Lear Capital: Bail-outs vs. Bail-ins – Gold vs. Bank Deposits

2010_01_05_17_53_260001It could be the greatest threat to your wealth you have ever experienced.  Yes!  Even bigger than another financial crisis.  In fact, if this comes to pass it could mean two financial crises in one.  Remember this word – “Bail-in”.  And each time you hear it know that we are one day closer to another banking crisis – one that could dwarf 2008 by multiples.

A Bail-In is at it sounds.  It is the opposite of a Bail-Out although it has nothing to do with sinking boats or being arrested.  Just as a Bail-Out, a Bail-In has to do with finances, banking, debt and the economy.   The Fed and Government have been orchestrating Bail-Outs since the crisis of 2008 unfolded.  Money has been created out of thin air and given to financial institutions, car companies, insurance companies and the list goes on.  The purpose of such has been to prevent financial Armageddon and jump start a failing economy.

So, if a Bail-Out is the giving away of printed money and a Bail-In is the opposite …you got it!  A Bail-In means no money is printed and instead of money being given away it is TAKEN!  I can explain that in one word – Cyprus!  In the case of the Cypriot bank, one day the doors were open and the next a banking holiday was declared.  That is code for, “we are in trouble and if we dare open the doors, there would be a run on the bank and the bank would fail, taking everyone’s money with it.”  Then if one bank failed, they would all fail.

To avoid this disaster, enter the Bail-In.  It was deemed that the disaster could be avoided by simply taking an amount of money from depositors that could keep the bank solvent.  Hence, the Bail-In.  While assurances were given that Cyprus was an isolated incident, the wheels were set in motion to make the Bail-In an accepted measure to avoid future bank failures.  By 2015, the Bail-In mechanism will be in place in Europe.  It will be accepted and legal.

Of course no one will say plans to use it currently exist.  Imagine making such a statement now.  Who in their right mind wouldn’t pull money out of the bank?  It would be safer in your mattress.  But, here’s the truth.  Word has gotten out and people ARE pulling their money out of banks and putting it in a safe place.  Money is moving en masse out of currencies and into gold, silver and other tangible assets.

Russia, perhaps the hardest hit by the Cypriot bank crisis just sold a record amount of treasuries and bought 900,000 ounces of gold.  Japan’s pension funds are moving into gold for fear of currency devaluation.  It has also been duly noted that China and India are making moves to buy up all the physical gold and silver the market has to offer.  China is on such a rampage it has been determined that since 2009, it has quadrupled its reported holdings of physical gold.

Of course a Bail-In is something that can happen to someone else but not us.  Not here in America.  Don’t be so sure.  I just read a report by the New York Fed that makes a case for the Bail-In.  YES!  Here in America!  Canada is also preparing.  And we wonder why the Fed is trying to get out of the Bail-Out business ……. They want to put You in it!.

The whole world is preparing for crisis, yet, all we hear of is recovery.  Let us not forget the last crisis struck with little warning.  To the extent warnings were sounded, they were ignored.  Two major Bear Stearns Funds, related to sub prime mortgages, went under yet that was an isolated incident.  Fannie and Freddie were drowning but nobody believed it.  GM was broke but that was impossible.  AIG, Merrill Lynch, Enron were all solvent one day but worthless the next.  It wasn’t until September 15, 2008 that the world began to believe.  That was the day Lehman brothers went bankrupt and no one was there to bail them out.  The rest is history and it can’t happen again. [sarcasm added]

It’s time to consider the consequences of another crisis.  It’s time to weigh the benefits of diversification into precious metals.  What have you got to lose?  Current metals prices are cheap as compared to production costs; stocks are at an all-time high; the number of working Americans is shrinking; our national debt is 80% higher than it was before the last crisis struck; actual inflation is systematically eating away at the purchasing power of your savings and retirement; and, banks pay you virtually nothing to keep your money in a safe place.  The big fight is now being promoted.  Gold vs. Bank Deposits   Who do you think will win?

Of course these are just my opinions.  But if you share them I would be honored to have you follow me @DaveTheGoldDr.

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