Anxiety levels are quietly rising

Tuesday, 21 February 2023 — Albert Park

[11 min read]

Dear Reader,

Banks tightening up lending standards. A slowing economy. Property markets suffering larger-than-expected falls. RBA Governor Phil Lowe is indicating interest rates are headed higher. How much higher? He (and the rest of us) don’t know.

On the surface, markets appear relatively calm…moving a few points in either direction. But, underneath the composed outer veneer, all is not well. Rising interest rates have altered the risk versus reward equation.

With US Government two-year bonds paying 4.6% per annum, US investors now have an alternative to ‘no and low’ yielding stocks. Repricing of markets awaits.

All these factors have raised anxiety levels a notch or two.

How do I know this?

Through social contacts…especially millennials with mortgages.

The anger with Phil Lowe is palpable. ‘He lied to us’, is a common theme.

They are worried.

And those with savings — who are beneficiaries of rising rates — are also unsettled.
Tonight, I’m holding a live ‘Ask Me Anything’ chat with members of The Gowdie Advisory.

Questions have been coming in ‘thick and fast’ on a number of topics.

However, the one question that dominates member emails is: How safe is my cash in the bank and/or super?

I’ve not witnessed this level of concern for a number of years.

Some members are merely inquisitive.

While others are seriously questioning whether they should be heading for the hills…armed with guns ‘n gold.

Even some family and friends have been asking me about how the $250k Government Deposit Guarantee works.

Anecdotally, it would appear people are quietly going about the business of protecting their capital.

There’s a whiff of September 2008 about this…prior to the Government Deposit Guarantee.

As reported in the Sydney Morning Herald on 14 September 2013, five years AFTER the Lehman Brothers collapsed (emphasis added):

‘Westpac boss Gail Kelly has described scenes of customers arriving at bank branches with suitcases looking to withdraw their cash as the global financial crisis hit its nadir five years ago.

‘In the first account by a major Australian bank chief executive, Ms Kelly says: “They [depositors] would want to pack their money into the suitcase and take it away with them.”

‘The panic in the community in the four weeks following the collapse of Lehman, before the government stepped in to guarantee deposits, was palpable.

‘“People were reading what was going on around the world, they were seeing other people losing their money, seeing banks collapse — so naturally people were thinking, ‘I had to protect myself first’.”

‘Reserve Bank governor Glenn Stevens was monitoring the flow of banknotes that were physically being taken from bank accounts. In September 2008 the RBA reported printing an additional 24 million $100 notes.’

At the time, this ‘flight to safety’ was kept quiet.

There was no media coverage.

People went about the business of protecting their capital…holding the cash themselves.

And it was this steady exodus of cash that eventually forced the government into announcing the Financial Claims Scheme…or as we like to call it, the Government’s Deposit Guarantee.

Even with the Government’s Deposit Guarantee in place, there’s still an air of concern over the safety of money in the bank.

The short answer to the most commonly asked question is: I don’t know. You can only take the government on its word.

The reason for my hedged response is that none of us know how severe the next economic crisis is going to be.

If it’s your regular garden variety recession, then everything should be OK. The system should be robust enough to handle it.

However, if we enter a fully-fledged depression — the likes of which none of us has ever experienced or could even envisage — then who knows which banks might fall over (especially with so much overpriced residential real estate on their balance sheets), and how the government of the day responds.

In a world with record levels of private and public debt, sky-high asset prices, and trillions of dollars committed to unfunded promises, if it all goes pear-shaped, who knows how all this could play out.

Since the now almost forgotten events of 2008/09, Greece has been the only template we have of what happens to a banking system on the verge of collapse.

The answer to ‘how safe is my money in the bank’ is one I’ve addressed many times. However, considering the recent wave of concern, it is timely to revisit the lessons.

This is an edited extract from The Gowdie Letter published in August 2019:

‘The Greek Experience

‘Anarchy. Chaos. Riots. Money is worthless. Gold is priceless.

‘We are guessing as to what this type of world might be like. None of us really know.

‘To try and see what it might be like we can look to Europe.

‘Up until late 2018, the citizens of Greece had been living with capital controls — restricted access to cash.

‘An article published by Reuters in May 2017 provided an insight into those restrictions:

“Depositors can withdraw up to 840 euros in cash every two weeks, but face no limit on money they have deposited in banks after July last year.”

‘During the period when capital controls existed, Greek depositors still had money in their bank account/s. The problem was they could only access it in bite size amounts.

‘According to Reuters (29 July 2017) the EU was considering similar restrictive access measures in the European Union…

‘Here’s an extract:

“European Union states are considering measures which would allow them to temporarily stop people withdrawing money from their accounts to prevent bank runs, an EU document reviewed by Reuters revealed.

“The plan, if agreed, would contrast with legislative proposals made by the European Commission in November that aimed to strengthen supervisors' powers to suspend withdrawals, but excluded from the moratorium insured depositors, which under EU rules are those below 100,000 euros (US$117,000).

“Under the plan discussed by EU states, pay-outs could be suspended for five working days and the block could be extended to a maximum of 20 days in exceptional circumstances, the Estonian document said.”

