The Unique Property
The Coming Banking Collapse
The Fed admitted a month or so ago that it's losses on it's bond
holdings and agency debt were $330 billion. That's quite a lot
of a sudden dent, especially as their balance sheet equity
equals $50 billion. Those figures were for march, but since then
bond yields have risen further, which means their value has
fallen, so it would seem the Fed is in a hole to the tune of
nearly half a trillion dollars. That's T for trillion. So it is
Of course, the Fed can refinance itself by lending money to the
government, and the government can then apply those funds back
onto the Fed's balance sheet. A wonderfully useful con, of
course. We can't do that, but the government can. But it is also
akin to the emperor's clothes. He isn't wearing any, and the Fed
isn't really kidding anyone that it has some useful assets. We
are just waiting for the equivalent of the little boy shouting
out that the emperor is actually in the altogether.
But what about Japan?
Their banks asset to equity ratio is such that a further slide
in the value of their assets will push them under. With raging
inflation and assets invested in bonds their value is steadily
sinking, so these banks are not in any way stable.
Basically the investments are all in financial assets so a few
more tanking financial stocks takes these banks further and
further into a black hole.
The Bank of Japan is also, because of its decades-long QE,
holding tanking equities, and a short while ago is debts
exceeded its equity by some 150,000 times. That's a fairy tale
figure bearing no relation to sense.
Of course the Japanese central bank can recapitalise itself in
the same way as the Fed, but unless it does so pretty soon how
is it going to backstop those bankrupt commercial banks? And as
bond yields rise, so it sinks further and further into what
appears to be a bottomless pit.
The figures for banks in the euro zone are almost as bad. For
instance, Société General's price is at a discount of 30% to its
book value, while the figure for Credit Agricole is 80%. How can
they raise money in these circumstances?
The ECB is in a worse position. It has been buying bonds like
there's no tomorrow, and those prices have fallen quite
substantially. Probably in the region of about 35% of face
The ECB cant recapitalise itself as it has no government to turn
to. Its shareholders are the national central banks, which are
all already under water for the same reasons. So why would the
Bundesbank for instance want to recapitalise the ECB when under
the T2 system it is already owed €1.2 trillion, which it will
never be paid.
The financial powerhouse of the EU is Germany where producer
prices have risen by 30% and look to be going higher, and the
economy is collapsing, so where does the euro go from here?
At some stage the financial system locks up, and markets shut
down. That cant be all that far away. If you've got more than
£5k on deposit in a bank, you may well find that money is used
to prop up what is left of the banking system. We are looking at
what happened a decade ago in Greece and Cyprus, but on a far
Next week I'll make a few suggestions as to what you need to do
to be prepared.