Gold was confiscated in the 1930s, could your bank deposits face the same fate now? Hugh Hendry breaks down the probability it could really happen
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(Kitco News) With more cracks emerging in the banking sector, should U.S. citizens fear their bank deposits could be frozen? Could banks implement lock-in periods similar to hedge funds preventing withdrawals for a set amount of time? Here's the latest probability breakdown from Hugh Hendry, Founder of Eclectica Macro.
The rapid succession of rate hikes from the Federal Reserve might be over, but the household sector is yet to feel the damaging consequences, Hendry told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News.
"The household sector … hasn't felt the shock," Hendry said. "The financial sector in America has trillions of dollars of debt that it lent to the household sector and to other economic agents at the wrong price. Those loans now trade at a great discount. That represents a loss in the financial sector. And it also represents a source of great anxiety. The economy needs credit like the human body needs oxygen."
Hendry warned that the risk faced by the housing sector has only been transferred, not eliminated. Watch the video above to get the timing on when this risk will put pressure on the banking sector.
Could banks lock-in your money?
With greater financial stress comes the question of how safe people's bank deposits are. Back in May, Hendry raised this issue as a probability. For his full breakdown of how likely it is for U.S. citizens to have their deposits locked-in, watch the video above.
"Previously, you would have assigned a probability of being gated in a bank, like a black swan [event]. A black swan is overused as a metaphor, but maybe it would be a 0.2% chance. [Now,] I kind of foresee it as being a 5% probability, like a one in 20," Hendry said.
Hendry drew parallels to the 1930s when gold ownership was banned in the U.S., and people were forced to sell their gold to the U.S. government below market value. For more on gold confiscation in the U.S., read here.
"It was necessary because the entire U.S. financial system at that point was bankrupt. And the citizens of America knew that and were seeking to transfer their paper money into gold, and the Federal Reserve made it a crime. You could not own gold," he noted.
This history lesson is becoming more relevant today because, in the last 15 years, the U.S. has become once again the center of the global financial system, according to Hendry.
"The whole system is financed from using the collateral of U. S. Treasuries," he said. "We have seen that long-dated U.S. government bonds halved. All of the price gains in U.S. Treasuries for 15 years have been wiped out. That has implications for the entirety of credit creation and economic growth globally."
The Fed is ‘terrified’ of this
After raising rates to 22-year highs and pushing the fed funds rate to a target range of 5.25%-5.5%, Federal Reserve Chair Jerome Powell is still "terrified" that he has not done enough to get inflation back in check, Hendry told Kitco News. To learn what future moves Hendry expects from the Federal Reserve, watch the video above.
Hendry pointed out that all economic indicators are pointing to "a synchronized global economic downturn," watch the video above to get a list of triggers to watch, including the U.S. Treasury market, debt levels, and the Fed.
Hendry also noted that time is against the market, listing the biggest risks putting pressure on the solvency of the banking sector, watch the video above to get more insight.