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Former Wall Street Insider: Some Form of Bank Bail-Ins Will Come to US (Video)

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USAWatchdog interviewed Nomi Prins, who formerly worked as a managing director at both Goldman-Sachs and Lehman Brothers. She is the author of All the President’s Bankers and a vocal critic of central bank monetary policies. Prins agrees with Peter Schiff that more quantitative easing will come from the Federal Reserve, however, she doesn’t think they will call it that. She believes the easy money may come in the form of currency swaps between central banks.

More importantly, Prins believes that eventually the financial problems in America will become so great that normal US depositors will be forced to “bail-in” the banks one way or another, if they want to keep money in standard accounts. That’s why she recommends holding cash and buying physical gold.


Highlights from the interview:

“It’s not so much crashing the economy [by raising rates], as the markets, which is really what they’re looking at. They’re trying to balance this idea, particularly the Federal Reserve, that they’re this beacon of the right amount and right number of employed, inflation being contained, and so forth. That’s the language they use when they talk in their speeches… The reality is they are very concerned how the stock market and volatility of the various markets, between bonds and loans and stocks would behave if rates were to be raised…

“What I said to them was the policy of having had zero interest rates and quantitative easing for seven years has been an incredibly bad policy. They put themselves in a catch-22 of what they call ‘monetary policy,’ which is in fact bank and market coddling policy. And there is no way out. It has not helped fortify economies on the ground. Not in the United States, not in Europe, and increasingly not throughout the world – not in Latin America, not in Asian, not in Africa, and so forth. This has not been a policy – even though it was spun – to help the economy. It was a policy that helped the financial institutions, that helped financial asset bubbles. They have no Plan B to unwind. As a result, had the Fed started raising rates, it would have created even greater volatility in the world…

“They are not going to raise rates in December. I didn’t think they were going to raise rates in September. We talked about the fact that even if they would have, it would have been a 25 basis point token thing, to act as if they have the ability to…

“That’s what I’ve said all this year. What happens before any kind of major implosion… is this heightened volatility to the downside… Meaning, a lot of jagged edges in the markets, particularly the stock market, because they most reflect the hot money going in now… Then it becomes a self-fulfilling situation. The more uncertain it is, the more every tiny thing creates a more downward cycle, rather than an upward bump. That’s what we’re in right now…

“When you usually buy gold in a situation when you have inflation, and even if you have market inflation to an extent – you should buy gold, because it’s the natural hedge to inflation. It has a natural reverse relationship to the dollar and so forth. Right now, everything is so manipulated as a system, gold hasn’t behaved as it has in the past. Will it get there? Yes. But the system has to be sort of recalibrated back to some form of normalcy. And in those moments, gold will have that major bump…

“The question is will the Federal Reserve reduce rates below zero – make it look as if banks have to pay for money, as opposed to getting it for free. It used to be for cheap, now it’s for free… Maybe, but what it will look like is banks putting more reserves on the books of the Federal Reserve, which already has a book of $2.5 trillion from reserves from banks. And they will basically put those fees even more so onto individuals, onto smaller business loans, onto credit cards, and onto other things just to get that little chunk back… They will simply raise all the fees that they need to raise from us in order to make up for whatever they are not getting from the Fed. But it will be incremental.

“The bigger issue is if we also go to bail-ins… If there’s a bigger emergency… where do banks go for money? They’re already getting a ton from the Fed [through various bond buying programs and currency swaps]… Where do you go? You go to your depositors, because that’s the next largest amount of potential liquidity that you can use in an emergency. That’s really what bail-ins are. When you sign up to be a depositor with a regular bank, it doesn’t say right now that if there is an emergency we will take part of your deposits. What you actually think is that there is an FDIC which is there to secure you in case the bank has a very large problem. The reality is the FDIC doesn’t have enough money to secure all the trillions of dollars of deposits in our banks in the event of a confluence of negative occurrences that could create another emergency and another crisis. Therefore, what happens? Maybe the FDIC only backs part of your deposit. That’s kind of like a bail-in. Maybe the bank says, ‘Well, not only will you pay a fee to us for you giving us your money. But we’re going to tell you that a fraction of your money might not get back. Maybe it will be a tenth of your deposit, maybe it will be 10% of your deposit, but there might be a fraction there in the future that we’re just going to hold onto if you want to bank with us.’”

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