The question that came up in Marena’s mind was – why do they need to sell me on something I cannot buy?
That immediately popped into her head as a red flag. Why would they suggest that she needed to spend her time worrying about her “choice between sparkling or still water” and not pay attention to the security of her money? To suggest that we ignore matters concerning the safety of our money and retirement and instead prioritize our worries about our choice in water is patronizing. In thinking that she might be overreacting, she realized that this was their motive and had to think through her initial concerns.
As we all know, CDIC is automatically available to Canadians, and that the purpose of advertising is to sell or promote a product, service or idea. You can’t buy extra CDIC protection. So what benefit was there in putting that message in my head that I don’t need to be concerned? And why now? Things seem to be going great, especially according to reports about Canada’s economic muscle being flexed. The government and media have been telling us how the economy is doing well, that unemployment is down, and people are more successful than ever. Simply put: the only reason the economy is doing well is because we are debt financing our growth. It’s like borrowing $10,000 from your line of credit and claiming you earned it as income. Over the long-term, that will have serious consequences and pressure to increase our taxes just to handle the interest payments – let alone getting out of the hole.
But then it hit me like a ton of bricks.
When I started connecting the dots in the political, economic and financial systems in place today; when I started layering on my 23 years of experience in the financial industry; when I added my last few years of intensive study in the different theories and philosophies of economics, especially in the rational/scientific Austrian School; I became acutely aware of why CDIC was trying to proactively answer a question that Canadians haven’t started asking en masse. Banks rely on our ignorance about the way money works, and if we start to become educated about the imbalance and fragility of the monetary and financial system, we wouldn’t allow them to risk our hard-earned money in the manner they do today. After all, it was Henry Ford, lamenting about this ignorance about banking that is attributed to this quote: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Simply put – CDIC is advertising to promote willful ignorance to this fragility in the financial system and are attempting to plant the seeds to these answers in hopes we never start paying attention to these matters and ask the questions when the crap does end up hitting the fan.
It’s my hope that by taking the time to educate yourself and draw your own conclusions through your own critical thinking that you will take steps not only to reclaim your personal responsibility of educating yourself and become more financially literate, but also to not remain distracted by the things that don’t matter. Yes CDIC marketing department, this means I’m going to choose to be aware of the safety of my money and not worry about my choice between sparkling or still water. To quote cultural critic H.L. Mencken, “The most dangerous man to any government is the man who is able to think things out… without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, intolerable”.
Because of our ignorance to the systems and processes of economics, banking and monetary and fiscal policy that is backed up with immense cognitive bias on these misunderstandings, we are standing on a cliff. Not just only as a nation, but as an international economic system. We have not reconciled the facts and mathematical evidence of how we have pumped the world full of worthless currency. We have forgotten the empirical evidence that central banks are the leading cause of the boom and bust business cycle. That government spending without restraint will bankrupt our heirs economically and socially. Somehow we missed the lessons of others who warned us that “If […] people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around (these banks) will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”
Point is that tough times are ahead
Despite what rosy picture we are made to believe from the talking heads on the box. There is a shell game being played, except the nuts aren’t on the inside, they’re the ones on the outside moving the shells.
Recently we have been warned that Canadians are so deeply indebted to financial institutions. However, it was reported two days ago that Canadians now owe a record $1.821 Trillion[i], which is almost $75,000 of debt for every single person of working age in Canada aged 15-64[ii]. This mountain of debt has serious implications for Canadian banks and credit unions, who have used their clients’ savings, RSP, and chequing accounts to lend out to individuals in a practice known as Fractional Reserve Lending.
The Bank of Canada has said recently that if not for recent government spending, Canadians would be in even greater debt than today. Of course, just as the great Henry Hazlitt wrote in 1946 in the book “Economics in One Lesson”, certain economic policies result in benefit to some at the expense of others, which means that some people will have the incentive and self-interest to promote such policies as if the policies are beneficial to everyone. Futhermore, humans tend to focus on the immediate effects of some event or policy and ignore the long-run effects and indirect consequences. Financial actions must always consider the short and long-range consequences, and the consequences on all groups of people, rather than only the people a policy was meant to benefit.
