Before, leading up to and following the financial crisis of 2008, a substantial economic shock to the financial system occurred.

This ”shock” to the system was caused by reckless lending [sub-prime debt], a highly leveraged financial system, and cheap money [record-low interest rates]. The lack of lending standards and cheap money caused multiple asset bubbles, including that in the stock market but more notably the housing bubble. As a result, the default rates on mortgages started to increase in 2007, gaining steam in early 2008 and accelerating through the rest of 2008/early 2009. 

The policy response to the Great Recession was to make money even cheaper and flood the banking system with trillions of reserves to keep FED member banks solvent. The goal of the asset purchase programs [QE1-QE3] was to increase bank reserves further. Unfortunately, none of the underlying structural issues that led up to the 2008 financial crisis by such policies were resolved [and remain unresolved to this day]. The current system has all the present problems leading up to, and following the bursting of the housing bubble, only this time it could be on a much grander scale.

A shock similar to that of 2008 would wreak far more havoc on the housing market and result from rampant increases in default rates. Furthermore, The Fed’s ongoing asset purchase program is such that the central bank has purchased $80B/month of treasury securities and $40B/month of mortgage-backed securities. In short, an economic shock could and likely would impact mortgage debt, existing securities tied to mortgages, and so on, from the last housing bubble.  

It is only a matter of time until the economic shock is upon us [given the tremendous leverage in the system], which could be in any form including but not confined to the market taking control of long-term interest rates, the Fed hiking rates beyond a suitable level [10-yr yield of 2.25-2.75%+] and the resulting economic contraction.


An outbreak of a new CV-19 variant, contagion from Evergrande failure, or some other black swan financial event is looming. The biggest threat to the housing market and mortgage debt [which stood at roughly $17T in Q1, 2021, which is far higher than the peak of the 2008 housing bubble] is, of course, rising long-term interest rates. However, as the FED has proven over the last three recessions, they will do anything to prop up asset prices, which could include purchasing large amounts of mortgage debt, cutting and keeping the Fed Funds rate to nil, and other forms of stimulus.

The next recession will likely be a depression. The FED has two realistic choices: I) It can begin to unwind its balance sheet and raise the Fed Funds rate or II) continue to inflate the dollar, provide ample liquidity to the banking system, finance deficit spending. It is doubtful the first choice comes to fruition as it is crystal clear that the federal government/fiscal policy dictates monetary policy these days. There is no political will to improve the U.S.’s financial standing, so more spending programs that the U.S. can’t afford will be passed, funded by inflation. 

The next shock to the system could and likely will be catastrophic, not because of the damage incurred by surprise- but the policy response to it. In the case of massive deflation, the Fed would counter it with even more substantial inflation. The problem with this, as we’ve seen dozens of times in the 20th century [note: there were over 400 total currency crises’ in the 20th century alone], countering significant deflation with massive inflation often results in hyperinflation.

In fact, at some point in the not-so-distant future, the world will have another banking crisis. And in the next financial crisis, the banks will take depositors’ money in what is called a “bail-in.” This will take place primarily in the United States, although the same methodology exists in other jurisdictions. We (honest money advocates) have this saying in the precious metals world, and that is: ‘If you don’t hold it, you don’t own it.’ Let’s move it over to the currency realm. What if you had that same idea that if you don’t hold it, you don’t own it? The reason why that is so important to you and many others is that the bailout situation is over.  


It will be bail-ins next time, which means you become an unsecured creditor of the bank. This means that if you don’t hold it, you may not own it. If the U.S. were to have a bail-in...the Government may not take all your currency, but they would probably take part in it. I guess that anything over the “insured” amount, which is currently $250,000.00 for the U.S., would be fair game for the monetary authorities to use as they see fit under the contract that every depositor signed into being when they decided to open a bank account. Again, there are other jurisdictions outside of the U.S. that have similar laws on the books. 

If you look at Argentina during one of their episodes, all the money in their banks was still yours, but you were limited to what you could take out. You could be a millionaire or a multi-millionaire, but you could only take out 300 pesos a week. So, what good is that? If your mortgage was 4,000 pesos a month and you can only get 300 pesos a week, you would default on your mortgage.

How much actual cash is out there for you to hold? In the United States, ‘M-Zero’ is the monetary base. That is paper money and coins, and in a round number, it’s about $2 trillion. That is a bigger number than what I thought initially. Another interesting thing is there are 12 billion $100 bills. (That equals $1.2 trillion in $100 bills.) So, for the vast majority of the supply of Federal Reserve Notes, that physical currency are in $100 bills.


How much currency is sitting in the banking system that you could tap? Firstly, “60% of U.S. currency is sitting overseas, outside of the United States. Why? Because many nations trust it as safer money than their local currency. Only 5% of the available physical cash is there in the bank in America.

This means there is a ratio of about twenty to one, so in a bank run where people wanted to hold their currency, you would get five cents on the dollar. Will this take place? It is implausible, but the point is that currency is the most trusted form of ‘money’….until it isn’t. The U.S. dollar will be the go-to asset as the depression worsens, and gold and the dollar will rise together. However, if history repeats, confidence will leave, and then the most confident secure, and trusted money will be the precious metals. When confidence is lost in the currency, the ‘Run To  Gold’ will be epic. The spillover into silver will make the 1970’s Hunt move look like an amateur event. 

For those scarce individuals who think my views are important, I suggest having one to three months of cash at home for expenses like paying the rent or mortgage, food, and utilities. I like gold as an investment, but I especially like silver. Silver is undervalued and is the most undervalued asset out there. Silver is at near-record lows at around $23 per ounce, if adjusted for inflation and massive Fed money creation.

Another reason to hold physical gold and silver is that inflation is starting to take off, so most people can see now. Even the Fed knows the ‘inflation genie’ is out of the bottle, and it’s not going to be put back in anytime soon! For wealthy investors looking to move monies out of the bank and into precious metals (minimum $50,000.00 USD or equivalent) contact Mr. Morgan directly at   EG