margins and prod banks to make fewer loans. Instead of easy money, they’ll bring tighter money.
Reason #3. Bank share prices will plunge, weaker banks will go bankrupt and the whole rescue scheme of recent years will backfire.
I am not attempting to be a smart a–, I truly do not understand your logic. Please explain. Thank you.
i see why you’re confused, dan. negative rates are the same as the fed making a regular rate cut to stimulate the economy, in theory anyway. seems to be working for japan. the margin between the negative rate and the loan rate increases bank profits, which gives banks more incentive to loan, which stimulates the economy. the cost of negative rates is past onto the folks with savings accounts, not the bank. this is just one example of how the bankers can handle the negative rate.
Well, if they are stealing one dollar for every dollar you deposit, don’t you think you will find other places to deposit your money? Maybe gold, or even burying it in the backyard?? And that’s not good for banks, is it? Pretty simple logic
they’re only stealing 25 basis points, a quarter of a percent. that’s 25 cents for every hundred dollars. i’d consider withdrawing my money, but then i’d have to higher a big guard named bubba to watch it for me … and i don’t know if i can even trust bubba.
The downside comes when banks must pay for having reserves held within Federal Reserve banks. NIRP means that banks will be charged for having reserve. Since banks cannot ever reach 0 reserves, they are charged for having reserves. Since they are charged for having these reserves, the margins on their loans is effectively reduced. At least this is how I understand it. Please, correct me if I am incorrect!
weren’t the reserves lowered? i’m sure the fed is trying to push the banks into making loans with this money to stimulate the economy.
negative rates might just do it.
it’s all about the unrate. so long at that unrate continues to drop, stocks will go up. the day the unrate goes flat, so will stocks. the current 4.9 unrate leaves a lot of room for the fed to let the economy expand.
Okay, let’s say all the negatives happen…and let’s say we invest in these short etfs… With all the printing of dollars, which are NOT backed by gold any longer, will the money we make from this next catastrophe in the markets be worth anything?
In other words, when they can no longer manipulate the value of the US dollar, what’s to keep that value from going to zero?
the dollar is just a worthless piece of paper with green ink on it. whatever it is that makes YOU think it has value now is what will also give it value in the future.
No. No. No. There have been huge crises in the past, and never once did any of these crises result in the collapse of the world. I fail to understand why anyone is making such a fuss – unless these red flags are supposed to make the ignorant masses rush to receive even more expensive (and not necessarily reliable) investment advice. Only a fool, by now, will have failed to realize that diversifying his asset classes is the safest route to survival. One asset class will flourish, two others will remain unchanged, and two will decline. Nothing needs to be done. After a while, what went down will go up and what went up will go down. One’s overall wealth remains pretty much the same. One doesn’t need to be a self-styled genius in these matters. And, in a prolonged era of deflation, it doesn’t really matter that you aren’t earning an overall yield in excess of 2%. You are safeguarding your capital. The safeguarding of capital is the only thing you ever need to know about.,
If the buying power (value) of an asset is declining, it doesn’t matter what the interest rate is – you are losing value. That is why people are earning more now than they did 20 years ago for the same kind of job, but they are living poorer in many cases.
Interest Rates and Ownership (Company Stock) are two different things. One may influence the other, but they do NOT necessarily go hand in glove. Gold prices and stocks, for example, rose while interest rates were falling, then fell while rates remained low, now are beginning to rise, along with U.S. interest rates.
The Weimar Republic needed money in the 1920’s so they just turned on the printing presses. It got to the point where it cost billions of DM’s to mail a letter across town. Hitler replaced them with Reich Marks. And even earlier the Union/Federal Government printed millions of greenback dollars that had it’s biggest value as toilet paper, a wheelbarrow load to buy a loaf of bread. So someday hundred dollar bills will make wallpaper?
Look , can not everyone see the trap the central banks around the world have created for themselves with negative interest rates?
Look at Japan, they will continue to go negative because as shown this is not working for them, but Abe thinks it will.
The financial crisis for them is just around the corner. They are boxed in right now. To get out of this situation will be a collapse of their economy. Our Federal reserve is also almost at the point of no return.
They can re start their economies at ground zero when it collapses. Remember When we dropped the A bomb on Japan? That is what Abe is doing to their economy .
Yellen is doing the same to our economy. If Yellen was to be graded she would be given a failing grade.
Time for a different approach.
The free economy is what works.
Their debt to GDP is well
I agree with Mike regarding diversification. Investing in asset class based mutual funds, ETF’s, bonds, stocks and for that matter real estate will provide the diversification needed to weather the storm of a bear market, however, if your horizon is short due to retirement or the need to pull cash from your investments, a reverse mortgage or an annuity may be options to consider.
Political figures will look at Japan’s debit to GDP ratios and say hey, “why not”? Let’s kick the empty can a few more exits down the road. When we hit that exit, banks will simply write off the most politically convenient loans. Sure, goverments will grab as many liquid assets they can get away with, while singing “it’s a world wide problem and we all have to take strong medicine (you are not the only only one)”. First, QE has to brcome unprofitable. The only issue I see is that you’re always more right than me. Where do I buy your latest book, how can I get Larry’s privacy haven report?
In the end it’s all about the law of supply and demand. If there’s no demand for money and a huge amount available the interest rate goes down. But if there is no demand for goods and services the economy will stagnate or decline. This is Japan. In the US the supply side is far greater than the demand side and this situation is not likely to change until the baby boomers have all passed on. Unfortunately only the government is actually spending the money they borrow and it’s on wars and national security they cannot afford. Hence the enormous debt. Do I have a solution? I’m afraid to think of what it might be because I think it’s probably too late to undo all the mistakes that have been made regarding the middle east and foreign policy generally. Will there be an economic disaster? Probably when the government is paying so much interest on its debt that they have nothing left for anything else, except their own salaries of course, and they will be forced to raise taxes by an unhealthy amount that will cause private money to leave the country. Unfortunately raising taxes by a “healthy” amount now is so anti american that it won’t happen. So here we are, ironically, in a driverless car heading down a road that leads to nowhere except trouble and we don’t even know what that trouble is. What am I doing? I fastened my seat belt and decided to enjoy it while I can (I’m one of the lucky baby boomers) and hope I can take care of my family until it all sorts itself out.
Vote for taxes! Vote Sen. Sanders for POTUS! It’s a start in the right direction, at least.
What does all this mean for real estate in 2016-2017?
Yes,diversify, have no debt and don’t buy any assets backed by debt.
Will enough brave people write in to Weiss so that the good Dr. will answer a highly practical question that was asked by Nelson (above)..
Will credit unions, money market funds or cash held in brokerage houses, e.g., Fidelity, or in banks w/o investment services, be exempted from the bail-in provisions?