New Banking Crisis Looms, Dangerous Enablers Rewarded

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

As new inflation data pushes the Fed toward continuing with rate hikes, precious metals markets are struggling to make headway.

On Thursday, the government released Consumer Price Index data for September. The so-called core CPI, which excludes food and energy, increased 6.6% from a year ago. That’s the highest core inflation reading since 1982.

Although prices at the pump have eased since the summer peak, other inflation components continue to rise. Housing, food, and medical care are currently among the biggest contributors to rising consumer prices.

For the time being, though, gold and silver markets are showing a stronger correlation to expectations for further interest rate hikes by the Federal Reserve. Metals markets may not be able to get any sustained traction on the upside until investors are convinced that Jerome Powell and company are ready to pivot away from tightening.

As of this Friday recording, gold is trading at $1,650 an ounce and is down 4.3% for the week. Silver is off about $2 an ounce or 10.0% now since last Friday’s close to come in at $18.34 an ounce. The platinum market shows a weekly decline of 3.0% to trade at $903. And finally, palladium prices check in at $2,058 per ounce down a healthy 9.6% on the week.

In other news, former Fed chairman Ben Bernanke was awarded the Nobel Prize in Economics. Yes, you heard that right. The same man who earned the nickname “Helicopter Ben” for his policies of dropping bailout cash into the financial system is now being officially crowned an economic genius by the Norway-based globalist organization.

He might be deserving of that distinction if he had actually solved the root problem of unsustainable excesses that periodically build up in financial markets. Instead, his Quantitative Easing programs rewarded those very excesses and encouraged more to build.

Ben Bernanke reinforced financial markets’ expectations of a “Fed put” – that the central bank would step in to rescue Wall Street and the too big to fail banks whenever they run into serious trouble.

Bernanke’s main contribution to central banking philosophy centers on his belief that the Fed didn’t step in and intervene enough or aggressively enough during the Great Depression. He maintains that investment banks should have been bailed out after the stock market crashed in order to avert a severe downturn in the economy.

But it was inflationary policies fostered by the Fed during the Roaring 20s that helped fuel the excesses in the financial system that made it vulnerable in the first place.

Neither Bernanke nor the current Fed chairman seem able or willing to grasp the concept that Fed-fueled booms lead to dangerous excesses in the financial system. And the promise of Fed bailouts when the booms go bust creates a moral hazard that incentivizes reckless risk taking.

Another banking crisis may be in the making now. Financial strains are exposing major banks as under-capitalized and ill prepared to weather high inflation, rising interest rates, and a weakening economy.

Many analysts fear bank runs are coming. They are already hitting developing countries.

In Europe, meanwhile, banking behemoths Credit Suisse and Deutsche Bank are showing signs of distress. Credit Suisse faces an $8 billion capital shortfall.

Credit default swaps – those derivative instruments made infamous during the Great Financial Crisis of 2008 – are once again flashing warning signs of rising default risk.

Some analysts foresee another “Lehman moment” – a sudden, looming failure of a systemically important financial institution.

JPMorgan CEO Jamie Dimon warned recently that the U.S economy is headed for a painful recession.

Some sound money advocates are predicting that the next financial crisis will bring bank bail-ins – whereby the assets of depositors are claimed by banks to prevent cascading failures.

Given the growing risks to the financial system, asset protection strategies are a must. Owning physical precious metals outside the banking system is an essential component of safeguarding one’s wealth.

Accounts held at banks and other financial institutions are vulnerable to the risks those institutions are assuming.

And should the banking system reach a crisis point, the Federal Reserve will likely make a massive pivot back toward monetary loosening. That puts holders of U.S. dollars in all forms at risk of having their purchasing power eroded at an even more rapid pace than has been reflected so far in 2022.

While the U.S. dollar has benefited temporarily from a flight to quality amid selloffs in stocks and other risk assets, it is a fundamentally unsound currency that is guaranteed to depreciate steadily over time.

When a true flight to quality occurs, investors will wake up to the realization that the soundest form of money isn’t issued by the Federal Reserve or any central bank for that matter. The soundest form of money is precious metals.

Central bankers like Ben Bernanke and Jerome Powell deny that gold still functions as money. They believe money and the interest rates attached should be managed by central planners who are supposedly wise enough to know what the proper inflation rate is, when to raise interest rates, when to lower them, which institutions to bail out, which to let fail, and so on.

But nobody, ultimately, is wiser than the free market itself. And absent the imposition of fiat currency by central banks, the market has always chosen gold as the soundest form of money.

Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.

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