Two Very Big Things Headed to U.S. Banks

Get Gold Before They Hit!

No one knows exactly how close we came to a US bank holiday last spring, but it was too close for comfort.  None of the problems banks faced then have been solved. In fact, both have gotten worse.

Here’s what’s in the mix.

The banks are up to their eyeballs in the deeply troubled US commercial real estate market.  They are on the hook for as much as 40 percent of commercial real estate loans.  The Wall Street Journal reports that banks have $3.6 trillion in exposure to commercial real estate, about 20 percent of their total deposits.

But higher interest rates have tanked commercial real estate, especially office properties, and vacancy rates are hitting all-time highs.  Economist Mohamed El-erian points out that commercial real estate has massive refinancing needs next year.  “There are things that have to be refinanced in this economy that cannot be refinanced in an orderly fashion at these rates,” says El-Erian.  “So that’s the point of pain which starts to happen.” 

Commercial real estate is one problem.  Higher interest rates that are decimating the value of the banks’ bond portfolios is another problem.  It is the one that brought down Silicon Valley and Signature banks earlier this year.  As long as the bank isn’t hit with withdrawals, they can continue to hold those low-interest-rate bonds, holding out for their maturation down the road when they can be redeemed at full value.  But if they are forced to sell lower-rate bonds before maturity, they get pounded.  

No one wants to pay much for bonds that yield two or three percent when newer bonds pay five and six percent and maybe soon more.  The Federal Reserve suggested last week that it could keep interest rates ”higher for longer” than anticipated.  That’s why one of America’s leading bankers is advising clients to “batten down the hatches.”  

Jaime Dimon is the CEO of America’s biggest bank, JPMorgan.  He says we’ve all been on a sugar high from artificially low rates, and now we’re unprepared for rates to climb another two percent.  A move to seven percent interest rates will be much more painful than the prior two percent rate increase.

Dimon also points to the obvious incapacity of Washington to show any fiscal responsibility.    Increasing deficits cannot go on forever and mean that no one knows where America is headed.

 So there you have it:  commercial real estate stresses on banks as well as the stress of their collapsed bond portfolios.  Both are problems that will grow as interest rates rise further.

And for good measure, we’ve even tossed in yet another reference to Washington’s deficits.  

If you would like to be out of the line of fire from these crises, we suggest you reach out to us at the Republic Monetary Exchange at once and begin to develop a sensible plan to tuck assets away in real money, gold, and silver.

It is the sensible thing to do.