In yesterday's Digest Premium… I (Porter) explained that the proposed bailout of the nation of Cyprus highlights how socialist ideas have corrupted banking systems around the world… including here in the U.S. The initial bailout plan would have docked individual bank deposits in Cyprus to raise revenue for the government.
The parliament has rejected that plan... and Cyprus' bailout is uncertain. The government there now says banks will stay closed until next week (to stave off a potential run).
Whatever the result… the proposal reveals how the impulse to eliminate risk and consequences has corrupted capitalist economies…
Ask yourself: Where would the economy be if the government guaranteed everything, eliminating any incentive to make smart managerial decisions?
The economy would be in the toilet very quickly. For an economy to function properly, there has to be a risk of loss. For an economy to grow, you need consequences for failure, just as you need positive incentives for success. Today, we live in this incredibly phony world where there is no punishment for failure (for neither depositors nor bankers). It's insane.
So how do we right this ship? Unfortunately, you'd have to go back to the beginning and not guarantee deposits. Look at the U.S. banking system. Look how much capital is deposited in U.S. banks versus the actual reserves at these banks.
Bank of America, for example, holds $1.1 trillion in deposits. Against that, it holds $457 billion in liquid assets – a $643 billion shortfall. Withdrawal requests are instantaneous… It would take the bank much longer to actually sell those assets in order to meet withdrawals. And should that situation occur, the value of the assets it's liquidating would be impaired.
The Federal Deposit Insurance Corporation (FDIC) is the entity responsible for insuring bank deposits. But it doesn't have any money. The whole thing is a mirage... The power of the printing press is the only thing standing behind this insurance.
If you were actually going to insure that capital, banks would need vast reserves. No insurance companies are big enough to insure the U.S. banking systems' deposits. There's nowhere to put all the money. But this is a sign of fractional reserve banking and the paper-money system we have today. This is what leads to inflation... It's the cause of business cycles... And it's what will inevitably lead to some kind of collapse.
Do I think the issues in Cyprus are the beginning of the collapse? No, it's just part of the process. The collapse began in 2007 with the demise of the subprime mortgage market. That led to the collapse of the prime mortgage market in 2008, which led to the collapse of Lehman Brothers and Bear Stearns.
If it weren't for the government printing press, we would have seen a global run on the dollar and a collapse of the global banking system. We're still suffering the consequences of these things today. So I don't know exactly where we are in terms of the timeline... maybe the sixth or seventh inning.
But when this process ends, we'll see a total flight from the U.S. dollar... Because the dollar underlies the entire banking system (whether in Cyprus or the U.S., all reserves are in dollars). Eventually, people will flee the dollar system as a whole. The Cyprus situation is just a small bump in the road on the way to the demise of the global dollar standard.
– Porter Stansberry with Sean Goldsmith
The news continues to get more bullish for housing. As we expected, the Bernanke Asset Bubble is boosting prices across the country for real estate. Inventory is shrinking. And homebuilders are rushing to add more supply... Stuart Miller, CEO of homebuilder Lennar, appeared on CNBC recently to share his views on the housing market. Miller said we're "clearly in the midst of a recovery in housing" and the trend is "fundamentally strong." The CNBC anchor asked Miller what he thought about investment bank JPMorgan's recent upward revision of home-price estimates... The bank predicted housing prices would appreciate 7% in 2013 and 14% in 2014. Of course Miller is bullish on housing. But as longtime Digest readers know, our colleague Steve Sjuggerud has urged people to take advantage of dirt-cheap housing for a few years now.
|
As regular Digest readers know, Porter is bullish on Miami Beach real estate. And he's personally invested in the area. Miami was one of the hardest-hit areas during the real estate crisis. During the boom, developers built 49,000 units. Then, everything stopped. Buildings were empty. And the homebuilders are busy in the area... Currently, 103 towers are in the works along South Florida's coast. I (Sean Goldsmith) recently relocated to South Beach and live on the water... The two buildings next door to me are being gutted and renovated. In total, some 15,000 units are coming to market. Porter believes ultra-wealthy buyers will make Miami Beach real estate the most expensive in America. One buyer is putting tens of millions into a lot just down the street from him. All the new construction means more money for homebuilders... The iShares Home Construction Fund (ITB) hit a new high today... It's at its highest price since 2007. True Wealth readers are up 84% on Steve's recommendation since February 2011. My friend (and publisher of The Palm Beach Letter) Tom Dyson, lives about 60 miles north of South Beach and has spent the past three months investigating one of South Florida's wealthiest communities. It's actually the richest zip code in America on a per-capita basis, according to Bloomberg.|
Imagine if I was looking after 200 property accounts and I had to do that for every one. It's just ridiculous. The bond could sit here for the period of the lease, which could be five, 10 or 25 years and there is no need to withdraw or deposit.
|
Steven Munchenberg, CEO of the Australian Bankers Association, said "the change was irresponsible and was designed to boost the federal budget's bottom line." He added...|
I think at the time it was very much seen as revenue by the government and they would count that money towards achieving a surplus that they hoped to achieve at that time.
|
The AFR said the government expected to raise $760 million last year from inactive accounts.
New 52-week highs (as of 3/19/13): WisdomTree Japan SmallCap Dividend Fund (DFJ), iShares Home Construction Fund (ITB), W.R. Berkley (WRB), Constellation Brands (STZ), Hershey (HSY), American Financial Group (AFG), Travelers (TRV), CVS Caremark (CVS), Walgreens (WAG), and Sysco (SYY).
We've already received many notes of thanks for our Open House. Have you signed up? We'd love to hear your thoughts... feedback@stansberryresearch.com.
"Thank you for having the open house. Although, I can't afford the high priced newsletters, it is great to be able to see what they consist of. I appreciate this opportunity." – Paid-up subscriber Wanda Beckham
"I really appreciated the two videos posted from Jeff Clark's Advanced Income service. They were highly educational and definitely interested me in seeing them all. I like the open house idea. I think it helps give an opportunity to understand the approach being offered in each service so it is easier to make a decision about what to subscribe to." – Paid-up subscriber Tishelle B. "It is brilliant of you to allow this preview. $2,500 or $3,500, while not a lot is a significant amount to plunk down on a product sight unseen, even if you offer a money back guarantee. This will allow me to evaluate whether I think your products are worth it and whether to buy or not." – Paid-up subscriber Ken T.Miami Beach, Florida
March 20, 2013