Financial Crises 101

2008 → March 2020 → SVB [Altucher Confidential] March 16, 2023 [WEBSITE]( | [UNSUBSCRIBE]( This won’t make you less confused. But it will help you understand how it all works. [Hero_Image] Financial Crises 101 By Chris Campbell Jim Rickards Issues Urgent Announcement To Readers [Click here for more...]( A major stock market event will hit just days from now. Act right away or get left behind forever, legend warns. [Click here now for access.]( [Chris Campbell] CHRIS CAMPBELL In today’s economy, this is money. [image 1] But… Many believe it’s the only form of money. In reality, it’s just a small part of money in the modern financial system. Without understanding this simple fact… The big banking crises in the 21st century -- like 2008, March 2020, and Silicon Valley Bank -- just don’t make sense. Today, I'm going to sum up the first 40 pages of a book called Central Banking 101 by former Fed insider Joseph Wang. (Highly recommended.) If there’s anything about modern banking that confuses you, this book probably won’t make you less confused. But it will help you understand how it all works. Four Types of “Dollars” According to the Federal Reserve, there are four types of money. This is another way of saying that there are four ways to hold dollars: → Fiat currency (cash) → Bank deposits → Central bank reserves → Treasury bonds But wait. Aren’t fiat currency and bank deposits the same thing? Nope. In normal times, bank deposits can be converted into government-issued fiat currencies, but they’re not the same. Let's look at all the differences: Fiat currency is non-interest-bearing debt issued by the Federal Reserve to fund its portfolio of assets. Mostly Treasuries. A bank deposit is interest-bearing debt issued by a bank to fund its portfolio of assets. In other words, it’s an “IOU” that can become worthless if the issuing bank goes bankrupt. (Which is why the FDIC insures deposits up to $250,000.) Central bank reserves are a type of interest-bearing debt issued (or “printed”) by the Fed that only commercial banks can hold. It’s also used to fund the Fed’s portfolio of assets. Again, mostly Treasuries. For example, when the Fed buys $1 billion in Treasuries, it creates $1 billion in central bank reserves to pay for them. Commercial banks use central bank reserves to send back and forth to one another and they can convert them into bank deposits or fiat. Treasuries are a type of interest-bearing debt issued (or “printed”) by the US government that anyone can hold. Treasuries can be converted into bank deposits by selling them in the market or using them as collateral for a loan. Commercial banks can also convert them into central bank reserves. When functioning normally, all forms of money are freely convertible. But when that conversion breaks down, it creates big problems in the financial system. Let’s take two big examples first: March 2020 and 2008. Urgent: Currency Wars Alert [Click here for more...]( “Worst case scenario is almost inevitable” -Former Pentagon Insider Jim Rickards In my 2011 book, I warned that the U.S. was engaged in a currency war. And that these wars: “Degenerate into sequential bouts of inflation, recession, retaliation and actual violence as the scramble for resources leads to invasion and war.” Now with Putin invading Ukraine…Rising tensions with China… Inflation, recession, and supply chain issues all hitting the U.S. economy at the same time. It seems as if some of my worst fears have finally come true. [That’s why I’ve recorded an urgent video message.]( To update you on exactly what you need to be doing to protect yourself. Because if history is any indicator, this will not end well. [Click here to view my urgent video message.]( March 2020 In March 2020, people all over the world got spooked and wanted to hold dollars. It was a dollar-buying frenzy. Investors pulled out of their investments en masse, demanding dollars. Foreigners did the same with their home currencies, also demanding dollars. To keep up with demand, investment funds and foreign banks started spilling their investments into the markets, also demanding dollars. But since everyone was rushing all at once, they couldn’t sell their portfolios except at a massive loss. In some cases, they couldn’t sell them at all. Even Treasuries were locked up. That’s not supposed to happen. Especially not with Treasuries. Again, when convertibility between all types of money breaks down, that’s a crisis. And it spreads into the entire economy rapidly. Some get hurt more than others. For example, many investors took massive losses on Treasury futures and mortgage REITs, to name a couple. Why did this happen? Well, that in part goes back to 2008. 2008 In 2008, there was a run on dealers at the same time investors were too afraid to lend to them due to their prior thirst for securitized loans. In March 2008, for example, Bear Stearns failed when its subprime mortgage investments went sour. Investors got spooked and refused to renew their loans. Stearns was forced to liquidate their positions at fire sale prices to pay back their existing loans, causing panic. Once again, convertibility between the different types of money broke. In response to 2008, regulators made it more difficult for dealers to hold loads of securities and especially risky securities, even putting a cap on Treasuries. As usual, such sweeping rules had unintended consequences. Over a decade later, in March 2020, these rules handicapped the dealers’ ability to buy securities from their clients. They quickly reached their limit and couldn’t buy any more. Not even the super safe Treasuries. When everyone realized they couldn’t even sell their “risk-free” Treasuries at par, they panicked. That’s doomsday stuff. So the Fed stepped in. Among other things, the Fed purchased about $2 trillion in Treasuries -- creating that money out of thin air (AKA, “quantitative easing”) -- in order to stabilize the markets. So yes… The government solved a problem (2008) by creating the conditions necessary for another one (March 2020). And, as it happens, the solution for 2020 created the conditions necessary for Silicon Valley Bank’s collapse. So it goes. More on that tomorrow in Part Two. Until then, [Chris Campbell] Chris Campbell For Altucher Confidential New LIVE Demo Video STUNS Crypto Investors [In this short 3:28 video…]( Crypto genius James Altucher reveals his most shocking crypto secret yet… A little-known secret that’s delivered over $1,170 in FREE crypto income per month. If you AREN’T using this affordable little device… You’re missing one of the best, easiest ways to earn real cash with cryptos. [Click here to watch this short 3:28 video NOW.]( [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2023 Paradigm Press, LLC. 808 Saint Paul Street, Baltimore MD 21202. By submitting your email address, you consent to Paradigm Press, LLC. delivering daily email issues and advertisements. To end your Altucher Confidential e-mail subscription and associated external offers sent from Altucher Confidential, feel free to [click here.]( Please note: the mailbox associated with this email address is not monitored, so do not reply to this message. We welcome comments or suggestions at feedback@altucherconfidential.com. This address is for feedback only. For questions about your account or to speak with customer service, [contact us here]( or call (844)-731-0984. 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