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Coming Soon: Banking Crisis of Historic Proportions

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  • Coming Soon: Banking Crisis of Historic Proportions

    http://seekingalpha.com/article/1562...hp_mostpopular

    With everyone (well, almost everyone - I am one of the lonely skeptics) convinced that we have stepped back from the "edge of the abyss", the title of this article may be viewed as laughable. When you connect the dots, as I will in this article, you will at least stop laughing, and, maybe, realize that we still have a big problem.
    We have a confluence of five factors that have the potential to create damage to banking not seen in 80 years, and that includes the Great Depression. We'll hit these factors one at a time.
    First Factor: Banks Are Not Doing Enough Business

    Commercial bank credit growth has dropped to 2%, according to Jesse's Cafe Americain (here). The recent history of credit growth is shown in the following graph.

    Now, it is a good thing that banks are conserving capital, since they need to increase capital to offset bad loans.
    But, if asset valuations deteriorate (and that is quite possible), the banks need to increase earnings to "earn their way" out of their problem. Interest paid by the Fed for reserves on deposit there (by the commercial banks) are not producing nearly the same level of income as new credit issued commercially under our fractional reserve banking system with much higher interest .
    If credit issuance does not increase year over year, banks can not improve their financial condition unless the quality of their existing loan portfolio improves.
    As discussed in the third factor, below, just the opposite is anticipated for loan portfolios.
    So the first factor in this perfect storm is that the banks are not doing enough business.
    Second Factor: Banks Are Failing at a Rate Not Anticipated Two Months Ago

    In his article, Jesse mentions reports by Bloomberg that 150 banks are in trouble. Some of these will be larger than many of the 77 (mostly community) banks that have gone under FDIC receivership so far in 2009.
    Banks mentioned as being in trouble by Bloomberg (here) include Wisconsin’s Marshall & Ilsley Corp. (MI), Georgia’s Synovus Financial Corp. (SNV), Michigan’s Flagstar Bancorp (FBC), Chicago-based Corus Bankshares Inc. (CORS), Austin-based Guaranty Financial Group Inc (GFG), and Colonial BancGroup Inc. (CNB) in Montgomery, Alabama.
    These six banks became five at the close of business Friday, Aug. 14, as Colonial BancGroup was taken over by the State of Alabama and the FDIC. This was the largest bank failure since IndyMac Bank went under in the summer of 2008.
    The following table shows some data regarding the six banks singled out by name in the Bloomberg article.

    On July 5, Bill Cassill wrote (here) that he projected 125 bank failures for 2009 and 230 in 2010.
    However, as of that date, Bill projected 82 closings by 9/30 and we have already reached 77 on 8/14. We still have half the quarter to go. With the 150 additional banks estimated by the Bloomberg article, and the 77 already closed thus far this year, we could be closer to 230 closings in 2009 than the 125 estimated just six weeks ago. Bill is not alone. I recall hearing other estimates of bank failures for 2009 of the order of 100 for the entire year.
    The following graph (and the prediction below it) was provided on July 12 (here) by Colin Peterson.
    How is Colin's prediction doing? The following graph shows how bank failure rates have been trending.

    Give Colin the handicapper award here. Not only have bank failure rates spiked, the current annualized rate would be in a virtual three-way tie for second highest in history if maintained for another nine months.
    And a lot of the banks going under are a lot larger than the average savings and loan in the previous crisis.
    According to About.com (here): Between 1986-1995, over 1,000 banks with total assets of over $500 billion failed. Even if the current crisis falls far short of the 1,000 bank total, the total assets involved will still be vastly larger. Just in the failures of Wachovia Bank and Washington Mutual, the total assets were $619 billion. Add to that the IndyMac failure and the six banks in the troubled list above and there is another $164 billion.
    And I am not even mentioning the shadow banks (Merrill, Bear Stearns, Lehman and AIG are examples), which add hundreds of billions more.
    There should be no false comfort taken in the prospect that we may have far fewer bank failures this time compared to the S&L crisis. The dollar amounts are likely to be many times larger.
    Third Factor: Defaults Are Going to Increase for Several More Quarters