‘[As of February 2023, these measures have not been introduced].

‘The current policy, in the event of an imminent European bank failure, is to enable access to deposits below the guarantee of €100,000.

‘The proposed (but as yet, not adopted) measures are to freeze access to all deposits for up to 20-days.

‘For the sake of this exercise, let’s assume the EU’s proposed model is the one that APRA (Australian Prudential Regulation Authority) decides is appropriate for our banking system.

‘This means deposits — up to $250k per taxable entity per Authorised Deposit-taking Institution) — is guaranteed.

‘However, you’ll only be able to access, say, $100 to $200 per day.

‘And, be prepared for access to be frozen for up to three weeks or more.

‘On 2 June 2017, the Financial Times published the following article:

‘The Greek economy went through a sustained period of shrinkage in 2011 to 2013…but then started to stumble its way to a recovery…of sorts.

‘So what can we glean from this information?

‘The Greek economy — in spite of restricted access to bank accounts — still managed to function…albeit with periods of contraction. The worst contraction was 5%, which means 95% of the economy was operational.’

It’s important to not go too far down the doomsday rabbit hole.

While things can get tough, the lesson from Greece is the world doesn’t come to a grinding halt.

Commerce still continues…albeit at a slightly lesser level.

That’s a critical point to remember.

Also, nothing lasts forever.

Bad times do give rise to better times.

Surviving the tougher conditions with capital intact is our priority.

Followed by how to capitalise on the discounted opportunities that inevitably present themselves when speculation is replaced by disbelief and misgivings.

Next week, in Part Two, we’ll look at how to achieve the primary aim…protecting your capital by understanding how the Financial Claims Scheme operates.

And for Part Two of Jim Rickards’ video series on the supply chain breakdown, see below.

Until then…

Regards,

Vern Gowdie,
Editor, The Daily Reckoning Australia

Dear Reader,

Do you blame a particular snowflake for an avalanche? Which drop of water should we accuse of breaching the dam? Do you go looking for the hailstone that broke your windscreen?

Asking which particular issue caused the catastrophic supply chain breakdown of 2021 and 2022 is the same folly. And yes, it was catastrophic for millions of people around the world who were left without enough food or energy.

The real point, though, is that COVID, Putin’s invasion, and central bank money printing were just the spark which ignited the crisis.

At least, that’s what Jim Rickards argues in part two of our interview about his new book Sold Out.

He explains that it’s the snowpack that causes the avalanche...and why it’s about to rumble again…

But first, if you missed part one, where I attempt to explain high prices to my wife, click here.

Complimentary digital copy of Jim Rickards’ new book for every new subscriber...

For a limited time, when you take a subscription to Strategic Intelligence Australia, you can get a digital copy of SOLD OUT with Jim’s compliments. For more details, go HERE.

Until next time,

Nickolai Hubble,
Editor, The Daily Reckoning Australia

Dear Reader,

Our first stop in Buenos Aires was a ‘cave’. We needed the local money.

You can change your money in a bank and get 190 pesos per dollar. Or you go into a shop that pretends to be a real estate agent…or an electronics store…and you get 372 pesos per dollar.

You go up to the shop. The door is locked. You ring the buzzer…and the door opens. A handsome young man, tattooed and swarthy, sits behind a glass divider. You tell him how much money you want to change. He quotes a rate. You accept. And then, come the piles of cash.

The largest note he has is a 1,000-peso bill. So if you are changing US$500, you end up with 186 pieces of paper. The whole transaction is so fast and easy, you have a hard time keeping up with the maths. But you are soon walking out of the shop with your pockets stuffed with cash, trying to look inconspicuous.

Meanwhile, we turn back to the news…

Sex, lies, and gender studies

Sometimes the headlines are stupid. Sometimes they’re amusing. And sometimes, inadvertently, they tell us something worth knowing.

The most annoying are those in which some pompous jackass tries to tell us what to do and what to think. From The New York Post: ‘…stop using terms like male, female, mother and father, researchers say’:

‘Alternatives to terms like “male” and “female” and “mother” and “father” should be sought in science because they assume that sex is binary and heterosexuality is the norm, a group of researchers from the US and Canada suggests.’

Well, yes. Sex is binary; that’s the idea of it. Male and female come together like two pieces of pipe. That’s how they create new life. And, yes, most men are attracted to women, and vice versa. But there’s more:

‘Male and female should instead be referred to as “sperm-producing” and “egg-producing,” the Ecology and Evolutionary Biology (EEB) Language Project said, according to the Times of London.

‘Meanwhile, father and mother should be labeled “parent,” “egg donor” and “sperm donor” in the scientific field.’

Scientists can add whatever precision they want. But an ‘egg donor’ is one thing. A mother is something else. We have mothers we love. Or hate. As for an egg donor, we don’t give a damn.

Ridicule and derision

But the real purpose of the quack ‘researchers’ is not to help us understand and communicate, but to upend thousands of years of learning and adapting with the faddish conceits of the here and now:

‘“Much of western science is rooted in colonialism, white supremacy and patriarchy, and these power structures continue to permeate our scientific culture,” some project members wrote in the Trends in Ecology and Evolution journal.’

