EP207: Warning: Banking System on the Brink!

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What’s happening to banks these days?

You miiiight have noticed…there was a major crisis that unfolded this year within the banking system. 

And, well, we’d like to help clear up any confusion and give you the FACTS about what’s up! 👌

What’s the impact of this 2023 banking crisis on inflation and the economy, and how does it affect YOU and your future? 

You’re not alone in wanting some clarity. 

Because banking has always been a trusted institution, and now people are quickly losing confidence in the entire system! 😨

Buttt listen. 

We’re here to tell it to you straight – not to spread fear but to inspire action that will lead you to a brighter future. 

Because there are alternative ways to safeguard your money.

Ways that are much, much better. 

We’re talking about protecting your savings against inflation AND multiplying your wealth like crazy! 👏🤩

Here’s to cautionary information to protect against inflation. 🥂

Crisis is never a great word to hear. 😣😣

But guys, unfortunately, we are on the brink of a banking crisis. 

You see, 2023 is going to go down in history as the year when America totally lost its confidence in the long-standing institution of banks.

➡️ What caused this?

➡️ And what could have been done about it?

Here’s the thing, ever since the Federal Reserve began raising interest rates in March 2022, a substantial $870 billion has been withdrawn from U.S. banks in the span of approximately 18 months.

This translates to an average monthly loss of around $73 billion in deposits, marking an unprecedented phenomenon in U.S. history. 😵😵

So what happened?

How safe are your deposits?

And will the economy ever be the same? 

Stick with us, and you’ll find out the answer to that and more.

Not only that, but by the end of this episode, you’ll be equipped with ways to safeguard your money from a potential bank run.

Let’s get started by talking about baby Palmy! 🍼

When I (Palmy!) was around 11 years old, I begged my parents for a savings account, and I was thrilled when they gave me $1,000. Before we headed to the bank, I went ahead and wrote “Property of Palmy Kitti” on all the bills, just in case they got lost.

A few months later, when I needed $100 to buy a toy, we withdrew the money from the bank, and I was shocked to find a bill that wasn’t mine. I made a big fuss, convinced that the bank had somehow swiped my money!

Palm totally got gaslit 🔥 for the first time by our banking system!

See, when you deposit, let’s say, $1,000 in a bank, it doesn’t just sit in a vault—it becomes a tool for the bank to make more money.

Here’s the trick: The 🏦 bank loans out your money to others in the form of mortgages, car loans, or business loans.

The cool part?

Banks can lend out way more than they have in deposits, thanks to fractional-reserve banking. 

So, your $1,000 deposit could potentially become $10,000 or more in loans. 😎😎

The bank profits from the interest on these loans while possibly charging you monthly fees, and they keep all the loan interest, while your original deposit stays put.

It’s a system that lets banks turn your money into hefty profits, using it to generate way more income than what’s physically stored in their vaults.

Think of the banking system as a massive trust game.

It’s this unspoken, colossal pinky promise with your bank: you believe that when you need your money, it’ll be there. 

But here’s the fun part—banks play by the ‘now you see it, now you don’t’ rule. They only stash a fraction of everyone’s deposits, using the rest like a magician pulling rabbits out of a hat by lending it out.

2023’s Banking Crisis: A Tale of Inflation and Caution

Following COVID-19, we witnessed a chaotic web of global supply chain disruptions and escalated conflicts, triggering a frenzy of price hikes. 

By 2023, everyday essentials, from bread to buses, surged in cost by 20%, rendering once smart bank investments obsolete. So what drove this inflationary surge?

You see, during a period of low demand for customer loans—fueled by people saving their stimulus checks—banks sought refuge in the usually secure Treasury securities – AKA bonds. 

In just one quarter of 2021, banks injected a staggering $150 billion into these assets.  😳😳

Ironically, while the CARES Act provided essential support for many, it squeezed bank profits; the modest returns from Treasuries paled in comparison to potential loan interest earnings.

But then as inflation surged, nearly hitting double digits in 2022, the Federal Reserve grappled with a dilemma. 

In an attempt to rein in soaring prices, it raised interest rates, unintentionally slowing down economic growth.

Each hike in the Fed funds rate devalued the long-term Treasury securities held by banks, highlighting the perils of interest-rate risk.

Between March 2022 and May 2023, the Fed implemented nine rate hikes, totaling a 5% increase.

Have you ever gone skydiving? Have you ever tried skydiving? It’s quite a leap of faith, relying on strangers in various ways. You trust the plane won’t crash, the pilot’s skills, the tandem diver’s state of mind, and the chute being packed correctly. 

If you’re confident in all of that, you take the plunge from around 8,000 to 14,000 feet in a matter of seconds. 

Is Your Money Really Safe?

So is your money genuinely safe?  Like your faith in all the things going right when skydiving, in order for you to continue keeping money in the bank, you’ll have to have faith that the banking system won’t fail.  

In theory, yes, especially for deposits up to $250,000, thanks to the Federal Deposit Insurance Corporation (FDIC) policy.

This insurance is designed to safeguard your funds in the event of a bank failure.

However, it’s crucial to weigh the potential impact of widespread banking failures.

But if a crisis occurs at a systemic level, affecting multiple banks, the FDIC may face challenges in fulfilling its guarantee to every depositor.

Then there’s the issue of uninsured deposits, such as accounts exceeding the $250,000 limit, lacking FDIC protection. 

According to Business Insider, U.S. banks hold well over $1 trillion in uninsured deposits. 

While it’s sensible to maintain some funds in the bank for daily transactions and to navigate a cash-reliant society, stashing all your money there might not be wise. 

Diversifying your asset storage—across various banks, investment avenues, or even physical assets—could serve as a smart strategy to reduce risks linked to banking uncertainties and potential widespread financial crises.

How You Can Safeguard Your Money

Instead of keeping all your funds in a bank, consider investing in income-generating assets that adapt to inflation. 🏢

This strategy serves as a safeguard against widespread banking failures and inflationary impacts. 

For example, real estate investments can yield a consistent rental income and may appreciate in value, often in sync with or surpassing inflation rates.

Similarly, 💹 stocks from stable companies that offer dividends can provide regular income and potential profit from increased stock value.

These investments not only diversify your financial holdings but also align with inflation, potentially maintaining or growing their actual worth over time, regardless of banking system stability.

No investment is risk-free, but this strategy strikes a great balance.  😌😌

It helps protect your wealth while also giving you a shot at growth opportunities, making it a near-perfect solution in our uncertain financial landscape.

What more can you ask for?

Now that you’ve explored the 2023 banking crisis in the U.S., its causes, impact on the economy, and how it affects your finances, tune into this episode to discover ways to protect your money and potentially earn millions through real estate.

In November, the rate at which prices are going up in the U.S. continued to slow down. This suggests that the Federal Reserve’s decision to raise interest rates is having a positive impact. The Consumer Price Index (CPI), which measures the cost of goods and services, went up by 3.1% compared to the previous year. This is slightly lower than the 3.2% increase seen in October but still higher than the Fed’s target of 2%.

When we look at core inflation, which excludes volatile factors like energy prices, it remained stable at 4%. However, energy prices, especially for gasoline, dropped significantly during this period.

Housing costs, a significant contributor to overall inflation, increased by 6.5%, but this was the slowest rate of increase in over a year. If we don’t include housing, the prices of other goods and services only went up by 1.4% annually.

⭐ Inflation Slows to 3.1% in November 2023

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