Politics
The US Banking System Has A $517 Billion Powder Keg Ready To Explode
Considering how “Bidenomics” continues to take hold of the American economy, the news just keeps getting worse for the US banking sector. According to a new FDIC report, unrealized losses on investment securities for banks have jumped to an unthinkable $517 billion in the first quarter of 2024. That’s $39 billion higher than the $478 billion recorded in Q4 2023. The driving force behind this surge? Higher residential mortgage-backed securities losses, thanks to rising mortgage rates.
However, whats more concerning is that we are now in the 10th consecutive quarter of unrealized losses—an even longer streak than during the 2008 Financial Crisis. With “higher for longer” mortgage rates making a comeback, we can only expect these unrealized losses to continue their upward trajectory.
Reality strikes harder as the FDIC has identified 63 banks teetering on the brink of collapse. This comes just two months after the expiration of the Fed’s emergency lending program for banks. Many regional banks have never truly recovered from the last crisis, and now they are staring down the barrel of another financial meltdown.
In contrast, while the US banking system is faltering, the BRICS alliance is fortifying its financial position. Over the last three years, we’ve seen 15 US banks bite the dust, including notable names like Republic First Bank, Citizens Bank, First Republic Bank, Signature Bank, Silicon Valley Bank, and First State Bank. The Federal Deposit Insurance Corporation (FDIC) recently published a report highlighting an unrealized loss of $517 billion across the US banking system. If these losses become realized, they could become catastrophic liabilities for banks in need of liquidity.
Significantly, the FDIC report also noted a major rise in the number of banks on its Problem Bank List, which jumped from 52 in Q4 2023 to 63 in Q1 2024. This number now represents 1.4% of all US banks. The total assets held by these problem banks increased by $15.8 billion to $82.1 billion during the quarter. This surge in problem banks is a clear indicator of the increasing pressure on the US banking system.
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In the meantime, the BRICS nations are taking a different route. They are massively accumulating gold and dumping US treasuries. In the past seven months alone, China, a BRICS member, has sold $72 billion worth of US treasuries. The BRICS alliance is spearheading the de-dollarization movement, convincing developing countries to end their reliance on the dollar.
Strengthening its banking system and moving away from the US dollar, the BRICS alliance makes the American financial landscape look increasingly unstable. The US banks are now saddled with over half a trillion dollars in unrealized losses, and the central banks of BRICS are accumulating gold, a time-tested hedge against financial instability.
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Given the precarious position of the US banking system, this is not a time for complacency. If you’re relying on the traditional banking system to safeguard your assets, it might be time to rethink your strategy. As we’ve seen, trusting your money to these banks can be a gamble.
As unrealized losses grow, some investors like Michael Burry are starting to hedge their bets by moving some of their money to hard assets like gold. Historically, gold has not only been a store of value, but a hedge against inflation, market volatility, and economic instability.
Your best move in these uncertain times is diversification. Don’t put all your eggs in one basket. Hold some cash, but also consider real assets like gold and silver. These precious metals are not only a hedge against inflation but also a safeguard against the kind of financial turmoil we’re witnessing in the banking sector.
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