There is a ‘very scary’ but excellent article in the SMH and AFR...

There is a ‘very scary’ but excellent article in the SMH and AFR reprinted from the Telegraph in London- I strongly recommend reading it. It supports my observations above. My summary of key points is set out below. POG may soar in next 18 months if these experts are right about the US financial system. I am glad I hold lots of gold stocks. If there is a crisis the Fed may be forced to reduce interest rates but that will only result in higher inflation which will be good for gold. It’s the perfect time to hold gold stocks.

The US government, Treasury etc are stating everything is OK and the US banking and financial system is sound- but they stated the same before Bear Sterns failed in 2008 - and then they had the GFC. The article states the US authorities are in denial. I

It is a long article. It quotes a number of banking analysts and a report (A Hoover Institution report by Professor Seru and a group of banking experts) which states half the 4,800 odd banks in the US are insolvent - their liabilities exceed assays by $US 2tr dollars. Some of the banks are large with assets that over $1tr.

“These lenders include big beasts. One of the 10 most vulnerable banks is a globally systemic entity with assets of over $US1 trillion. Three others are large banks. “It is not just a problem for banks under $US250 billion that didn’t have to pass stress tests,” he said.”

The full impact of the Feds rate increases are yet to be felt - with a huge amount of debt to be refinanced in next 18 months (ie trillions) - the refinancing will really text the US banking system- will there be a crisis. This include commercial property loans of which 70% are financed by regional banks.

“Where we stand today is a nearly perfect storm,” said Jeff Fine, real estate guru at Goldman Sachs.“Rates have gone up 400 to 500 basis points in a year, and financing markets have almost completely shut down. We estimate there’s four to five trillion [US] dollars of debt in the commercial (property) sectors, of which about a trillion is maturing in the next 12 to 18 months,” he said.”

US banks and bond investors (super funds and insurers) are holding $US5 trillion of implicit losses left by the final blow-off phase of the Fed’s QE experiment but banks only have $2tr of a capital - ie there is a problem. One expert predicts that the banking crisis will keep moving up the food chain from the original outliers to mainstream banks.

The last para is very telling:

“The horrible truth is that the world’s superpower central bank has made such a mess of affairs that it has to pick between two poisons: either it capitulates on inflation, or it lets a banking crisis reach systemic proportions. It has chosen a banking crisis.”