So what are other risks to the banking system?
Whatever unique security value Canadian banking institutions held has eroded. This has been done over time with standardizing of banking rules around the globe in the BASEL III framework, which included the introduction of bail-in legislation that was first tabled in Canada by the Conservatives and enacted by the Liberals in 2016. In a report published this week, the Bank of International Settlements (the central bank for all central banks), Moodys and S&P have all issued harsh warnings that Canada is at risk of a banking crisis. Almost half of all outstanding mortgages will have an interest rate readjustment within the next next 12 months, and S&P went as far to call out the mortgage and loan system as having “evidence of mortgage fraud”.[iii] The Canadian Deposit Insurance Corporation (CDIC) however is the real shell game. Despite their best efforts to convey a message to the contrary, they do not have enough money to fully sustain the Canadian depositor in the event of a banking crisis. According to their annual report, CDIC insures $741 Billion of deposits, but have less than $4 Billion in assets themselves. This means that in the event of a serious problem that can be brought on by either national or international events, it is really the backing of the Government of Canada itself that issues the guarantee. Even with this reliance in government to save the day, the issue with our government’s line of credit is that there is no limit to how much they will borrow and how much we will have to pay in interest. We are already paying $62 Billion a year on existing government debt in this country, so could we even afford to bail out insured deposits in this country? Even if we could bail out a major institution, the impact on inflation on billions of new dollars in the economy would be catastrophic. Credit Unions are not much better off, with total assets in British Columbia of less than $600 Million covering that provinces 41 credit unions, with the top 3 credit unions having almost $47 Billion in assets.[iv]
In most western countries, a degree of deposit insurance exists, such as the Hellenic Deposit Protection and Investment Guarantee Fund in Greece. As in Cyprus, Greek deposits were temporarily seized as part of a banking restructuring plan endorsed by the IMF, the European Central Bank, and the European Commission. Imagine being locked out of your bank account for a day, or even a week. Remember the shock when Lehman Brothers, the largest bond dealer in the world with almost $640 Billion in assets (and over $600 Billion in liabilities) was suddenly wiped off the face of the earth. Did you see that one coming? By the way, forget about your US dollar accounts or term deposits longer than 5 years covered by deposit insurance – they aren’t covered even if your bank or credit union is.
“At its meeting in March 2008, the OECD Committee on Financial Markets (CMF) discussed selected financial safety net issues within the Tour d’ Horizon on Financial Markets based on a background note prepared by the Secretariat. The note highlighted the importance of various aspects of the design of financial safety nets and in particular of explicit deposit insurance systems. It argued that it was too early to draw any strong policy lessons from recent developments regarding the effects of the turbulence and the adequacy of the financial safety net, but that some preliminary lessons were emerging concerning selected aspects of the design of deposit insurance systems. These included […] deposit insurance systems with low levels of coverage and/or partial insurance may not be effective in preventing bank runs.” [v]
Banks don’t want you to know about their ability to raid your accounts in the event of a failure if you have over $100,000 with them because they make money on your willingness to leave it with them. This hegemony has literally blinded us to the fact that the return we get on our deposits are taken from the pockets of the borrowers, who pay for our return plus a 200-400% or greater return for the banks and credit unions themselves.
When you can layer on your opinion on the real estate market, both secularly and globally, mix in the volatility of the stock market (remembering that this is the second longest bull market in history, and the second most expensive market when analyzing price to earnings ratios), add on geo-political instability, re-negotiations of NAFTA, Brex-it, ongoing concerns about Greece and Italy, the advent of cryptocurrency, and the issues mentioned above – no wonder CDIC is preparing our minds for a possible Black Swan event.
According to John Maxwell, people change when they hurt enough they have to; learn enough that they want to; receive enough that they are able to.
So, if you are ready for change and want to take action on making a change, what should you do?
