The CEO of Scooters Gold Australia, Daryl Payne, speaks with Alistair McLeod, head of research at Gold Money, about the current state of the banking sector and the increased demand for gold and silver. Payne mentions comments made by Egon von Greyerz regarding the fragility of the banking system and the importance of wealth preservation through physical gold. McLeod agrees with von Greyerz’s comments, stressing that credit is based on confidence and that an increase in interest rates has signaled the end of a credit bubble. Furthermore, the recent banking failures have caused banks to reassess their counterparty relationships and reduce their exposure to risk. Credit contraction will expose weaker banks, and the crisis is not over with Credit Suisse and Silicon Valley Bank. The Swiss National Bank made a mistake by using their legislation to bail in senior note holders and not compensate bondholders, which caused shock waves throughout Europe and called into question Swiss probity.
The Swiss National Bank made a mistake by bailing in senior note holders instead of shareholders, causing shock waves throughout Europe and damaging their reputation for probity. The Silicon Valley Bank invested deposit money along the yield curve when interest rates were at zero, causing losses when rates rose, and their problem became obvious when insiders began bailing out. The problem of contracting bank credit and rising interest rates is not confined to America and Europe but extends to Japan. Central banks have lost control of interest rates, which are now driven by the cost of bank credit and the expansion of central bank credit can lead to inflationary consequences. The Fed is injecting credit into the economy by lending to banks at a low-interest rate, which could become an attractive source of balance sheet funding. Central banks are also grappling with their own debt problem and have a vested interest in suppressing the yield curve to fund government deficits.
The banking system is in crisis and the government is looking for solutions to save the banks and support the economy. The Federal Reserve is under pressure to support both big and small banks, but resources are limited, creating a dilemma for policymakers. There is concern about the impact of bank failures on smaller banks and the overall stability of the banking system. The printing of money to bail out banks can lead to inflation, and the creation of credit is shifting from the private to the public sector through central banks. Foreign investors are leaving the US dollar, and the shift towards commodities is underappreciated but significant. Putin has suggested that owning dollars and euros is not a wise investment due to their decreasing purchasing power and the potential for governments to cut off their use.
The speaker believes that there are two important factors to consider in the current economic climate. Firstly, there is a growing trend among countries, particularly in Asia, to invest in tangible commodities as a hedge against the instability of fiat currencies. Secondly, the purchasing power of currencies is expected to fall rapidly in the near future, leading to an increase in the value of gold as a hedge. The gold price is not necessarily rising, but the value of fiat currencies is declining. The speaker also notes that there is potential for silver to rise in value as well, with a predicted return to the gold-silver ratio levels of when silver was circulated as a form of money.