Peter Schiff appeared on TraderTV to talk about the failure of Silicon Valley Bank and Signature Bank, the bailout, and what might lie ahead. Peter emphasized that this banking crisis isn’t over. In fact, it is just the beginning of a much worse financial crisis.
Peter started out the interview by pointing out that the failure of these two banks was the very obvious result of Fed policy combined with the moral hazards inherent in government-insured banking.
The reason that we’re going to have so many failures is because the Fed kept interest rates so low for so long. That’s what enabled Silicon Valley Bank, Signature Bank and just about every other bank to load up on overpriced US Treasuries and mortgages.”
Peter said Silicon Valley Bank was just the weak link in the chain. They were forced to sell some of those overpriced assets for a loss. That created a panic run and an exodus of deposits from the bank.
[The bank] was insolvent for a while. It just didn’t recognize that because it didn’t have to mark-to-market its bonds. But that’s true with all the other banks. Nobody is marking this stuff to market. Everybody is just putting it in their ‘hold to maturity’ bucket and they don’t have to take a haircut, they don’t have to mark it to market. So, the can pretend that 60 cents worth of bonds is worth a dollar. But if they had to stop pretending then they would all be insolvent.”
Peter explained that a bank deposit is your asset, but it is a liability to the bank. It owes you that money if you ask for it.
If they take the money that they owe you, and they blow it on overpriced mortgage-backed securities, then they can’t pay you back.”
Of course, in the US banking system, the government steps in and covers at least some of your loss. And in the case of Silicon Valley Bank and Signature Bank, they covered 100% of the loss. In effect, FDIC insurance now goes to infinity.
Well, the US government doesn’t have any money. Where does the US government get the money? From the Fed. The Fed just prints the money. That’s where the FDIC gets the money, which is why everybody is going to lose.”
The mainstream pundits, central bankers, and politicians all claim the banking system is sound. “You don’t need to worry about your money,” they say. Peter said you had better worry even more about your money.
The only way the government can make sure your bank doesn’t fail is by destroying the value of the money that you have on deposit. It’s inflation that is going to wipe out the value of everybody’s bank accounts.”
In another recent interview, Peter said this is a sequel to 2008 and like all sequels, it’s going to be worse than the original. In this interview, Peter noted that nobody wants to call this a financial crisis. They want to call it a banking crisis. Why?
They don’t want to evoke any memories of the ’08 criris. They don’t want to invite any comparison to that crisis. So, they’re trying to label it something different. No! This is a financial crisis. The 2008 financial crisis was also a banking crisis. Unless people forget, it was the banks that were failing. Yes, they were failing because of bad mortgages. But that was the debt that was failing. And so that’s what’s happening now. Banks are failing because of bad debt.”
Peter said this is just the cusp of the crisis.
It’s going to get much, much worse.”
Peter reminded us that in the days leading up to the 2008 financial crisis, everybody insisted the problems were “contained” to subprime mortgages and there was nothing to worry about.
That’s exactly what they’re saying now. ‘This is nothing. It’s no big deal.’ It is a big deal. It’s not nothing.”
Peter said this isn’t a black swan event.
This is your garden-variety white swan. They’re all over the place. This is what swans look like. If you keep interest rates at zero for 10 years, this is what you get. It’s not a surprise.”