Thursday, October 27, 2016

The Next Financial Crisis
"People are not making any money in stocks. Hedge funds are not making money. Institutions are not making money. It’s one of the most difficult investing environments that I’ve ever seen in a very long time .. In the financial crisis, we were days, if not hours, from the sequential collapse of every major bank in the world. Think of the dominoes again. What had happened there? You had a banking crisis. It really started with the failure of a couple of Bear Stearns hedge funds, not Bear Stearns itself at that stage but these Bear Stearns hedge funds that started a search .. The government intervened and bailed everybody out. Again, for the second time in 10 years. We came hours or days away from closing every market and every bank in the world .. One of these times, and I think it’ll be the next time, it’s going to be a lot bigger and a lot worse. .. They say Dodd-Frank ended “too big to fail.” No, it didn’t. It institutionalized 'too big to fail.' It made 'too big to fail' the law of the land, because they haven’t made the banks smaller. The 5 biggest banks in the United States today are bigger than they were in the financial crisis. They have a larger percentage of the banking assets. They have much larger derivatives books, much greater embedded risk. .. People like to use the cliché 'kick the can down the road.' I don’t like that cliché, but they haven’t kicked the can down the road. They’ve kicked the can upstairs to a higher level. From hedge funds to Wall Street, now the risk is on the balance sheet of the central banks .. Who has a clean balance sheet? Who could bail out the system? There’s only organization left. It’s the International Monetary Fund (IMF). They’re leveraged about 3 to 1. The IMF also has a printing press. They can print money called Special Drawing Rights (SDR), or world money. They give it to countries but don’t give it directly to people. Then the countries can swap it for other currencies in the SDR basket and spend the money. Here’s the difference. The next time there’s a financial crisis they’ll try to use SDRs. But they’ll need time to do that. They’re not going to do it in advance and they’re not thinking ahead. They don’t see this coming. What’s going to come is a crisis, and it’s going to come very quickly. They’re not going to be able to re-liquefy the system, at least not easily.:
- Jim Rickards*
LINK HERE to the essay

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