    With home mortgage foreclosure rates remaining very high (and possibly increasing) and with the bulk of the commercial real estate defaults yet to come, the failure rate of banks is likely to increase further in the next nine to twelve months, not decline. The situation will be compounded if commercial and industrial (C&I) loans also default at higher rates because of a weak or non-existent recovery.
    Reading some of the latest quarterly reports for a number of banks, C&I loan portfolios have generally been performing better than many other categories, but will that continue?
    A reference for this subject is a Jeffrey Bernstein article published in late May entitled "C&I Loans Are Starting to Unravel" (here), which discussed the status of a wide variety of loan portfolio categories. C&I defaults may, at this time, be like an iceberg, with 90%+ still not visible above water.
    Default rates in all credit areas have started to rise, although some have yet to reach levels of other recent recessions (see Bernstein article here). Residential mortgage defaults have been the elephant in the room. We have to continue to worry that problem may increase further, but we better also worry about all the baby elephants.
    We may have "saved the financial system", but it seems likely that we will lose banks at levels far exceeding anything seen in our history. Even if we fall short in number of the approximately 1,000 S&Ls, the assets involved will be much larger.
    We need one hell of a recovery here to prevent disaster. Muddle through will not do it. A return to 3% GDP growth may not do it. We need a couple of years at 4% (or higher) GDP growth to have any chance that some of these banks can earn their way out of the quagmire.
    I don't think that type of economic growth can be realized. It certainly is not going to happen if commercial bank credit growth doesn't expand drastically and quickly.
    Fourth Factor: The FDIC Is in Trouble

    Rolfe Winkler (here) points out that the accelerating rate of bank failures may exhaust the Deposit Insurance Fund (DIF) at the FDIC, requiring that agency to draw on its credit line with the Fed. Rolfe calculates that the FDIC is currently on the hook for $8.3 trillion in insured deposits, had only $41.5 billion in reserves as of March 31 and has drawn that lower since.
    Since only a small portion of deposits actually are paid out of DIF (failed banks have assets that cover most deposits), FDIC needs only a small fraction of covered deposits in reserve.
    However, less than 0.05% is most likely several fold too small in a distressed banking system. The section title says the FDIC is in trouble. That is a polite way of saying they are bankrupt.
    Fifth Factor: We May Be Going to Historic Lows in Bank Credit

    Because we are approaching the one year anniversary of a growth spike in bank credit in September, 2008 (see the first graph in this article), there is likely to be continued pressure on the year-over-year growth rate. The year over year growth of credit may be driven much lower than the current 2% within the next couple months due to the negative effect on comparison due to the spike a year earlier.
    As shown below, this would be an historic low.
    There is one possible piece of good news here. Looking at a longer history from the Fed FRED data base (here), the current situation is similar to those seen after the end of the recessions of 1973-75, 1990-91, and 2001. A similar minimum was also reached in 1997.
    It should be noted that several minima in commercial bank credit have occurred that were not associated with the end of a recession. This indicates there are non-recessionary factors related to dips in commercial credit.
    All recessions have dips in commercial bank credit, but all dips in commerical bank credit are not associated with recessions.

    This time, the minimum may not have been reached yet because of the spike in credit volume in September, 2008 (mentioned above). If September 2009 does see a minimum in commercial bank credit, this would be another sign that the recession probably ended earlier in the year.
    However, the banks need far more than an end to the recession; they need a recovery of unlikely proportions.
    One cautionary note: Although the minimum was much higher in the 1981-82 recession, the lowest point occurred about a year before the recession actually ended. That could always happen again.
    Is There Any Hope?

