In a market economy, banks can fail. In fact, any business that doesn’t adapt to the changing economic environment can.
But we are not living in a market economy. The global economy is ruled by central banks.
And just this week, they have come together to ensure that the global economy doesn’t grind to a screeching halt.
The world’s leading central banks, including the Fed, European Central Bank, Bank of England, Swiss National Bank, Bank of Canada, and Bank of Japan, are running a coordinated operation to keep the global banking system funded.
They have arranged a “liquidity backstop” for commercial banks, businesses, and individuals to make sure that credit remains available, and the global economy doesn’t have another 2008 moment.
What Does It Mean?
As I wrote in my book, The Secret Life of Real Estate and Banking,
We have […] learned that in each cycle the turning point will be marked by the collapse, or near collapse, of a major bank. This has always been the result of the bank’s having placed itself at the mercy of expensive funding in its quest for growth—exposed in the end by rising interest rates.
I wrote it back in 2007, published in 2009. And what we see with the Silicon Valley Bank failure and the failures to come, it still holds.
The current failure of a couple of banks in the U.S. does not involve “land.” This is the all-important factor.
And even more than that, whether that land value is declining.
Banks can have problems any time. But it is only when the land value starts to decline below the level of all the loans outstanding that all banks in general have a problem.
That issue can then easily become systemic.
And we are a long way from that currently, as I explained in my prior article.
The second half of the 18.6-year cycle is a fascinating time for the banking sector.
Every bank tries to jump on the opportunity to make some late-cycle gains.
The only way they can do it is through creating credit.
That’s how the financial system works. Without new credit, there would be no new mortgages or business and consumer loans.
Banks are worried… but they don’t want to stop growing.
It’s One of the Best Times to Be an Investor
In fact, it is one of the best times during the cycle to be an investor.
It is the “growth at all costs” stage. Markets will turn upwards from here.
We are in a moment of desperate growth… and with all the world’s most powerful banks coordinating their efforts to keep the economy chugging along, this “late-stage growth” period – the second half of the real estate cycle – still has a long way to go.
This is great news for the investors following the 18.6-year cycle theory.
Put simply, we have been granted more time to make money.
So use it wisely.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson