Have you ever been to a magic show or at least seen some of the amazing tricks on TV?

When I watch a talented magician I feel like I am like a caveman seeing fire for the first time, jumping around in awe of what has just transpired in front of my face.

This is how I am feeling right now with the regulatory changes that are being proposed right under our noses. Even though they are stating officially that quantitative easing (QE) is over they are making drastic changes to allow the “money printer” continue to flow.

The International Swaps and Derivatives Association (ISDA) recently proposed a change in the bank leverage SLR ratio formula. Essentially this is used to regulate banks and how much tier 1 capital i.e. cash and equity they must hold relative to the assets on their books or in other words their leveraged exposure.

Well the ISDA proposed change to the formula is to exclude the United States Treasuries from this calculation for banks.

So for example you put $100,000 in the bank and typically they lend about 10+ times the amount so $1M would go out in loans in the form of mortgages, credit cards, auto loans etc. Well with this change they wouldn’t have to include treasuries on their balance sheet essentially leaving a larger availability to make more and more loans and thus less liquid assets in reserves.

This proposal is ringing alarm bells in the banking system and the confidence of the US Government debt.

This isn’t just a small change, this could have a huge impact. By excluding treasuries it would incentivize banks to purchase more of treasuries putting them on their balance sheets so that they could lend more money with less liquid assets on their books.

To me this is a financial magician show. This regulatory change is using sleight of hand letting the Federal Reserve save face stating that they are still tightening to “fight inflation” only to have the treasury and the banks flood the market with more money printing.

What does this mean to you and I?

First, the risk factor of leaving large parts of your retirement in cash or CDs at the bank will increase significantly, since this change could lead to more bank failures.

Second, we will continue to have more and more inflation eroding the purchasing power of our dollars, since more debt will create more money supply.

Third, we will see more violent swings in market volatility due to increasing liquidity and pull backs.

This is another reason why Nobel prize winning economist Bill Sharpe expressed in our documentary, “the individual’s decumulation phase…is the nastiest, hardest problem I’ve ever looked at.”

Can you imagine that… out of all the economic thesis, modeling, and research…the retirement phase is the most difficult in Bill’s opinion.

Our economic environment continues to get more and more treacherous and now is NOT the time to stick your head in the sand.

If you need someone to walk with you through this journey, I urge you to get on our calendar and see how we might help.

Until then, enjoy the “magic” show.