    Well, since so many people are predicting a weak recovery, that has a good chance of not happening, based on the observation that, in economic matters, agreement by a majority is often wrong. So, if the majority is wrong, which way do you think things will go? Back into recession? The robust recovery predicted by only a few?
    I'll leave a definitive answer to the reader - after all I can't do all the work. I'll just share my bias, based on all the factors I can collect: An advance in real GDP of 4-5% in 2010 and 2011 (2-2.5% per year) seems to me to be the very best that might be obtained, but less is more likely.
    Without a strong recovery, there is little hope of a good outcome for the non-oligarchy banks. With a return to recession, in 2010 (and possibly 2011 and 2012) there could be carnage in regional and local banks not seen since the early 1900s, and maybe even worse than what occurred then.
    I hope we don't have to compare what happens in 2010 to 1873.
    The banking crisis of 1873 started what has been called "The Long Depression". This consisted of a period of rolling recessions that continued for almost 40 years and included additional banking crises in 1893 and 1907. This long period of economic and financial turmoil was a major motivator in the formation of the Federal Reserve Bank. The Fed was the first true central national bank for the U.S. since the dissolution of the Second Bank of the United States in 1837 by Andrew Jackson.

  • #2
    Re: Coming Soon: Banking Crisis of Historic Proportions

    Wow great find thanks

    Comment


    • #3
      Re: Coming Soon: Banking Crisis of Historic Proportions

      Banks paying customers ZERO and then making investments at the Federal Reserve Bank that pay 4 or 5%, maybe even more? If a banker can't make money now for their bank, he/she should go to work in a cannery in California packing fruits, or picking fruits in the fields.

      Banks are drowning in income, and they will grow their way out of their past bad loans. This is the Bernanke plan..... Sorry, both Greenspan and Bernanke drempt-up this stupid zero interest rate policy together.

      Yes, this will probably have a bad ending, but as usual with the Federal Reserve, they live by the words of John Maynard Keynes: "In the end, we are all dead."

      Yes, there will probably be a bigger bust than before the Fed stepped-in to rescue the world economy, but don't ever discuss common-sense with the Federal Reserve Bank of the United States, or with any central bank on Earth.

      Digging a deeper debt-hole to dig-out? That is their plan, and it always has been... Doing more of what didn't work, never worked, because it ought to work in theory? That is their plan.

      Punish savers and reward spenders.... This is their plan, and it always has been. Hence, I call Bernanke, "the putz from Princeton".

      Where are the new hydro-electric dams? Where are the new atomic power plants? Where are the new oil discoveries? Why aren't the Great Lakes now being re-dredged to the standards of modern ocean-going ships? Why not natural gas and central heating for homes in British Columbia? Why not de-salinization of sea-water for California and Mexico?

      Hence, I say again: "the putz from Princeton" because there is no wealth being created in Bernanke's strategy of spending money and running-up deficits..... Nothing to back the new currency with, just inflation.

      And it was Ronald Reagan who appointed Greenspan to the Fed, and George Bush Jr. who appointed Bernanke to the Fed. And Carney from Goldman-Sachs in New York City was picked by Bernanke to head the Bank of Canada.

      Median salary for bank executives in the U.S. under Bernanke: >$700,000 per year. But that's for another discussion.

      Every professor teaching this Keynsian-crap as economics should be working in the fields of California picking fruit. That would help clear their minds and maybe clean-up the economics profession.
      Last edited by Starving Steve; August 17, 2009, 07:57 PM.

      Comment


      • #4
        Re: Coming Soon: Banking Crisis of Historic Proportions

        Camtender,

        Okay, seems I've been unmasked (sort of). Never thought I'd see my name in print on this web site. Just glad that someone thought the article I wrote up was of interest. One thing given the increased number of failures that folks might be interested in here is another piece of work that I've done on predicting banks that fail using the quarterly SDI information from the FDIC. Being a statistician by trade, I thought it might be a fun exercise given the current environment we're in. Anyhow, interestingly enough ALL of the large banks (i.e. Chase, Citi, Wells, BofA) floated into the top 10% of institutions most likely to be put into receivership. I'll put a brief posting up on it if anyone is truly interested that shows the method and the results.