Here is a step by step process that will help you start to take personal accountability and responsibility for you and your family:
1. Realize that you matter in the grand scheme of things. You can secede from the chaos and make a difference in your financial future. Despite conventional and prevailing thinking, it is much easier to reclaim the power and control in your financial life than one might think. For most people, they miss opportunities because they are expecting something more complex rather than simple habits and strategies.
2. Success in financial literacy or any other arena is a process and not an overnight event. It may feel slow but start by facing in the direction you want to go and take the first step. Set goals and seek guidance on how to get there. Be the change you want to see in the world despite the forces opposing your change and start by making a change in your own life. Get the right advice in constructing a financial plan that addresses your values and goals that starts with savings and budgeting.
3. Learning about the principles of economics and financial planning may at first feel like a daunting task, but with a little intention, can be achieved. The application of these principles will require guidance from specialists and financial professionals. Start with books or audiobooks such as Economics in One Lesson by Henry Hazlitt, Cantillon’s Curse by Stephen Johnson, YouTube videos or various podcasts, specifically on subject matter relating to the Austrian School. Some people worth referring to are Carl Menger, Milton Friedman, Thomas Sowell, Ludwig Von Mises, or FA Hayek just to name a few.
Here is an example of Milton Friedman https://www.youtube.com/watch?v=ujxLJx223-Y.
Here is an example of Thomas Sowell https://www.youtube.com/watch?v=cdBn7MUM3Yo
Here is Dr. Robert P Murphy on Ludwig Von Mises, who passed away long before the advent of social media https://www.youtube.com/watch?v=Rp9tf1VO9Nk
These truths will help you deal with any potential financial biases and push past cognitive dissonance.
4. Uncovering the reality of the monetary and banking system can start by reading How Privatized Banking Really Works by L. Carlos Lara and Dr. Robert P. Murphy. That book is more of a heavy read, but really breaks down the details of the design of the system. These gentlemen also have a podcast worth listening to for people looking for more in-depth analysis of economics.
5. Understand the difference between saving and investing. Save the money you can’t afford to lose and invest the money you’re willing to lose. Get to know the options and the tax consequences of each alternative. Do some research into the pros and cons of different investment and savings vehicles. This will include but is not limited to research into mutual funds, stocks and bonds, ETFs, real estate or real estate income trusts, gold and silver, private investments, etc. I prefer to deal with experts instead of general practitioners in the same way that I don’t think my personal doctor is suitable to perform my brain surgery. For example, I deal with Rob McInerney CEO of International Gold Vault Ltd. with any client interested in purchasing Gold or Silver bullion because I have identified him as an expert in that field. I know you probably need some exposure in your portfolio, but he would be the person to give some specific guidance in that area.
6. Don’t be afraid to educate yourself in the arena of politics. After all, they set the agenda on the limits of what you can and cannot do. Vote for candidates that support your values because if you don’t, someone else will vote in someone holding potentially competing values. Remain steadfast on facts and policies instead of being marketed to.
7. How long would you last if you were bleeding in the emergency room without pressure on the wound? How long are you going to last in your finances if you’re consistently spending more money than you make – that is, bleeding out your capital? Stop complaining about how difficult it is to be on a budget and start to track your spending as soon as possible. Live within your means and stop feeling entitled to shop and spend money on credit.
8. I find myself in an enviable position of having built my practice on values and principles of financial literacy, with a focus on savings, budgeting and tax strategies, and not pressured by an organization, bank or credit union with the requirement of sales targets. With a wealth of experience both inside and outside of financial institutions, I understand the range of options not available inside of the bank advisor platform. As a mentor and strategist, I can help people create strategies structured specifically to the needs of the family or business and connect you with other financial specialists who can participate in executing your plan. Because the approach we founded our company on was on financial education and literacy, client experience is based on their full understanding of why strategies and financial products are required in their unique plan.
As overly simple as it sounds, we all must start from where we are to where we want to go. Identifying where we start from is the crux of the matter. We have a choice to remain ignorant or not, but we must also accept the consequences of or decisions. If you have any questions about access to resources, tools, or how to execute a solid plan, reach out and I would be glad to point you in the right direction.