The dust continues to settle after the failure of Silicon Valley Bank and Signature Bank, and the ensuing government bailout. Many people in the mainstream seem to think the crisis has passed. But a closer look at the condition of the banking system reveals these two banks were just the tip of the iceberg. Peter Schiff appeared on NewsMax Wake Up America to talk about the financial crisis. He said that there are more bailouts to come.
Peter emphasized that the problem wasn’t just two isolated banks going under, saying most US banks are technically insolvent.
This is the result of a dozen years of zero percent interest rates and quantitative easing. The Federal Reserve created the first financial crisis with artificially low interest rates. And the current financial crisis is actually even worse because it kept interest rates even lower for longer.”
One of the hosts noted that Silicon Valley Bank filed for chapter 11 bankruptcy and asked “what happens next?”
I think what happens next, unfortunately, is more bailouts. We’ve already bailed out several banks and their large depositors. The president of the United States is pretending that this doesn’t cost anybody any money. It’s going to cost everybody! Because inflation is the way we’re paying for this.”
Peter pointed out that the Fed balance sheet is already blowing up.
Everybody’s bank account is now at greater risk than ever, maybe not because your bank is going to fail because the government is not allowing that to happen, but because everybody’s bank account is going to lose value. Inflation is going to destroy the value of everybody’s savings.”
The host pointed out that some struggling banks are getting bailed out by bigger banks. Peter said it’s important to remember that a lot of these bigger banks are getting money from the Federal Reserve.
Remember, these large banks are able to take their Treasuries and mortgage-backed securities, which have depreciated dramatically because they were foolish enough to invest when interest rates were at all-time record lows. So, they’re able to take paper that maybe is worth 70 cents and just give it to the Federal Reserve in exchange for a dollar. And then they’re taking some of that windfall and depositing it in other banks. So, the whole thing is a bailout in disguise. And again, the bag-holder is the American public. They get the bill in the form of higher prices.”
So, is the banking system safe?
Peter responded with an emphatic, “No!” adding that it is completely unsafe.
But again, even if the government steps up and bails out all these insolvent banks and stops the runs, the only way they can do it is by printing trillions and trillions of dollars, and it gets spent into circulation. So, either you’re going to lose your money because your bank fails, or you’re going to keep your money because your bank is bailed out, but your money isn’t going to have much value. So, what good is it if you can withdraw your money, but when you go to spend it, you can’t buy very much?”
The hosts played a clip of Treasury Secretary Janet Yellen explaining why Silicon Valley Bank lost money selling its bond portfolio, noting that it had lost value due to the recent interest rate increases. They asked if the central bank would have to reconsider its rate hikes to fight price inflation. Peter’s first response was to call Yellen “incompetent.”
She was incompetent at the Federal Reserve Bank of San Francisco. She was incompetent as Fed chair. She kept interest rates at zero for practically her entire term. That’s what helped banks load up on these low-yielding Treasuries. But unfortunately, the Fed is going to stop raising interest rates. It’s already gone back to quantitative easing. They should be raising interest rates much more. And the government under Secretary Yellen should be cutting back spending. If she was competent as secretary of the Treasury, she would be telling her boss Joe Biden that we need to dramatically cut government spending. Instead of trying to raise the debt ceiling so we can go deeper into debt, she should be advising her boss to start cutting spending and actually pay our bills so we don’t have to raise the debt ceiling.”
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