        Regards,

        Bill

        BTW: Starving Steve, noticed on an earlier post you're over in East Sooke, BC. I had the family over a couple of years back to Victoria and we went on a little trip to go visit the Pot Holes. We never quite made it but ended up in East Sooke instead. Very nice area.

        Comment


        • #5
          Re: Coming Soon: Banking Crisis of Historic Proportions

          Originally posted by bcassill View Post
          Camtender,

          Okay, seems I've been unmasked (sort of). Never thought I'd see my name in print on this web site. Just glad that someone thought the article I wrote up was of interest. One thing given the increased number of failures that folks might be interested in here is another piece of work that I've done on predicting banks that fail using the quarterly SDI information from the FDIC. Being a statistician by trade, I thought it might be a fun exercise given the current environment we're in. Anyhow, interestingly enough ALL of the large banks (i.e. Chase, Citi, Wells, BofA) floated into the top 10% of institutions most likely to be put into receivership. I'll put a brief posting up on it if anyone is truly interested that shows the method and the results.

          Regards,

          Bill

          BTW: Starving Steve, noticed on an earlier post you're over in East Sooke, BC. I had the family over a couple of years back to Victoria and we went on a little trip to go visit the Pot Holes. We never quite made it but ended up in East Sooke instead. Very nice area.
          Hi, Bill. Here's our forecast:
          Ready for an epidemic of bank failures?

          Even if, as we expect, another 900 or so banks fail over the next two or three years, the Treasury Department can move hundreds of billions to the FDIC, for all practical purposes an account of the Treasury Department.


          Catch the Wave: Nonperforming loans are rising at alarming rates for all sizes of bank, large and small

          Comparing the 1990/1991 banking crisis to the one that is developing:1990/1991 Banking Crisis
          1) Non-performing loans diverged by size of bank, with the biggest banks had the largest problems
          2) As the crisis deepened, the four bank classifications by size experienced non-performing loans in a wide distribution from 2.7% to 5.7%
          3) The rate of increase in nonperforming loans ranged from slow for smaller banks to rapid for medium sized banks

          2008/2011 Banking Crisis
          1) Non-performing loans do not diverge by size of bank as banks are experiencing a rapid rise in non-performing loans
          2) The four bank classifications by size experienced non-performing loans in a narrow distribution clustered between 3% to 3.9% as of Q1 2009, and rising rapidly together
          3) The rate of increase in nonperforming loans for all banks regardless of size is deteriorating through the depression in near lock step

          What is obvious to even the most naive observer that the management of all of these banks, regardless of size, all did the same stupid things together. Now they are all going down together.

          We estimate banks will continue to fail through the end of 2011, that more than 1,000 will fail representing a total asset loss of $900B, based on RBS estimates, information from contacts at the FDIC, and our own calculations.
          From: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen


          Ed.

          Comment


          • #6
            Re: Coming Soon: Banking Crisis of Historic Proportions

            Originally posted by bcassill View Post
            Camtender,

            Okay, seems I've been unmasked (sort of). Never thought I'd see my name in print on this web site. Just glad that someone thought the article I wrote up was of interest. One thing given the increased number of failures that folks might be interested in here is another piece of work that I've done on predicting banks that fail using the quarterly SDI information from the FDIC. Being a statistician by trade, I thought it might be a fun exercise given the current environment we're in. Anyhow, interestingly enough ALL of the large banks (i.e. Chase, Citi, Wells, BofA) floated into the top 10% of institutions most likely to be put into receivership. I'll put a brief posting up on it if anyone is truly interested that shows the method and the results.

            Regards,

            Bill
            Please do!


            Originally posted by bcassill View Post
            BTW: Starving Steve, noticed on an earlier post you're over in East Sooke, BC. I had the family over a couple of years back to Victoria and we went on a little trip to go visit the Pot Holes. We never quite made it but ended up in East Sooke instead. Very nice area.
            Apparently it would be much nicer for Steve if he had a natural gas pipe to his lot line. Why he continues to live there, with all his complaints is a mystery to us. Besides all those big trees out there just get in the way of the views...

