Image Source: Pexels
 

Chuck Butler speaks highly of one of his mentors, Hy Minsky, often referring to a “Minsky Moment.” Corporate Financial Institute explains:

“Minsky Moment – sudden collapse of the market following a long period of unsustainable speculative activity involving high debt amounts taken by investors.”

Many were surprised when the Bureau of Labor Statistics revised the jobs numbers downward by almost one million jobs. If they fess up about inflation, we’re likely to see the real number in excess of 10%, which should not surprise us – “Tell me something we didn’t already know.”

Inflation destroys the buying power of the currency, including assets denominated in that currency that are not typical inflation hedges.

A Casey Conference highlighted speakers from countries that experienced hyperinflation; destroying much of the nation’s wealth. One speaker was asked, “Knowing what you know now, what would you do differently?” His response, “Get on a jet plane, and get outta there!” All the speakers saw what was inevitably coming and stressed preparing as best you can.

It always comes back to the same thing, precious metals, collectibles, prime land and currency diversification.

Today’s focus is on currencies. Currencies are traded at the Forex market.

Wikipedia explains:

“The foreign exchange market (forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency.

…. The main participants are the larger international banks. …. As currencies are always traded in pairs, the market does not set a currency’s absolute value….”

I use a Swiss money manager. He converts dollars into foreign currencies and invests around the world. How do Americans, unwilling/unable to open a foreign account use currency diversification as a hedge against the constant decline of the US dollar?

Some great news

I met Frank Trotter several years ago in St. Louis. He was Chuck Butler’s “big boss” at EverBank in St. Louis. They pioneered the idea of the bank issuing FDIC-insured certificates of deposit denominated in foreign currencies. When EverBank was bought out, the new owner deemphasized the Division, did not provide any marketing, successfully reducing the number and volume of outstanding accounts. While they may think of that as success, I feel Baby Boomers lost a good option to help protect the value of their life savings from inflation.

Frank tried retirement. He was not ready, and decided to start a new bank. After several years, they finally got their government approval. I’m happy to report they are once again providing Baby Boomers the ability to diversify currencies without having to send money offshore.

DENNIS: Frank, congratulations. It’s taken a few years, but you were determined to bring your products back to the public – and thank you.

Let’s begin with an explanation about FDIC insurance, what it is, and what it is not.

FRANK: Thanks for inviting me, Dennis. It’s nice to be back.

The FDIC was created as part of the Banking Act of 1933. SSA history explains:

“Thousands of banks failed during the Depression and loss of confidence caused anxious depositors to create ‘runs’ on banks as they tried to withdraw their money before the banks collapsed.

In all, 9,000 banks failed—taking with them $7 billion in depositors’ assets. …. When a bank failed the depositors were simply left without a penny. The life savings of millions of Americans were wiped out by the bank failures.”

Today, depositors (up to $250,000) are insured against bank failure. While this covers one risk – default – it does NOT offer protection against currency depreciation.

DENNIS: During the double-digit inflation Carter years, my parents had their life savings in CDs. Technically, they never lost money, but their nest egg bought much less as the interest was a pittance when compared to inflation.

With that understanding, please tell us about your new bank.

FRANK: The inflation in the late 1970s and early 1980s should provide a good lesson for all.

We are starting something we call Battle Bank. We’ll be here to fight for your business and battle for better banking. Once we acquire a small bank in Minnesota and complete our operational readiness, we’ll begin allowing people from the Waitlist to start opening accounts early in the New Year.

Dennis, I know you won’t be surprised – we’ll be paying high rates and charging low transparent fees. There are a number of unique things we’ll offer, but to stay on topic, we will be offering deposit accounts denominated in 18+ foreign currencies.

DENNIS: How do FDIC-insured CDs denominated in foreign currencies work?

FRANK: The light bulb went on about foreign currency deposits for Chuck and me in the mid-1980s. We thought – we are a bank and there is no restriction on the denomination of currencies we can offer.

Depositors can choose money market deposit accounts where they can add to or withdraw from a position at any time, or CDs just like the ones you are familiar with from your everyday bank, only denominated in your choice of foreign currency.

Typically, clients provide US dollars, and we’ll do the conversion for them. If they have a source of foreign currency the client is welcome to wire that currency to us in order to open an account.

DENNIS: I trade out of dollars because I fear significant loss of buying power. How do you pick the currency that will likely increase as the dollar goes down?

FRANK: Well, there’s the trillion-dollar question Dennis. Analysts like Chuck Butler watch this every day but I focus on several basic items:

• Fiscal situation – what is the country’s surplus or deficit, both as reported and also as analyzed. This should be considered both as a standalone, and in comparison, to other countries.
• Total debt to GDP – the higher the number the lower the ranking.
• Subjective global status – does the country play according to the rules, or are they a pariah?
• Money supply growth. We all know that outside of dislocations like tariffs, inflation is a money supply game. Look at the relative money supply growth in the two currency pairs you are considering and pick the one growing more slowly.