Oh yes, perhaps we will soon celebrate ‘egg donors’ day’, free from the taint of colonialism. And maybe popular songs will have to be rewritten, as in ‘Egg Donors, don’t let your babies grow up to be cowboys’.

It’s easy to make fun of these people. Ridicule and derision are what they deserve. But they are, alas, serious. They aim to stain the most important relationships in our lives…claiming that ‘mother’ is tainted with racism or colonialism and that their ‘egg donor’ malarkey is unblemished science.

And here is more claptrap posing as science. This from Popular Mechanics: ‘Humanity Will Reach Its Peak Within Just Decades, Trend Shows’.

What in the world is that about, we wondered. What is a ‘peak’ in ‘humanity’? When people are smartest, tallest, or most civilised?

Peak idiocy

It turned out they referred to maximum human population…and it also turned out that they had no idea what they were talking about. The authors had some UN ‘projections’ that showed the world’s population hitting an all-time peak before 2100. And other forecasts that said it might happen any day now. All rubbish: nobody knows when egg donors may or may not start having more children.

Then, the article goes on to tell us more nothing:

‘The point is, with the world’s population passing 8 billion late last year, the global population peak is drawing rapidly closer. But so, too, is singularity—the concept of artificial intelligence exceeding beyond human control and rapidly transforming society. (One trend shows we’ll reach singularity in just 7 years.) Will singularity throw an entirely different wrinkle into the population peak?’

That pretty well sums it up. We know nothing about when or what humanity’s ‘peak’ will be…nothing about when human populations might hit their all-time high…and nothing about a ‘singularity’ or how it might affect human populations. So, what does this article tell us? Nothing.

(Speaking of population issues, we watched a movie on the flight from Europe. Tides tells the story of a post-apocalyptic world (presumably destroyed by us!). The elite got away to colonise a planet called Kepler. But they found that the egg donors couldn’t have children there. So, they sent a mission back to Earth to see if it could be resettled. But humans had survived on Earth. And they didn’t take too kindly to these returnees. The movie is engaging to watch, but a sad muddle of ideas.)

Much of what you read in the press is just dumb propaganda. From MarketWatch: ‘Greta Thunberg calls capitalism and market economics a ‘terrible idea’ for stopping climate change in new book’.

Hmm…capitalism stopping climate change? Capitalism doesn’t solve problems; it creates problems. Too many cars, not enough parking places. Too much food; people get fat. Too much time-wasting, brain-rotting media! What the headline really should say is: ‘Thunberg Thinks the Profit Motive Won’t Stop Global Warming’.

Which brings us to the second question: Why do we care what she thinks? The article quotes her:

‘Leaving capitalist consumerism and market economics as the dominant stewards of the only known civilization in the universe will most likely seem, in retrospect, to have been a terrible idea.’

What are we to make of that? Since when were market economics ‘stewards’ of anything? But the bigger question hangs over the headline like a hammer over an egg. Does Ms Thunberg have a better idea? If so, she should come forward with it. The experiments of the last century — all various strains of central planning and collectivism — were all failures. Almost all have been abandoned, but not before they were responsible for the deaths of some 100 million people…nearly 50 million starved to death in Mao’s ‘Great Leap Forward’ alone. During that time, capitalism killed no one. Instead, capitalism — the give and take of an honest economy — permitted eight billion people to live, six billion more than at the beginning of the Industrial Revolution…and to live better than ever before.

Ms Thunberg seems to think it is important that ours is the ‘only civilisation’ that we know of. We’re not sure what to make of that. Even if there were other ‘civilisations’ somewhere, we still wouldn’t want her to muck up the one we live in.

An immodest proposal

But let’s move on…here’s another favourite, from the New York Post: ‘Yale professor under fire for suggesting elderly Japanese residents should die in mass suicide’.

The idea is modelled after Jonathan Swift’s A Modest Proposal. Swift, an Irish wit, suggested a program for ridding the world of its ‘surplus’ poor people: just eat them. ‘I have been assured by a very knowing American of my acquaintance in London, that a young healthy child well nursed is at a year old a most delicious nourishing and wholesome food’, he wrote.

But Swift was pulling our legs; Yusuke Narita may be as serious as the language improvers.

The ‘surplus people’ of the 18th century were young and poor. Today, they’re old. They’ve become a burden because the egg donors are not getting together with the sperm donors and having enough children to support them.

‘I feel like the only solution is pretty clear’, Narita says, adding that euthanasia might be made ‘mandatory in the future’.

‘In the end’, he concludes, ‘isn’t it [the solution] mass suicide and mass ‘seppuku’ of the elderly? Whether that’s a good thing or not, that’s a more difficult question to answer’, he said. ‘So if you think that’s good, then maybe you can work hard toward creating a society like that.’

Yes, dear reader, the media is full of earnest people working to create the societies they want. We are told not to use energy, to despise the word ‘mother’ as an artifact of white supremacy, and later, when we grow old, to kill ourselves.

A pox on them all.

Regards,

Bill Bonner,
For The Daily Reckoning Australia