            Comment


            • #7
              Re: Coming Soon: Banking Crisis of Historic Proportions

              Yes, I do miss Alberta, even with all of the ugly power-trails and gas well flare-offs.

              Comment


              • #8
                Re: Coming Soon: Banking Crisis of Historic Proportions

                Originally posted by Starving Steve View Post
                Yes, I do miss Alberta, even with all of the ugly power-trails and gas well flare-offs.
                No gas well flaring out my way...:cool:
                .
                .
                .
                .
                .
                ...they shut all the wells in because of "deflation"...;)

                Comment


                • #9
                  Re: Coming Soon: Banking Crisis of Historic Proportions

                  Originally posted by Starving Steve View Post
                  Digging a deeper debt-hole to dig-out? That is their plan, and it always has been... Doing more of what didn't work, never worked, because it ought to work in theory? That is their plan.
                  I think their plan is going "according to plan". You are just confused on what that "plan" and the real objective actually is.
                  Every interest bearing loan is mathematically impossible to pay back.

                  Comment


                  • #10
                    Re: Coming Soon: Banking Crisis of Historic Proportions

                    Originally posted by bcassill View Post
                    Camtender,

                    Okay, seems I've been unmasked (sort of). Never thought I'd see my name in print on this web site. Just glad that someone thought the article I wrote up was of interest. One thing given the increased number of failures that folks might be interested in here is another piece of work that I've done on predicting banks that fail using the quarterly SDI information from the FDIC. Being a statistician by trade, I thought it might be a fun exercise given the current environment we're in. Anyhow, interestingly enough ALL of the large banks (i.e. Chase, Citi, Wells, BofA) floated into the top 10% of institutions most likely to be put into receivership. I'll put a brief posting up on it if anyone is truly interested that shows the method and the results.

                    Regards,

                    Bill

                    BTW: Starving Steve, noticed on an earlier post you're over in East Sooke, BC. I had the family over a couple of years back to Victoria and we went on a little trip to go visit the Pot Holes. We never quite made it but ended up in East Sooke instead. Very nice area.
                    Who wouldn't be interested in seeing a list of banks to potentially short? I remember seeing an article about Texas ratios last year that listed losers like Corus and Synovus at the top. Angry bankers wrote responses that there was no way these banks could fail.

                    Comment


                    • #11
                      Re: Coming Soon: Banking Crisis of Historic Proportions

                      If Bernake and Greenspan wanted deflation, that is fine with me. I think everyone wants de-flation.

                      Then why on Earth does the Federal Reserve Bank continue to print more money and expand the money supply by the trillions-of-dollars? How does that reckon with de-flation? :confused:

                      And if Bernanke thinks he is going to do a head-fake and deliver a bit of inflation after talking-up the dollar, the public and the world is just ready to stampede out of the dollar, especially a dollar that earns ZERO at the bank, and especially a dollar that now represents a share in a sinking ship.
                      Last edited by Starving Steve; August 17, 2009, 10:02 PM.

                      Comment


                      • #12
                        Re: Coming Soon: Banking Crisis of Historic Proportions

                        Originally posted by Starving Steve View Post
                        Then why on Earth does the Federal Reserve Bank continue to print more money and expand the money supply by the trillions-of-dollars?
                        To save the banks, especially JPMorgan and Goldman. Ultimately, to save the wealth (now dollar denominated) of the worlds most powerful.

                        Originally posted by Starving Steve View Post
                        And if Bernanke thinks he is going to do a head-fake and deliver a bit of inflation after talking-up the dollar, the public and the world is just ready to stampede out of the dollar, especially a dollar that earns ZERO at the bank, and especially a dollar that now represents a share in a sinking ship.
                        The dollar stands. Anytime it is threatened, they can take down the stock market or some major asset class (such as mortgage backed securities) or even a tottering nation (several in Eastern Europe could easily fall.) These acts force the selling of dollar denominated assets, hence the acquisition of dollars, lifting the dollar.

