Like you, I read Money Morning every day. I don’t always know what’s going to be in it. And I take great pleasure in hearing the views and ideas of my fellow colleagues.
It’s such an exceptional bunch of people to work with. The flow of ideas, and theories on what’s going to happen in the world, is nothing short of incredible.
We have some of the most robust (and rambunctious) discussions when we all get a chance to be thrown in the same room. There are contrarians, libertarians, optimists, perennial pessimists, and a whole bunch of loonies from time to time.
But that melting pot of views and ideas creates some of the most exciting opportunities I’ve ever come across. The best thing is that not everyone agrees with each other. In fact, some of us have polar opposite ideas of what’s going to happen next.
The one idea you probably hear about quite regularly is the imminent banking system collapse. Even in yesterday’s Money Morning, Jason Stevenson wrote about the coming financial meltdown. He also highlighted that one of our other colleagues, Vern Gowdie, expects an 80% crash in the market. And as Vern said to Jason personally, ‘What do you expect to happen to the share market when the banking system goes under?’
It’s a good question. Conventional thought would suggest the market will crash. But I don’t think that’s the case. Actually, I think with a market crash, certain banks could become even bigger and stronger.
To succeed, the system has to fail
There’s plenty of evidence to suggest the banking system is already on the chopping block. The executioner is poised with his axe held high, and soon a sharp, swift blow to the rear of the neck will lop off the head.
Will the executioner strike? Or will the banking system receive a last-minute pardon from the legal authority?
Well, to be honest, the banking system is a cat with nine lives that’s used up eight. But if Deutsche Bank (DB) fails, that could be the last life. It could create systemic failure.
In June, the International Monetary Fund (IMF) said it ‘appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse.’
From that, you can take away that if DB fails, it could trigger widespread financial failure. I think DB is a dead duck. Is the banking system going to collapse? Yes. Is that a bad thing for investors? Surprisingly, no.
Will this cripple world markets? No. Sure, it will kill off some banks and slow-moving financial firms. But the smart ones will come out stronger than ever. In fact, for smart banks to come out of this stronger, they need the banking system to fail.
That’s right — in order for banks to survive into the future, the banking system has to fail.
They might be vultures but they’re smart vultures
Trying to find out exactly how many banks there are in the world is no easy task. For example The Banker runs a list of the ‘Top 1,000 World Banks’ every year. We know there are more than that though. There are community banks, credit unions and building societies as well.
We do know that 1,000 is just scratching the surface. But let’s say there are 1,000 banks. Now, you’d be pretty hard-pressed to think that idiots run every single one of them.
Sure, they often manipulate, distort and manufacture outcomes that suit their own agenda. You only need to look at the CBA Financial Advice scandal or the LIBOR rate rigging to see evidence of this.
Still, based on sheer weight of numbers, you have to think there is some intelligence in the thousands of banks that exist.
In fact, I’m sure of it. They might be vultures, but some of them are smart vultures. Those smart ones are already looking to where their next meal is coming from. They’re anticipating a banking system collapse. And if it comes as we think it might, they’ll be ready to capitalise on it.
Blockchain is the future banking system
Smart banks are already working on an alternative banking system.
What is an ‘alternative’ system’? I’m talking about a distributed ledger system or, in simple terms, the blockchain.
The blockchain is the foundation of bitcoin. It’s like a big spreadsheet that tracks (anonymous) transactions around the system. However, rather than one central party confirming transactions, the whole system (nodes) confirm these transactions.
I won’t get overly technical here, as I’m working on a project that will explain this all in far more detail — and how to profit from it. Some key aspects of the blockchain are that it’s distributed (no central authority or control), automatic, borderless and incredibly efficient.
Its development is moving in a direction that will replace the current banking system as we know it. It can handle everything from money transfers to property ownership. And of course, new digital currencies like bitcoin.
Some of the world’s more forward-thinking banks are investing heavily in blockchain technology. Goldman Sachs, JP Morgan, UBS, Rabobank, Westpac and Commonwealth Bank are just a few working on blockchain.
While these banks will benefit, the companies that are bringing blockchain to the banks could profit the most. Companies such as Ripple and Circle are just two that will soon be household names.
Let’s be clear — blockchain technology is the new banking system. But in order for it to be a real success, the current banking system has to fail.