What’s Going on in the Economy Will Have Global Implications

The continuing corporate inversion and systemic collapsing of banks will have implications on the global economy.

June 24, 2024

By: Bobby Casey, Managing Director GWP

Maybe I’m dating myself here, but do you remember playing Tetris, and failing to find a proper place for the awkward pieces, so you’d place it somewhere, and wait for the next shape to fall. The pieces start piling up because you can’t make perfect rows and just when you think it’s over you miraculously clear one or two rows.

The thing is, when you played that game, you knew the pieces would be coming faster, and all the odd shapes you punted before will amass to a point where you will lose.

We knew this as children playing the game. But for some inexplicable reason, the politicians and central bankers can’t seem to see that pattern. I dare say it’s because some of them have one foot in the grave and have no business running a modern system with such arcane knowledge; which also means they never learned the valuable lessons of Tetris.

Still, we get these headlines that talk about the closing of banks or the divestment of large American corporations, and the idiots in power will find some awkward, jimmy rigged solution, to pacify the masses.

The thing is, there’s still more pieces falling. You’ve got to find a more permanent and sustainable solution than what you’ve been doing or this whole thing comes down.

Last week I was talking about the penalties and costs for expatriating from the US. Not just living offshore, but actually renouncing US citizenship. The US turns into a very vindictive ex, who will wage a relentless campaign of lawfare against anyone who tries to buck it or leave it.

Nonetheless, corporations are finding ways to leave. If it’s not the regulations it’s the taxes, or it’s both. The cost to invert just a portion of your corporation out of the US isn’t small, but it’s lower than the long term costs of remaining in the US. Which means, the US is a losing proposition to Americans.

The US is a winning proposition to those who aren’t American.

It’s like the company that only gives amazing offers to new customers but treats its existing customers like trash.

The US has lost the following corporations, at least in part. This isn’t an exhaustive list, but a good amount of enterprises such as Iron Man, Forbes, Waldorf Astoria, Sotheby’s, WeWork, and Segway all are now owned by Chinese companies.

The latest to leave is Tupperware! They sold off their manufacturing plant in South Carolina and will be relocating that portion of their business to Mexico.

It’s not just the selling off to foreign corporations, it’s that these are efforts to save money and the company in many cases.

Meanwhile, turn your eyes to the financial institutions: specifically banks. In a very short period of time, we saw various banks collapse. I use the word collapse because they were once hailed as great, and then seem to suddenly lose their legs. Just over a year ago we saw this timeline unfold:

The government was so keen to quash the 2023 issues, rather than allow only the FDIC to cover the normal amounts up to $250,000, they did this:

By March 11, the FDIC reversed course and said all deposits would be insured. The Federal Reserve intervened and said they would take any U.S. Treasury securities from member banks in exchange for par value in cash even if the bonds were only worth 80% of par (which most were).

This continued for Signature, Swiss National and First Republic. This was the FDIC and Federal Reserve putting five pieces of the Tetris puzzle anywhere they could.

So what’s next? A “run on the banks” isn’t people lining up for physical cash anymore. It’s a process you can perform while waiting for your coffee.

James Rickard at the Daily Reckoning goes on to point out the difference between a one-off bank failure and a systemic failure of the banks. With the former, the shareholders bear the brunt of the failure. The latter, unfortunately, has a series of banks failing in succession which leads to bailouts which means a lot of money printing to guarantee the deposits.

It’s not getting better. The irresponsible nature of sub-prime lending, or fractional reserve banking that only keeps roughly 10% of liquidity, or these insane unrealized losses where banks buy up assets they can’t hold on to to maturity is indeed systemic:

According to the latest data from the FDIC, many banks could be at risk of failure as unrealized losses reached $517 billion in the first quarter of 2024, up from $478 billion in the last quarter of 2023. 40 banks with over $1 billion in assets have already reported unrealized losses higher than 50% of their equity capital. Over 200 smaller banks with lesser assets have issued the same reports.

It’s going to be a crazy next couple of years, for sure. There are global implications when businesses go multinational and banking crises start spreading, especially in the US. Diversify where you park your money, investments, and wealth. You might need to bug out and you’ll need a place to go.