Last week, an alarming interview with the FDIC head Sheila Bair appeared in Barron’s. The Global Financial Crisis era FDIC point woman warned about growing dangers of yet another financial crisis. In no uncertain terms, she talked about four severe threats to the U.S. economy that you should heed. The dust has only recently settled from the worst economic recession since the Great Depression, and yet another financial upheaval is potentially on the way.
It reminds you of the important reasons why you should invest in gold in your retirement portfolio. The yellow metal protects you against financial market declines as it has for literally thousands of years now. Gold offers insurance and protection during market turbulence. This is why you need a gold IRA today. Now is the time to learn how to invest in gold while relative calm in the markets prevails.
Bair’s Impressive Past Track Record on Financial Crisis Prediction
Sheila Bair is not merely a former high ranking government financial official. She has an impressive track record on warning about the financial crisis of 2008 when other major policy figures completely missed it. Bair foresaw and sounded the alarm about an upcoming meltdown in the subprime mortgage market that led to the Global Financial Crisis.
At the time, long time prior Federal Reserve Chair Alan Greenspan was even arguing against the existence of a housing bubble in the United States. This past experience prompted Bair to warn in her interview:
“The memories— and lessons— of what drove the crisis are completely being ignored.”
Now Bair is sending out a warning again. She sees four significant areas that threaten to bring on another serious financial crisis. These include lowered capital requirements for banks, skyrocketing federal budget deficits, rapidly rising private debt, and enormous student loan debt. Any of these alone are a significant concern. Taken together they represent a real and present danger to the U.S. economy.
Lowered Capital Requirements for Banks
The U.S. Treasury Department maintains an independent research group. It determined that the American financial system again would be in grave danger if only a single major bank (or more) were to fail. This is the case even with the post-2008 crisis reforms the government enacted. Harvard University Professor of Economics Kenneth Rogoff takes this argument another conclusion further. He finds that the global central banks are not in a position to handle another banking crisis now.
Sheila Bair echoes these alarming sentiments. Minor bank deregulation is one thing in her opinion. Community and regional banks do not need burdensome overdone micro-supervision. She expressed her real concerns on deregulating the “large, complex financial institutions that drove the crisis” with:
“To loosen capital now is just crazy. When we get to a downturn, banks won’t have the cushion to absorb the losses. Without a cushion, we will have 2008 and 2009 again.”
This is occurring against a backdrop where the too big to fail banks are now larger than they were before the Global Financial Crisis. It represents a serious and growing threat.
Skyrocketing Federal Budget Deficits
Congress continues to pass budgets with more and more spending that the country can not afford. They recently approved another $300 billion in additional spending measures. Never mind that the Treasury does not have the money to pay for them. Sheila Bair shared her stark opinion on the deteriorating financial position of the U.S. government with:
“I don’t think Congress has a clue that the reason they have been able to get away with this profligacy is because we are the best looking horse in the glue factory. But we are in the glue factory. Our fiscal situation is not a good one. If we keep throwing gas on flames with deficit spending, I worry about how severe the next downturn is going to be— and whether we have enough bullets left [to fight it]. I also worry when the safe haven status of Treasuries is questioned.”
The concern regarding Treasuries is amply justified. Already the two largest foreign buyers of the safe haven U.S. government debt the Chinese and Japanese have been dumping their holdings. They have also reduced the amounts of new debt that they are buying at the last several months of Treasury auctions. Without enough buyers of the federal paper, the government can not continue to pursue its runaway spending spree.
Rapidly Rising Private Debt
Experts debate what the trigger for the coming financial crisis will be. Bair believes it will be the rapidly rising private debt. This includes categories like subprime car loans, credit card debt, corporate debt, and leveraged corporate buyout finance loans. She expanded on this line of reasoning with:
“Any type of secured lending backed by an asset that is overvalued should be a concern. This is what happened with housing.”
The confidence that underlies the financial system is fragile at best as 2008 proved. A collapse in any of these dangerous debt groups would likely create another negative domino effect like housing did in the global financial crisis.
Enormous Student Loan Debt
Student loan debt is a category that often gets overlooked by financial analysts. Sheila Bair is right to be concerned about the enormity of these loan pools. They now total more than $1.3 trillion. Bair explained the danger of the student loans with:
“There are parallels to 2008: There are massive amounts of unaffordable loans being made to people [who] can’t pay them, and the easy availability of those loans is leading to asset inflation… [Colleges] they have no skin in the game, like [many lenders] in the mortgage crisis.”
What she is pointing out is that it is the U.S. federal government that holds the default risk on most of these loans. To put this into perspective, this over $1.3 trillion is a greater amount than the country spent directly on the Iraq War. According to the 2017 Financial Report of the U.S. Government, the government owns $1.06 trillion worth of these shaky student loans. This represents a staggering 70 percent of them.
In fact these student loans are the biggest asset that the federal government inventories on its balance sheet. Their value represents a shocking 30 percent of its entire total assets. The increasing student loan default rate has become a growing danger to the American public finances. As the financial report excerpt below demonstrates, the federal government balance sheet shows the government’s net worth to be negative $20 trillion. This figure does not even include the various unfunded liabilities of Social Security or Medicare.
Gold Can Protect You in the Next Financial Crisis
As former FDIC head Sheila Bair has presciently warned, it is only a matter of time to the next financial crisis. A number of analysts have opined that the next one will be worse than the painful last one was. This is a stark reminder for you to include gold in your retirement portfolio.
Gold has a historically proven 5,000 year long track record of insuring wealth in times of financial upheaval. Now is the time for you to consider what gold goes in an IRA along with Gold IRA rollover rules and regulations. You should do this before the next crisis erupts. If you wait until after it has begun, it may already be too late to effectively hedge your retirement holdings.