The Fed announced a series of three “expedited procedure, closed” meetings Monday thru Wednesday this week: FRB Board Meetings. The Monday meeting was allegedly “a review and determination by the Board of Governors” of the advance and discount rates charged by the Fed. This is somewhat an absurd waste of time as both of those bank funding mechanisms have become antiquated and rarely used. The discount window collects dust until a specific bank’s credit profile has collapsed to an extent that prevents it from accessing the interbank-lending market. It’s seen as an act of desperation. It’s doubtful that the meeting was convened to discuss the discount rate.
The announced subject matter of the two subsequent meetings are perhaps of more interest: “bank supervisory matter” (Tuesday) and “periodic briefing and discussion on financial markets, institutions, and infrastructure” (Wednesday).
I find the latter two topics in the context of the fact that it appears that the European banking system – to which the U.S. Too Big To Fail Banks are inextricably tied – appears to be melting down.
For me the “tell tale” for the western financial system is Deutsche Bank. Deutsche Bank has emerged as a “rogue” bank of sorts that had taken on a catastrophic amount of reckless credit market risks. Nothwithstanding its literal financial nuclear portfolio of derivatives, DB thrust its balance sheet into every sector of the global economic system that has been melting down over the past 12-24 months...The trading action in DB’s stock price has been unable to mask the underlying melt-down going on at the Company:
I would suggest, and have been suggesting, that there’s been a series of mini-melt downs that have been occurring in the western financial system since late last summer. I also have written analysis which has connected these melt-downs to Deutsche Bank and has connected the “stick saves” in the markets to the Fed.
It’s my view that the Fed has been conducting an ongoing de facto bailout of Deutsche Bank since mid-summer, using the balance sheets of Citi, Goldman and JP Morgan as its proxies. In the context of the behavior of DB’s stock recently, and in the contex of what is now blatant market intervention in the stock market by the Fed, and in the context of the news of the bank bail-in Austria plus the collapsing Italian banks,
I would suggest that “expedited rule, closed door” meetings held by the Fed this were convened in order to discuss the a western financial system which is obviously beginning collapse again.
During a depression, government usually does very well, at least it has since 1900. In some cases it grows even more than the booming parts of the country. Since the 1930s government at all levels, but especially at the federal level, grew to a previously unknown size.
Because a depression develops gradually, people don’t realize it is upon them for some time, even years. Hardships filter through the levels of society at different rates. Certain sectors and regions feel the effects almost immediately, while others take longer, or never feel them at all. There is usually very little use of the term ‘economic depression’ in the press, and there is no definition circulated among economists or politicians to make it a topic of discussion. At best, media may focus on symptoms during an economic storm, occasionally pointing a finger of blame at a target of choice.
This vagueness has made it impossible in the past to turn to a specific date or event to mark the beginning of a depression. The depression of the 1930s, for example, did not begin with the stock market crash of 1929. The crash affected the financial centers of the country in a splashy but minimalistic way during 1929 and 1930, while affecting the rest of the country hardly at all. The depression of the 1930s did not begin with the Smoot-Hawley Tariff of 1930. It did not begin with the Great Contraction by the Federal Reserve in 1931. It did not begin with the election of the new administration in 1932, and no one can say decisively when it ended. There are many explanations of why the depression of the 1930s ended, and some maintain that it never ended at all.
But look around, and you will see, if you look past the clutter, that all of the indications of major depressions of the past are present in the United States today. Over the past two years, I have traveled our highways and byways from coast to coast three times, and from south to north twice more. I have been off the beaten track in 30 states, observing carefully, noting, watching for signs of boom and bust. Those signs are clearly visible all across the country.
One of the easiest ways to spot the failure to thrive is in strip malls and plaza shopping centers. It’s easy to find empty commercial property now. Depending on the surrounding area, vacancy rates of 10-40% are common. Some plazas are completely closed except for a lingering restaurant or deep discount store. Enclosed malls have higher than average rates of turnover, but they often dress up closed stores with snazzy ‘coming soon’ fronts. Dozens of major chains have closed hundreds of stores over the past few years as sales shifts and reduced purchasing power have taken their toll. Even perennially powerful restaurant franchises show the damage. Burger King, Taco Bell, and even McDonald’s have closed stores that once thrived. Supermarkets sit empty in many areas across the country. Even along the interstate system, service stations struggle to maintain the appearance of success at some interchanges, while others seem to have all the business. Posh housing developments in popular retirement areas sit with their gates complete, but their weedy lots remain idle.
Now compare these features of what most everyone considers the worst economic downturn in American history, the “Great Depression” of the 1930s, to the present day. Vast programs now exist to provide support for those in poverty, and they have been growing since the 1960s.
Today, 45 million recipients use food stamps to help feed themselves and their families. Five million receive rent subsidies through HUD grants. Social Security old age, survivor, and disability payments are paid each month to nearly 60 million individuals. These did not exist in the 1930s. Try to imagine the visual impact of seeing these 110 million individuals on the streets, looking for food or a place to stay for the night. Support programs don’t mean that there’s no depression, they serve instead to mask the depth of the crisis we’re in, to hide it from us.
