IMPORTANT POINTS:
- Financial expert Hugh Hendry warns about the US banking system and its economy.
- The decline in the M2 money supply could lead to capital flight, and the government could intervene to prevent citizens from withdrawing their capital from the banking system.
- Hendry recommends investing in US Treasuries and possibly Bitcoin as a safe haven amid financial uncertainty.
Hedge fund manager and macroeconomics expert Hugh Hendry has issued a big warning about the US banking system and the US economy as a whole.
In a new Bloomberg Markets interview, Hendry says the mass panic and capital flight out of the US banking sector is entirely justified.
Hendry says that a further decline in the M2 money supply, which partly tracks money in liquid checking accounts, could convince the US government to step in and prevent citizens from withdrawing their capital from the banking system.
“Sometimes it is relevant to panic. I would recommend you to panic… You have seen the biggest cascading drop of M2 right now. M2 are deposits, not loans. Those are the deposits that are fleeing the system and going into money market funds… This could reach a climax where the Treasury and the Federal Reserve may have to step in and restrict your right as a US citizen to withdraw money from the US banking sector.” .
Hendry says that the flight of capital from US banks is not solely due to fears that the FDIC will insure deposits above $250,000 and that a blanket guarantee on deposits would not solve the problem.
“There is a flight of capital, a flight of deposits from the banking sector that is looking for yield. I’m afraid I don’t say this lightly, but in 1934, the Federal Reserve Act seized American citizens’ gold… We’re at a point where I’m sure Federal Reserve and Treasury officials have to consider close US bank deposits.”
As for where Americans can put their capital amid the uncertainty, Hendry says their option is to buy US Treasuries and potentially Bitcoin.
“It’s time to own the most reviled security in the universe, ultra-long Treasuries. I know all of you think we have an inflation problem. It was a supply shock, and a supply shock needs the manifestation of more and more bank lending to propel it into the future. We are getting the opposite. Ultra-longs are trading two to three standard deviations lower than the ETF… I’m not obsessed, but Bitcoin is something you could think of as an asset class that could trade three to four times higher in the next five years. There is no other asset class that can make that determination.”
In summary, Hugh Hendry’s warning about the US banking system and potential capital flight highlights the importance of caution and investment diversification in times of financial uncertainty. Additionally, his recommendation to invest in US Treasuries and Bitcoin offers alternatives for those looking to safeguard their capital amid economic turmoil.
