The US Economy Is One Bank Run Away From Disaster
By Michael Snyder/Economic Collapse Blog November 10, 2023
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Our economy runs on credit, and our banks are the beating heart of that system. Without healthy banks, how would Americans buy homes, purchase vehicles or get credit cards? The way that our system is currently constructed, it is absolutely imperative for our banks to function properly.
Unfortunately, the truth is that our banks have gotten into deep financial trouble. They are sitting on hundreds of billions of dollars in unrealized losses, and the primary reason why those losses have become so large is because we have witnessed a historic bond market crash over the past several years...
Treasury bonds -- debt instruments the government issues to fund its spending -- have been on a nightmarish run since the onset of the pandemic, with investors fretting about rising interest rates and the long-term viability of the US's massive deficit.
BlackRock's iShares 20+ Year Treasury fund, which tracks longer-duration debt prices, has plunged 48% since April 2020.
Thanks to that historic bond market crash, our financial institutions were sitting on 650 billion dollars in unrealized losses as of September 30th...
As a result of that sell-off, some of the US's biggest banks are now sitting on unrealized, or "paper," losses worth hundreds of billions of dollars. That means the value of their bond holdings has plunged, but they've chosen to hold on rather than offload their investments.
Moody's estimated last month that US financial institutions had racked up $650 billion worth of paper losses on their portfolios by September 30 -- up 15% from June 30. The ratings agency's data still doesn't account for a hellish October where the longer-term collapse in bond prices spiraled into one of the worst routs in market history.
Go back and read that last sentence again.
After what we witnessed during the month of October, what is the real number now?
Has it surpassed 700 billion dollars?
Has it surpassed 800 billion dollars?
Nobody really knows.
However, what we do know is that we have never seen anything like this before.
The good news is that there won't be a major problem in the short term unless there is a run on the banks.
But if there is a run on the banks, the banks that are affected will need to start selling off their bonds at a huge loss, and that would be a nightmare...
While they are generally purchased and intended to be held until they mature, if banks experience a surge of withdrawals - a run on the bank - they may need to sell them. That is what happened to Silicon Valley Bank earlier this year.
The bank was forced to sell those bonds as its depositors sought to withdraw funds.
So as long as everyone has faith in the banks, things won't get too crazy.
Hopefully that will remain the case for quite a while, because right now our largest banks are a ticking time bomb...
Bank of America is the big lender worst affected by the crash in bond prices, having disclosed a potential $130 billion hole in its balance sheet last month.
The other "Big Four" banks -- Citigroup, JPMorgan Chase, and Wells Fargo -- have also racked up unrealized losses in the tens of billions, according to their second- and third-quarter earnings reports.
Just a few days ago, we witnessed the sixth bank failure this year.
The combined assets of those six banks actually exceed the combined assets of the 25 banks that failed in 2oo8.
And as James Rickards has aptly noted, more bank failures are coming...
I warned in March that the failure of Silicon Valley Bank would be just the start. Now we've had five additional bank failures.
And this latest failure won't be the last.
Veterans of such crises (and I include myself in that category) know that once the dominoes start falling, they keep falling until some government intervention of a particularly draconian kind is imposed.
Meanwhile, the overall economy continues to steadily deteriorate.
BofA's Michael Hartnett noted that "the CBO projects that US government debt will rise by $20 trillion next 10 years, or $5.2 billion every day or $218 million every hour!"
Estimated annualized interest payments on the US government debt climbed past $1 trillion at the end of last month, Bloomberg analysis shows. That projected amount has doubled in the past 19 months from the equivalent figure forecast around the time.
Credit card debt climbed to a record high in the third quarter of 2023, surging nearly 5% from the previous quarter and leaving a growing share of borrowers late on payments, a Federal Reserve report this week showed.
According to Challenger, Gray & Christmas, the number of retail layoffs has jumped 258 percent compared to the same time period last year...
Amid the early holiday shopping season, retailers have cut 72,182 jobs through October, a 258% increase from the 20,191 jobs eliminated in 2022, according to a new report from Challenger, Gray & Christmas. This marks the most significant number of job cuts since retailers cut 179,520 jobs in October 2020.
Over the past few years, economic conditions have just gotten harsher and harsher.
It has been a slow, steady slide that now threatens to turn into an avalanche.
According to a new poll that was just conducted by Bankrate, the American people don't feel too good about the economic changes that we have witnessed since Joe Biden entered the White House...
A new survey published by Bankrate on Wednesday shows that 50% of Americans say their financial situation has gotten worse since the 2020 presidential election. By comparison, just 21% think their financial situation has improved, while 26% believe it is unchanged.
"The plight of the economy over the next 12 months may help to dictate whether it was wise, or not, for President Biden to trumpet the branding of 'Bidenomics,'" said Mark Hamrick, senior economic analyst at Bankrate.
Among Americans who are feeling pessimistic about their financial outlook, about half -- 45% -- blame Biden and his economic policies. Another 35% think that Congress is responsible, while 27% identified the Federal Reserve as the culprit.
But as bad as things are right now, the truth is that what we are experiencing at this moment will be considered rip-roaring prosperity compared to what is coming.
We are on the brink of an economic shaking that will be unlike anything that our nation has ever seen before.
America is literally drowning in debt, the value of our currency is being destroyed, and now our financial system stands of the brink of an unprecedented crisis.
So I hope that you are prepared for what is coming next.
Originally published at The Economic Collapse Blog - reposted with permission.
