Welcome to your March issue of the Global Intelligence Wire.
This is the monthly digest exclusively for Global Intelligence Lifetime Circle members, in which I cut through the media chatter and highlight five underreported news stories from recent weeks.
First up this month… frying pan, meet fire.
The U.S. Banking Industry Faces a Reckoning
March has been rough on the U.S. banking industry, with three bank failures in a single weekend.
Now, Moody’s, the rating agency, thinks life is about to get even worse for banks… which would obviously make life worse for the economy and American pocketbooks.
Moody’s just last week downgraded the entire U.S. banking industry in the wake of the collapses of Silicon Valley Bank, Silvergate Bank, and Signature Bank (and amid news that several other banks are now in a tough spot). Moody’s said it did so because it expects the Federal Reserve to continue with its ill-advised interest rate hikes, and that doing so “could deepen some banks’ challenges.”
Whether the Fed will or won’t raise interest rates at its meeting this week is the subject of much debate. Wall Street and the bond market say that raising rates would be disastrous. Certain business commentators say the Fed has to keep on plugging away—hell or high water—to defeat inflation.
The latter argument, from my perch, is boneheaded in its economic ignorance since the Fed has zero control over many of the factors driving inflation—war, weather, and post-pandemic supply chain challenges in China (the world’s factory floor). Nor does the Fed have the power to raise rates above the rate of inflation in order to quash the problem, without causing meaningful destruction to the economy and families.
The deaths of three banks, and Moody’s concerns about the health of the entire banking industry, are proof that the Fed’s rate-hike policies are already economically destructive.
If, as Moody’s expects, continued rate hikes are likely going forward, you can expect to see more bank failures. This, in turn, would see more and more people pull their money out of small- and medium-sized banks and community banks, and America’s deposit base would increasingly accumulate inside just a few banking giants, such as Chase, Citi, Wells Fargo, and Bank of America.
The outcome being that the Fed would have destroyed small banks and created vast unemployment among the country’s tellers, branch managers, loan officers, and many others who work at the more than 72,000 bank branches in America.
For that reason, I’m of the mind that the Fed won’t raise rates this week. There’s too much uncertainty right now, and it can’t risk a major banking crisis that spills over globally (unless darker, ulterior motives exist).
If the Fed hikes, we have a potentially disastrous scenario for the economy. If the Fed doesn’t raise, then we’re going to see a pop in stocks and crypto.
Next up… digital dollars.
The Case for Bitcoin Has Become “Significantly Stronger”
During a recent workshop labeled “Next Steps to the Future of Money and Payments,” Nellie Liang, an undersecretary at the U.S. Treasury Department, noted that leaders from across a variety of government agencies “will begin to meet regularly to discuss a possible CBDC and other payments innovations.”
CBDCs are central bank digital currencies—basically, a digital version of the dollar based on the same blockchain technology as bitcoin and all other cryptocurrencies.
In response, Nigel Green, CEO and founder of deVere Group, said the case for bitcoin becomes “significantly stronger.”
DeVere Group is one of the world’s largest independent financial advisory, asset management, and fintech organizations, and Green’s assessment is, in my world view, spot on.
A digital dollar is a done deal. All the movement we’re seeing right now—the back and forth on whether CBDCs are good, bad, or indifferent—is just a pretty little dance designed to make the world think there’s a real debate. Fundamentally, there is not.
China already has a CBDC, and the risk to America is that a digital yuan will increasingly dominate global trade because moving money around on the blockchain is wildly faster (seconds or minutes vs. days or weeks) and substantially cheaper.
I saw a comparison recently noting that to move $1 million on a popular money transfer app costs about $3,500. Do it through a bank and the fee is even higher.
But moving that same amount on the blockchain would cost fractions of a penny.
On a one-off basis that’s a $3,500 saving. But if you (a company, let’s say) are regularly wiring money overseas, saving $3,500 numerous times a month or year leads to very real cost savings.
The government knows this, which is why a digi-dollar CBDC is a done-deal.
And therein lies the opportunity for bitcoin and crypto at large.
A digital dollar eviscerates privacy since digi-dollar crypto wallets will be associated with specific individuals who will use them to collect paychecks, pay government taxes, and so on. The government will be able to monitor transactions using the digi-dollar, so it’ll be able to see who’s earning what and spending what, when, and where.
And while bitcoin and other cryptos are visible on the blockchain as well, tracking them is not as simple as tracking a digital dollar.
There is a much, much longer story here, and I will write it one day. But in the meantime, just know that the Western world’s move to CBDCs—particularly America’s move—is good news for bitcoin, and one of the many reasons why you should own some bitcoin in your portfolio.
Next we go to… the price of eggs.