                        The Quantitative Easing, the mountain of magic money, is sterilized. That money goes to Wall Street, not to Main Street. Even the common man on the street knows this. The enormous market manipulative powers of Goldman and JPMorgan and the Fed and the Treasury, combined with instilling the fear of death in the lessor banks, are sufficient to keep these dollars from flooding the general economy.

                        They (Fed, Treasury, FRBNY, JPMorgan, Goldman) instill this fear in several ways, including:
                        • by slaughtering Lehman and Bear Stearns,
                        • by weekly sacrifices of lessor banks on the FDIC altar,
                        • by loading up the surviving banks with toxic debt sufficient to kill them unless they have Papal allowances to delay realizing their true market values,
                        • by running roughshod over the bigger banks such as forcing TARP on them and forcing Merrill on BofA and,
                        • by paying the banks interest on unlent reserves (the carrot.)

                        We are witnessing the third revival of the dollar in the last century.

                        The essential problem with debt based currencies, as ricket likes to remind us, is that it requires ever increasing sums of debt to create the increasing amounts of money needed to fund the increasing interest due.

                        This is like taking a flawed medicine or addictive drug that requires increasing dosage to achieve the same affect. Eventually the dose is so large that whatever side affects the medicine has risk killing the patient (or addict.)

                        The "cure" is to cut the patient/addict off, tie them to a bed and see if you can keep them alive through the withdrawal.

                        This will now be the third time this has been done with the Dollar since the Federal Reserve was created. You'd think we'd start to see the pattern by now.
                        1. On the first occassion, the withdrawal seemed obvious enough, thanks to vestiges of the gold standard. The surprise move was FDR's cutting the domestic dollar free from the gold standard, once the initial withdrawal had collapsed the excesses of the previous bubbles.
                        2. On the second occassion, Volcker surprised us with the withdrawal. No one anticipated that he would have the discipline to withhold the drug of easy money (by raising the cost of debt) sufficient to drain some of the excesses from the economy.
                        3. On this third occassion, the Fed (with its colleagues at Treasury, FRBNY, JPMorgan and Goldman) are gaining skill (or corrupt powers, as you prefer.) They are able to keep the dollar and the top banks alive with quantitative easing (which seems to be the theft of trillions) while "sterilizing" this money, so that it does not reach Main Street.

                        Once again, the dollar denominated asset class bubbles will be lanced. Real estate, easy debt, stock markets, foreign and domestic, will crash and crash some more, until there is not a spare dime to be found on Main Street.
                        Last edited by ThePythonicCow; August 18, 2009, 06:14 AM.
                        Most folks are good; a few aren't.

                        Comment


                        • #13
                          Re: Coming Soon: Banking Crisis of Historic Proportions

                          The key to killing inflation is sterilizing the money delivered by the Federal Reserve Bank to its privileged member banks by Federal Reserve QE (quantitative easing). One way the Fed does this sterilization is keeping the new QE money re-invested at the Fed in new member-bank deposits.

                          But sooner or later, this new money, the QE money, (the free money) has to leak-out of the Fed. That is what I am worried about. How will the Fed control the leakage or hemmorage(sp?) rate of new money leaking back into the economy?

                          Yes, the Fed controls the spread that banks receive on their cheap money from deposits. But the public will stop putting money into banks when the public senses inflation, and the inflation could come from oil going up ( which is bound to happen, sooner or later ).... Then the whole house of cards with QE and free money starts to unravel, and fast. Oil will go up because oil is costly to find and drill-out, and oil is in demand throughout the world.

                          Bernanke and Greenspan will go down into history as the worst Fed chairmans ever, especially for dreaming-up this zero interest rate policy and then printing money by the trillions and accommodating new spending sprees and new debt bubbles.

