The collapse of three major banks could incur major changes to the banking industry as the public knows it. As for one hedge manager, he foresees restrictions in cash.
Last week, macro guru and hedge fund manager Hugh Hendry shared his views on the U.S. banking system.
On Stansberry Research’s “The Daniela Cambone Show,” Hendry said that the Federal Reserve’s monetary policy has increased the probability that banking customers could one day face restrictions on the amount of cash they can withdraw.
“If we went back a year ago, the probability you would assign to that would be almost zero. And I’m saying that probability, like mercury, is rising,” he said.
Hendry then added, “Why is it rising? It’s rising because we have experienced, I call it ‘the Fed folly.’ One can say factually that this Fed hiking is the fastest and of the greatest magnitude. They’ve never done this before.”
The rise of digital currencies have included Bitcoin and Dogecoin as the future of monetization is moving away from the fiat currency.
Hendry said that the country’s banking industry will likely witness a further deposit flight since customers can now easily pull out their funds with the press of a button.
Speaking about the Fed’s interest rate hikes, he said, “[The] Fed’s rate hikes over the past year have created an environment that makes it attractive for depositors to take their money out of banks and invest it in money market funds.”
The contribution to the interest rate hikes have included the collapse of the three major banks in 2023 that included Silicon Valley Bank, Signature Bank, and First Republic Bank.
Each of the collapse of these banks been contributed to unsecured deposits, insolvencies buying long term Treasury bonds, and loss of deposits. All three banks that collapsed were taken over by the Federal Deposit Insurance Corporation (FDIC).
“A combination of being stuck with these uncompetitive rates and now the tyranny that money can fly so quickly. The thing that’s pulling money out is the Fed’s offering too much via money markets. I mean, you could go to the Fed directly,” he said.
“So what’s the Fed doing? It’s encouraging more and more and more money to leave banks,” Hendry added.
According to Federal Reserve Chair Jerome Powell, interest rates isn’t expected to be raised much in order to tame inflation.
Interest rates have increased over time after the Russia-Ukraine war broke out last year causing an influx of prices including good and services.
Currently, President Joe Biden and Speaker of the House Kevin McCarthy (R-Calif.) are negotiating on the debt ceiling in order for the government to pay its bill.
Treasury Secretary Janet Yellen has warned that the government could default on its bills if the debt wasn’t raised by June 1.
Congress and the White House haven’t come to an agreement to the debt ceiling.
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