Declining Inflation Doesn’t Represent Reality
CNBC recently published a useful chart with their story on the latest inflation reading.
The inflation report shows that prices in the U.S. rose at a 6% annualized rate in February, continuing a slow and modest decline from the peak of 9%.
But what caught my attention is that the chart shows just why it is that Americans feel like 6% inflation is underreporting reality.
Where did prices fall?
Well, major appliances were down 5.9%. Used cars and trucks were down 13.5%. And televisions were down 14.8%.
I mean, yeah—those items are useful, but the average family isn’t buying any of them on a regular basis.
So, what about the items we buy all the time, like daily, weekly, and monthly?
Eggs are up 55.4%. Butter/margarine is up 26.9%. Cakes, cupcake, cookies, and bread are up 15.8%.
Sugar: 14.8%.
Car maintenance: 14.5%.
Electricity: 12.9%.
Rent for primary residence: 8.8%.
The reality is that the consumer price index doesn’t really square with everyday consumer life. The inflation you feel in your wallet is much more painful than the government’s highly massaged data would lead you to believe.
Moving on to… dark days ahead.
The World Must Now Confront “Megathreats”: Dr. Doom
I have been saying for over a decade now that America is lurching toward a final crisis to wrap up the last 20 years of near never-ending turmoil, and the endless accumulation of debt.
There must come a reckoning to clean up the mess that government, banks, the Federal Reserve, and, well, society has made.
Along those lines, famed New York University economist, Dr. Nouriel Roubini, also known as Dr. Doom, sat down with Al Jazeera’s The Bottom Line business show to run through a list of potential catastrophes the world now faces.
In his words, Roubini says the world must now confront “megathreats.” High atop his list is America’s debt trap—which I’ve been writing about for some time now.
He also lists the rise of artificial intelligence (which will negate millions of jobs), deglobalization of the world economy, climate change, and the impact of reducing fossil fuel dependence too quickly.
I won’t steal Roubini’s thunder and detail everything he says here. (I encourage you to watch the interview through the link above—it’s a relatively short 24 minutes.)
I will only say that he bolsters the big point I’ve been making for more than a year now: The Federal Reserve cannot fight today’s entrenched inflation in the same way the Fed fought it in the 1970s—when it raised interest rates to the moon, well above inflation rates of the time, to crush the inflationary virus.
The same approach today is impossible because the vast amount of U.S. and Western debt would fuel a vicious and violent debt cycle which would see debt-serving costs spiral out of control for the world’s heavily indebted nations… led by America with more debt than history has ever known. Which means we’ll all have to live with entrenched inflation.
Finally this month…
China Continues to Buy Up Gold
China is “putting the world on notice” when it comes to accumulating gold.
This is another story I have been highlighting for more than a decade—the likelihood, and now reality, that the Middle Kingdom has accumulated more gold than the world realizes.
Kitco, one of America’s leading gold dealers, notes in a new report that China bought another 24.9 tons of gold in February, the fourth monthly increase in its gold purchases..
Willem Middelkoop, chief investment officer and founder of the Commodity Discovery Fund, told Kitco that he expects China, which has typically been fairly quiet about its gold holdings, to increasingly shout to the world what it’s up to because China is now trying to establish a new reserve currency to compete against the U.S. dollar.
“It’s no coincidence that China has just started to publish their gold purchases again,” Middelkoop told Kitco. “They are putting the world on notice that they have an international currency.”
Middelkoop, reflecting what I wrote in the January issue of the Global Intelligence Letter, noted that America’s weaponization of the dollar in response to Russia’s invasion of Ukraine did nothing but speed up the global de-dollarization trend now underway.
China reportedly holds just over 2,000 tons of gold, according to the World Gold Council, which tracks reported central bank holdings. But that is very likely to be a massive undercounting of reality. China, as I’ve written, is the #1 producer of gold, and the #1 importer of gold. A lot of that data is trackable through Hong Kong, which records the comings and goings of every import and export. Moreover, China does not allow the export of gold, thus all gold produced in the country stays in the country.
The upshot is that, based on the numbers, China quite likely has more than 13,000 tons, which vastly eclipses the supposed 8,000 tons Uncle Sam owns—and that’s assuming the Federal Reserve, which owns the gold, is not lying. And who knows if the Fed is truthful, given that it’s a non-governmental agency and has refused to allow Congress to audit America’s gold holdings since the 1950s.
What I’m saying here is that China is clearly prepping for a globally significant financial event.
Best to side with China and own a bunch of physical gold.
With that, we’ve reached the end of this month’s Wire. If you have any feedback or any topics you’d like me to address in a future issue, you can reach me through the contact form on the Global Intelligence website.
Thanks for reading and for being a Global Intelligence subscriber.