                          "Cash for clunkers" is a couple of pennies relatively in new federal spending in the U.S, but this programme really exhibits, more than any other programme, what cheap money and zero interest rates accomplish. "Cash for clunkers" is a creature of the Federal Reserve's zero interest rate policy.... Throw-in windmills and solar panels, and the Bernanke Fed has no clothes.
                          Last edited by Starving Steve; August 18, 2009, 10:29 AM.

                          Comment


                          • #14
                            Re: Coming Soon: Banking Crisis of Historic Proportions

                            TPC,

                            I seen a couple of iterations of your 'Fed/Treasury drives dollar up by killing some secondary market'.

                            There is some short term truth to this, but it seems that you don't talk about the ancillary effects of this type of program:

                            1) As I've mentioned many times before, a large number of dollars is kept in float via the dollar's role as a reserve currency in world trade. Wildly fluctuating dollar values will only serve to reduce this role and hence weaken this prop on the dollar's value.

                            2) Falling stock/bond/real estate markets have served to drive up the dollar in the past, but that was before the ROW started realizing the US was the cause of the problem. Is it likely that past behavior will be replicated given this new information?

                            3) The US economy must still generate new jobs. How can a strong dollar help this? Sure, the Fed/Treasury can keep the QE game going for a bit longer, but at some point it breaks as Weimar Germany demonstrated.

                            Comment


                            • #15
                              Re: Coming Soon: Banking Crisis of Historic Proportions

                              Originally posted by c1ue View Post
                              1) As I've mentioned many times before, a large number of dollars is kept in float via the dollar's role as a reserve currency in world trade. Wildly fluctuating dollar values will only serve to reduce this role and hence weaken this prop on the dollar's value.
                              Sure, the dollar sucks. But the alternatives suck worse. Nothing else has close to the market size, ubiquity and liquidity of the dollar. China is strengthening its yuan, but China will soon have problems, as EJ has recently posted. Russia is a one trick pony with its gas and oil. Europe is hurting worse than the United States, with some countries at serious risk of going bankrupt and with many of its countries, even Germany, holding more debt as a proportion of GDP than the United States.
                              Originally posted by c1ue View Post
                              2) Falling stock/bond/real estate markets have served to drive up the dollar in the past, but that was before the ROW started realizing the US was the cause of the problem. Is it likely that past behavior will be replicated given this new information?
                              So long as the falling asset classes are dollar donominated, they per force lift the dollar as they are sold.
                              Originally posted by c1ue View Post
                              3) The US economy must still generate new jobs. How can a strong dollar help this? Sure, the Fed/Treasury can keep the QE game going for a bit longer, but at some point it breaks as Weimar Germany demonstrated.
                              The unemployed of the U.S. will have much company around the world these next few years. I didn't predict that the Dollar would dominate forever, rather just another round of this insanity.

                              In sum, yes, my prediction here is rather far removed from what iTulip has taught us. Frankly, I would have to doubt the sanity of anyone choosing to follow this prediction rather than iTulip's vastly deeper work. Moreover, I detest the level of corruption of the U.S. markets and government and dominate financial institutions that enables what I predict.

                              My key point is that the dominated U.S. financial institutions seem able, one more time, to crash dollar denominated paper assets while preserving a dominate role for the dollar in the world. Their deeply corrupt influence and the world wide extent of the present economic weakness enables them, in my view, to continue to sterilize their quantitative easing and extend further their dominance over the U.S.

                              It is a bleak picture. Countries will fail. Many banks world wide large and small will fail. Unemployment world wide will rise. China's economic miracle will go bust. Stock markets will crash again. Residential and commercial real estate will crash further. A powerful few will gain more wealth and power.

                              Hopefully yours truly will soon look back in embarrassment at the udder(!) idiocy of this prediction. At the very least, on the astronomically small chance that the future resembles this prediction, let us hope it does not lead to general conflict.

                              Thanks for noticing a few of the weaknesses of this prediction. It is likely more than I deserve.
                              Most folks are good; a few aren't.

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