Morning Wire XX
[0] Both China and India have already begun to implement a centralized digital currency and now the U .S. is pushing for the same.
[1] An official federal digital currency combined with the consolidation of a few megabanks due to the recent failure of some smaller banks are two trends that could lead to the end of traditional savings and checking accounts.
[2] In this episode of Morning Wire, we speak to a former Wall Street analyst about the potential hazards of a centralized digital currency.
[3] I'm Georgia Howe with Daily Wire, Editor -in -Chief.
[4] John Bickley.
[5] It's Saturday, June 24th, and this is an extra edition of Morning Wire.
[6] Joining me to discuss his latest article on digital currency and the end of traditional banking is former Wall Street analyst and author of five investing books, John Rubino.
[7] John, thanks for coming on.
[8] Thanks for having me. Now, you recently wrote that two trends are converging to put an end to traditional banking.
[9] The first is the creation of a central bank digital currency.
[10] Can you explain first where we are in the process of that creation and why governments are pushing for a digital currency?
[11] Well, there's a debate going on about the point of central bank digital currencies, which are basically accounts with the Federal Reserve that would replace your bank account and it would replace your dollars with a new form of dollars that are programmable.
[12] In other words, the central bank where you have your account can reach into your central bank digital currency account and do things with your money if they want to.
[13] First of all, they can just give you free money, which is probably how they'll incent people to open up the accounts.
[14] And then once people have accounts, they can program the money by, for instance, if you're not spending quickly enough, they can say, okay, the money in your account is going to lose 5 % a week in value as a way to force you to spend.
[15] So it's a macroeconomic monetary policy tool.
[16] And if they don't like what you're spending money on, they can forbid you from using that account.
[17] And presumably, if you are politically active in ways that oppose government policy, they can just reach in and shut down your account.
[18] We already saw that happen in Canada just lately with the truckers protests, where they reached into regular bank accounts, although it was difficult to do.
[19] And basically took people's money away.
[20] With a central bank digital account, it's going to be much easier for the government to control us in that way.
[21] So that's the scary part.
[22] And the reason that it's happening soon has to do with what's happening in the banking industry.
[23] We've got a bank crisis in prospect here, which will probably hit in the next six months or so.
[24] Well, that leads me to my next question.
[25] So you mentioned two trends.
[26] The second is the withdrawal of deposits from regional banks.
[27] Why is that happening right now?
[28] Well, it's the result of government policy.
[29] What the government has done lately is raise interest rates overall and raise short -term interest rates more quickly than long -term interest rates.
[30] Now, regional or local bank works by taking in money from depositors, that is, by borrowing short -term, and then using that money to invest or lend in longer -term things, like business loans to local businesses or bonds or whatever.
[31] Normally, short -term interest rates are lower than long -term interest rates, because lending for a long -term interest rates, because lending for a longer period of time involves more risk, and that means you want a bigger reward if you're lending for 10 years as opposed to two days.
[32] So we normally have a positive sloping yield curve where short -term interest rates are lower than long -term interest rates.
[33] Well, the government lately has been raising short -term interest rates dramatically, and they've gone up faster than long -term interest rates have, which gives us an inverted yield curve where short rates are higher than long rates.
[34] That means the local bank business model no longer works.
[35] All right.
[36] Now, I wanted to mention when you were discussing that first question, how, let's say, if the government wanted you to spend money, if they wanted to, stimulate the economy, they could tell you that your balance is going to depreciate if you don't spend it in X amount of time.
[37] Is there anywhere in the world where this is being practiced?
[38] So, for example, is China operating with these kind of dictates?
[39] Or is this all theoretical at this point?
[40] Well, lots of countries are instituting pilot plans.
[41] And China is one.
[42] of them.
[43] What I said about the programmability of money is being discussed.
[44] You know, the Fed agrees that that's how it will work.
[45] They don't agree that they're going to use it to coerce people, but they're going to have the power to do it.
[46] And they understand that that's what they're trying to institute.
[47] But they're saying, trust us, we're good.
[48] We're the government.
[49] We're here to help you.
[50] So, yeah, the programmability is one of the key features.
[51] You know, it's not a bug.
[52] It's a feature from the point of view of the government that we should all be taking steps to avoid if we can.
[53] Now, in terms of steps, what would you suggest?
[54] Well, if you've got a really big bank account that isn't paying you very much to begin with, take some of those dollars out, buy some silver coins, let's say, and stash them in a very safe place.
[55] If we have a big monetary crisis, which is coming, regardless of the central bank digital currency thing, you want to avoid having your nest egg depend on things that in turn depend on the value of the dollar for their value.
[56] In other words, government bonds, bank stocks, bank accounts, things like that, they're all at risk in a world where a currency crisis is coming.
[57] Precious metals like gold and silver will tend to hold their value going forward because governments can't make more of them, and so the supply can't just spike, like is the case with dollars.
[58] And then there's a broader investment thesis here where you want to move out of financial assets, things that depend on the value of the dollar, and into real things like farmland and oil, wells and solar farms and uranium mines, things like that, that governments can't just print on an electronic printing press.
[59] So that's a very broad investment thesis that flows from what we were talking about with banks and central bank digital currencies.
[60] So, you know, subject for a much longer interview, but something that we should all be thinking about in this world.
[61] Now, last question.
[62] What about cash?
[63] Should people have cash on hand?
[64] You know, it seems like a lot of places are moving away from even accepting it.
[65] Well, you should always have cash on hand because it's the liquid thing that gets you out of trouble in some kind of a crisis.
[66] You know, if you've got cash, you can manage in a situation where, say, there's a natural disaster, or say there's a really big financial crisis or a cyber attack or something like that.
[67] There are all kinds of reasons that your credit cards might not work.
[68] Your ATM might shut down.
[69] And you always want cash on hand for something like that.
[70] Now, the downside of holding a lot of cash is that it's losing value.
[71] Like last year, if you held a bunch of cash, it got 10 % less valuable in one year.
[72] You should still have some because it's liquid.
[73] It's something that everybody recognizes, almost everybody will accept.
[74] Although some stores, you're right, are going no cash.
[75] But individuals will take cash most of the time.
[76] But you should also have other forms of money like gold and silver, which are a little bit less liquid.
[77] Like it's harder to convince somebody to take a silver coin than a $100 bill.
[78] but those silver coins and those gold coins are going to be rising in value while you hold on to them.
[79] So yeah, you want some cash, but you also want other forms of money as your first line of defense.
[80] You know, your basic bedrock of your financial life.
[81] And then you move on from there to things that are less liquid that maybe are more profitable in the long run.
[82] All right, John, some interesting insights on the dollar and banking system.
[83] Thanks so much for coming on.
[84] Thanks, Georgia.
[85] Appreciate it.
[86] That was Wall Street analyst and author John Rubino, and this has been an extra edition of Morning Wire.