Yet another reason why taxes are going up, cities and states are going broke, and the world is approaching financial implosion…
As if the world needed another dangerous and volatile factor in the mix of looming economic downturn.
Unfunded liabilities for pensions have been a problem for a while now, but as investors continue to face fleeting returns, many states and cities are facing the music… and when it stops, there won’t be enough money to go around.
Someone will lose their savings, their standard of living, their retirement and maybe their future. Others will be taxed to death to clean up the mess of the many places were the system is cracked, fissured and falling apart.
The US public pension system has developed a $3.4tn funding hole that will pile pressure on cities and states to cut spending or raise taxes to avoid Detroit-style bankruptcies.
Large pension shortfalls have already played a role in driving several US cities, including Detroit in Michigan and San Bernardino in California, to file for bankruptcy. The fear is other cities will soon become insolvent due to the size of their pension deficits.
The inevitable result is, of course, tax increases and spending cuts – potentially on important and vital services.
Olivia Mitchell, a professor at the Wharton School at the University of Pennsylvania said: “I do believe that US cities and towns will continue to suffer, and there will be additional bankruptcies following the examples of Detroit,” she said.
The reports may be exaggerated but not the crisis-like feel of the meetings. This was reportedly a first: having the president and VP meeting directly with the Fed head. Does it have something to do with the “survival of the government” at a time when the US banking system may be facing a general default? According to some reports: “Members of the House and Senate are said to have been ‘up all night’ in discussions and meetings; with floods of phone calls back and forth. ”
There’s South America’s largest country, Brazil. It has the seventh largest economy in the world but these days it is mired in what’s been called a “depression.” Employment has cratered and price inflation keeps rising, bringing people out onto the streets in huge protests. Meanwhile, the huge corruption scandal having to do with Petrobas has sent many pols to jail and may soon claim the president who is facing impeachment.
In Venezuela, where I just visited (and barely survived), to see hyperinflation in person the country is on the brink, pushed to the edge by the oil price collapse. People carry around backpacks full of Bolivars to get through the day. The murder rate in Caracas is so bad that people don’t go out at night. The morgues are full. The streets are empty.
Austria just made a historical first with its first bank “bail-in” amidst hurried meetings in Europe. The failed Hypo Alpe Adria bank – the Heta Asset Resolution AG – was forced by creditors into an involuntary “bail-in” after an $8.5 billion capital hole in its balance sheet became apparent. Austria is the first to use a new law now part of the European Bank Recovery and Resolution Directive to share losses of a failed bank with senior creditors as a way to slash bank debt. It won’t work though. This will see investors piling out of bank stocks which, in itself, can cause the bank to fail. And once that happens, then the Cyprus-style depositor bail-ins begin.
Italy is having its own banking crisis – actually one that has been dragging on for years and is reaching its ultimate conclusion. On Monday, Italy’s finance minister Pier Carlo Padoan presided over a meeting in Rome with bank officials from Italy’s largest financial institutions to finalize a “last resort” bailout plan. Yet immediately afterward came reports it might not be enough to stop the slide of one of Italy’s large banks, Monte dei Paschi di Siena, into the kind of insolvency faced by Italy’s smaller banks. There are reports Italy has been hit by bank runs, and this latest news won’t do anything to calm jitters.
Italy has bank woes but meanwhile, various banks have equity woes. Rumors are swirling around the solvency of Deutschebank in Germany, which has seen its stock crash near lows that were last seen all the way back in March 2009. Credit Suisse and RBS have crashed as well.
And, in Germany, I have high level information that I can’t even release publicly (but I will tell TDV subscribers in our next issue coming out this week – subscribe here). The reason I can’t (or won’t) release this information publicly is that it could cause mass pandemonium in Germany, and throughout the EU, if this information were known. Yes, it’s that bad.
Meanwhile, in China, as part of a secret G20 deal in February, Mario Draghi of the European Central Bank along with Janet Yellen and other central bankers slowed easing so that the yuan could devalue faster than would otherwise have been the case. Perhaps this has “helped” China’s industrial exports, but not enough. A noted Chinese economist has just estimated that China would have to debase the yuan by nearly 15 percent, immediately, to bring some semblance of order back to the economy.
As it is, the world is in an increasingly untenable state and the US, supposedly the world’s strongest economy, may be leading the way. The US Government (Un)Accountability Office just announced that debt was hitting levels not seen since the end of World War II: “We’re going to owe more than our entire economy is producing and by definition this is not sustainable,” the auditor pointed out in a Congressional hearing.
Things are happening fast now and you won’t find out what is happening until it is too late on your mainstream television programming or from the great majority of financial advisors who work for (and take direction from) the very system that is orchestrating this collapse.
Janet Yellen, Barack Obama, and most other central bankers and finance ministers from around the world are behind closed doors preparing for something. Do you think it is for the good of the people? If so, it’ll be a first.
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