Even with obvious deterioration like we have seen in the US, it doesn’t mean that currency is going down today. Maybe tomorrow. But when it reaches that Minsky Moment you spoke about, you’ll want to be an owner of the currency increasing in buying power.

Of course, not putting all the eggs in one basket applies here too. I suggest people consider diversifying among several that make sense to them, probably spread around geographically and also diversifying the underlying economics of the country. For example, Norway is for oil, China for manufacturing, Australia for natural resource extraction.

DENNIS: I realize your employees are not licensed financial advisors. When the time comes, I’ll interview Chuck and get his recommendations, which will provide some expert guidance. A multi-part question.

• What is the interest rate?
• What happens when the CD matures?

FRANK: The interest rate in each currency will be indicative of the retail rates available in that country. In our recent weird world that also included negative rates from places like Switzerland.

Just like a traditional CD you can choose to roll principal and interest over, pay out interest in USD or the currency of the CD, roll part of the CD, add to the CD, or cash it out.

The process is similar to a US dollar CD with the added element of not having all your eggs in the dollar basket.

DENNIS: When are you officially open for business? Is a new bank like a restaurant, where you go through a period of gearing up?

FRANK: That will certainly be the case. We’ve been building and testing all our technology for several years. Our Director of Banking Operations likes to say we have the plumbing in the house and now we need to hook it up to city water.

We expect the first 30-40 days will be employee testing, then add in some shareholders and more professional testers, then open up slowly to the Waitlist.

DENNIS: One final personal question. Why? You were having fun going all over the world and chose to go back to work…

FRANK: Every day is great and I’ll still get to go all over the world. We’ve been lucky through work and our own family planning to have already visited many places so we don’t have to obsess about travel we never had. As long as the body holds up, I’ll continue to play ice hockey, hike, bike, raft, kayak, ski, skin and much more until I start forgetting where I am going.

Thanks again for inviting me.

Dennis here. I’m a believer, “live until you die!” Many slow down as we transition into our 80s – keeping on trucking as long as your health allows…

After building your core holdings in gold and silver, holding some of your wealth in foreign currency provides an added layer of protection. Inflation is not going away any time soon! Frank and Chuck invented a way to make it easy for average Baby Boomers to do so….
 

On The Lighter Side…

Weather in Central Florida has been terrific. Normal afternoon storms, temperatures in the 80s, and the familiar humidity. We are expecting some more wind and rain as the seasonal tropical storms pass through in October.

Jo and I have been exploring the dining options in and around The Villages. There are many options to choose from; it will take some time to work through our list of places to try.

My beloved Cubs won the Wild Card series against San Diego. Very stressful for fans on both sides; things went down to the last out as the Padres stranded the tying runs on second and third. They now advance to play Milwaukee, which is always a competitive battle.
 

Quote of the Week…

“Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending.

No private embezzlers or bank robbers in history have ever plundered people’s savings on a scale comparable to the plunder perpetrated by fiscal policies of statist governments.” — Ayn Rand
 

And Finally…

My wife Jo shares some humor for our enjoyment:

• “Life is short. Drive fast and leave a sexy corpse. That’s one of my mottos.”
  – Stanley Hudson, The Office
• “I’ve never understood why senior citizens drive slowly. You would think they would drive faster because they don’t have much time left.” – Dennis Miller
• “If at first you don’t succeed, try, try again. Then quit. No use being a damn fool about it.” – W.C. Fields
• “If you can’t be kind, at least be vague.” – Judith Martin
• “Never miss a good chance to shut up.” – Will Rogers
• “I’ve had great success being a total idiot. ” – Jerry Lewis
• “If you think you are too small to be effective, you have never been in the dark with a mosquito.” – Betty Reese
• “Taking naps sounds so childish. I prefer to call them horizontal life pauses.”
  – Unknown
• “If we’re not meant to have midnight snacks, why is there a light in the fridge?”
  – Unknown
• “The best thing about the future is that it comes one day at a time.” – Abraham Lincoln
• “The advantage of growing up with siblings is that you become very good at fractions.” – Robert Brault
• “The secret of staying young is to live honestly, eat slowly, and lie about your age.” – Lucille Ball
• “Before you marry a person, you should first make them use a computer with slow Internet service to see who they really are.” – Will Ferrell

And my favorite…

• “The best way to get most husbands to do something is to suggest that perhaps they’re too old to do it.” – Shirley MacLaine

Until next time…

---

More By This Author:

Will The World Fix Our Banking Problem?
What Do Student Loans And FHA Mortgages Have In Common?
Can You Grow Your Way Out Of Debt And Reach Prosperity?