The Achilles’ Heel of Modern Banking

Your bank account balance does not represent the number of dollars stored in a vault somewhere. It represents how much money the bank owes you.

Key Takeaways:

  • Gold is approaching its all-time high as the bank panic continues to generate demand.
  • Regulators can crack down on banks, but can they solve the moral hazard problem? Can they keep from forming a massive conglomerate with an Achilles’ heel?
  • Fed Chair Jerome Powell announced the process to bring down inflation is “likely to be bumpy.”

Gold Breaks $2,000/oz

The collapse of Silicon Valley Bank triggered massive demand for gold. Directly after the ensuing crisis, gold jumped 11%.

SVB was an unwelcome reminder of the structural weaknesses in our banking system. A few weeks ago, every SVB client thought the number on their computer screen represented real money. But that’s not how bank accounts work.

The number on your computer screen represents how much money the bank owes you, not the number of dollar bills stored in a vault somewhere. If the bank fails to meet its obligations, well…we all now know what happens.

Moral Hazard

This time, the government stepped in to cover all customer deposits (on the taxpayer’s dime). But this raises the concern of moral hazard: the more the government protects banks’ bad decisions, the more likely they are to make those bad decisions.

The solution is more regulation, right?

Well, regulators can crack down on banks to hedge against the moral hazard problem, but this raises yet another problem.

Regulators will never be able to forecast and prevent ALL economic calamities. The world is changing too fast; there is simply too much unforeseen risk. The best they can do is play whack-a-mole with each black swan event that arises.

The Achilles’ Heel of Modern Banking

When we excessively regulate private banks, all their decisions become centralized. The entire banking sector essentially becomes one massive branch of the Federal Reserve. Banks are protected against 99.99% of problems that could ever arise…but what happens when the 0.01% situation arises? What happens when we get a GFC-type event?

Instead of having thousands of individual banks with their own risk management protocols, we have a single monstrosity – more or less a regulatory monopoly – with an Achilles’ heel.

We don’t know the right answer, but we do know bank regulation can never eliminate all risks. That is why we recommend holding a portion of your savings outside the traditional banking system. That is why Vaulted exists.

Bumpy Ride Ahead

The Fed raised rates again yesterday, though at a slower pace. Fed Chair Jerome Powell claimed the process to bring down inflation is “likely to be bumpy.”

Knocking down inflation without causing more SVB-like events will take a miracle.

We hope that Vaulted can serve as a tool to reduce your dependency on this miracle. No one should be subject to the whims of bank executives and Fed policymakers. Vaulted lets you store your wealth in something that actually exists.

Secure gold savings, without the excessive fees

Your weekly gold market commentary comes from our internal team of researchers and technical experts. Vaulted gives modern investors access to physical gold ownership at the best cost structure in the industry. With personal advising from industry experts and access to premier precious metals strategies, Vaulted is the key to life-long financial prosperity. Start protecting your portfolio today.

As always, thank you so much for reading – and happy investing!

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