Gold, The Great Depression and the On-going Monetary System Bank Run

Precious Metal Expert & Author
May 22, 2023

We are in the midst of a system bank run, which are in the greater sense really a bank run on the United States of America, the issuer of the reserve currency of the world.

The nations that are providing her with credit are increasingly viewing her as a greater credit risk, and this is reflected in the increase in interest rates on her treasury bonds.

Her banking system is under pressure and this is likely to intensify until something much bigger breaks. The recent significant bank runs (or collapse) would not have been a surprise to those who have been looking at the following chart:

It shows: Deposits of All Commercial Banks in the US (from Fed Reserve data). Deposits have been in decline since February 2022, for at least 12 months already when the bank in the Tech valley collapsed.

When total bank deposits decrease for such a long period then something is bound to break, especially when a 12 month decline is such a rare occurrence. Remember less deposits means less credit, and this system needs credit like man needs air.

As you can see from the chart, it was the first such decline going back to at least 1975. This decline is very likely to eventually intensify and cause major damage not only to the US banking system, but to the whole of the international monetary system.

The last time such a sustained decline took place was during the Great Depression. The chart of Deposits of All Commercial Banks in the US topped in October 1929:

This was followed by at least a 3-year decline in total deposits. During this decline there was a major banking crisis, with bank runs sweeping across the United States and eventually leading to thousands of banks collapsing.

This crisis was only “arrested” when a major change was made to the system, a change that was effectively changing the critical nature of the system. Note the date when the decline in the total deposits bottomed: March 1933.

March 1933 was the date of the Emergency Banking Act, the means by which the crisis was “arrested”, and this was followed soon after by Executive Order 6102 (April 1933) which forbade the hoarding of gold coin, gold bullion and gold certificates.

Gold was essentially the means by which banks had to settle liabilities and obligations (especially amongst each other). The Banks (or the Government ) did not want the public also competing for physical gold, especially given the fact that it was the hoarding of gold (by the public), or the shortage of gold within the banking system causing the banking collapse.

The public took the bullet for the banking system since one could no longer hoard gold or hold gold within the banking system. Eventually the public also took another hit when the federal reserve notes were actually devalued from 1/20.67 of a gold ounce to 1/35 of a gold ounce.

The current system will follow a similar fate if the decline in bank deposits continue (which it likely will). However, this time it will not be gold per se that will be confiscated to bring this about, but cash (paper currency).

This is because today cash (not bank credits or digits) is the means by which banks ultimately settle liabilities and obligations (especially amongst each other).

So, they will likely devise a means by which the public will no longer be able to compete for the cash resources against banks that are struggling to stay afloat; and in this way attempt to “arrest” the banking crisis. This of course means it is likely to be in the form of an increasingly cashless society by enforcing their digital currencies (CBDC’s), limiting cash withdrawals or even outlawing cash completely.

The public will again take the bullet for the banking system, since freedom and relative independence will be completely gone when those CBDC’s replace cash. Whether this will actually be successful is another story for another time.

The US dollar will also be devalued during the crisis (whether by market forces or decree by means of digital reset) against gold (certainly) and other worthy assets. Naturally this will of course be a hit the public will take, unless they are able to get their wealth outside of the banking system.

In summary, if you have assets in the banking system you will lose some of it or all of it as this banking crisis continues to unfold. Just like like during the Great Depression, the system will likely not allow a means to protect you from losses that results from the actions that will be taken to “safeguard” the system.

Despite many uncertainties, it is certain that gold and silver will have value after the system collapse, and they remain the best means to preserve wealth through this crisis. In fact there will be no successful and worthy system without gold and silver as foundation, in my opinion.

A debt-based monetary system was always going to collapse, and the current one is no exception. Recently I did a piece on how silver could be the major indicator for the coming monetary reset, and that showed another important confirmation that we are really close.

Previously, I have presented the following to show how we could be close to major financial/monetary crisis. The chart shows the ratio of the gold price to the monetary base :

The chart shows the ratio of the gold price to the St. Louis Adjusted Monetary Base back to 1918. That is the gold price in US dollars divided by the St. Louis Adjusted Monetary Base in billions of US dollars. (from macrotrends.com)

More details about the chart and original commentary here.

On the chart, I have indicated the three red points (a) where the Dow/Gold ratio peaked. These all came after a period of credit extension, which effectively put downward pressure on the gold price.

Points 2 (green) were placed just to show the similarities of the three patterns. After the peak in the Dow/Gold ratio and point 2, the Gold/Monetary Base chart made a bottom at point 3 (green) on each pattern.

It is at these points that the monetary base could not expand relatively faster than the gold price increased.

The most recent point 3 was effectively in during November of 2015, with a bottom retest (slightly higher than the 2015 - level) occurring in August of 2021 (not shown on chart since the chart only goes up to 2020). Since we are now past point 3 on the current pattern, we are certainly in the major crisis zone.

In 1933, after point 3 was in, the gold confiscation order was passed (at point b: about 4 months after point 3) . This came about due to the pressure to fulfill gold obligations. This was confirmed later by Roosevelt when he justified Gold Reserve Act 1934 by saying that, “Since there was not enough gold to pay all holders of gold obligations, . . . the federal government should expropriate and keep all of the gold”. Remember, today this could mean cash as it relates to the banking system.

Again in 1971, after the relevant point 3, due to being unable to cover all the foreign holdings of US dollars with the related amount of gold, the US suspended (really ended) the convertibility of the US dollar into gold, on 13 August 1971 (at point b: a year after point 3). Today, this means a devaluation of the US dollar.

Now, we are possibly close to point b, where a major monetary event could happen. Note that if we take the retest of the bottom (which was in August 2021) for point 3, then we are now about 9 months after point 3.

If you would like to see more of this kind of analysis, then you can subscribe to my blog.

I also have a Premium Service as well as a Silver Long-term Fractal Analysis Report that provides more insight regarding the gold and silver markets.

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Hubert Moolman is a self-taught gold and silver analyst who writes a precious metals newsletter specializing in fractal chart analysis and monetary fundamentals (especially gold and silver). He has a background as a Chartered Accountant, and managed his own firm for 9 years. He also has a website that publishes educational articles on gold, silver and the dangers of fiat money. 


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