Chris Whalen is one of the most astute banking analysts. His views are important.
The banking system is in deep trouble. There has been no banking recovery, merely a coverup. The banking industry is insolvent and likely headed for another collapse.
Here are Whalen’s latest conclusions from his latest report:
- The U.S. banking industry is entering a new period of crisis where operating costs are rising dramatically due to foreclosures and defaults. We are less than ¼ of the way through the foreclosure process. Laurie Goodman of Amherst Securities predicts that 1 in 5 mortgages could go into foreclosure without radical action.
- Rising operating costs in banks will be more significant than in past recessions and could force the U.S. government to restructure some large lenders as expenses overwhelm revenue. BAC, JPM, GMAC foreclosure moratoriums only the start of the crisis that threatens the financial foundations of the entire U.S. political economy.
Conclusions (1)•The U.S. banking industry is entering a new period of crisis where operating costs are rising dramatically due to foreclosures and defaults. We are less than ¼ of the way through the foreclosure process. Laurie Goodman of Amherst Securities predicts that 1 in 5 mortgages could go into foreclosure without radical action.•Rising operating costs in banks will be more significant than in past recessions and could force the U.S. government to restructure some large lenders as expenses overwhelm revenue. BAC, JPM, GMAC foreclosure moratoriums only the start of the crisis that threatens the financial foundations of the entire U.S. political economy.
- The largest U.S. banks remain insolvent and must continue to shrink. Failure by the Obama Administration to restructure the largest banks during 2007‐2009 period only means that this process is going to occur over next three to five years –whether we like it or not. The issue is recognizing existing losses ‐‐not if a loss occurred.
- Impending operational collapse of some of the largest U.S. banks will serve as the catalyst for re‐creation of RFC‐type liquidation vehicle(s) to handle the operational task of finally deflating the subprime bubble. End of the liquidation cycle of the deflating bubble will arrive in another four to five years.
For almost two years now, I have maintained that the banking system is insolvent. This observation was made after the bailouts. All that taxpayer money was wasted.
Chris Whalen estimates that all the money poured into the bank rathole represents only 25 percent of what is going to be necessary. That’s right, he estimates that three times the trillions already put in are going to have to be added to this mess.
The bailouts were a terrible idea. The people knew it. Honest economists knew it. Likely, many of the politicians knew it, but they were in the pockets of the financial industry.
As a result we have accomplished great harm and done no good other than to temporarily postpone and make larger the day of reckoning. It is getting very close.
To paraphrase one of Whalen’s points: Banks are not the bad guys; government is the evil. Of course there is plenty to not like about banks and how they comported themselves. However, none of their behavior could have happened without government encouragement.
To listen, click here.
The Fed argues we have too little inflation. Their stated goal is to increase the rate of inflation. What is the correct amount of inflation that a society should have?
If you answered zero you may be right, depending upon how you define inflation. If you define inflation in terms of changes in the money supply, then zero is the correct answer. If, on the other hand, you define it (incorrectly) as a change in prices, then zero is too high. In a society where the money supply is held constant, prices will decrease over time.
That is true because, at least within free markets, innovation and productivity increase the amount of goods relative to the amount of money. With steady or declining prices, savings is not destroyed and capital is created.
Prior to the formation of the Federal Reserve and other central banking schemes, a healthy economy was characterized bydeclining prices. During the 19th Century in the US, for example, prices consistently declined in all periods except the War of 1812 and the Civil War when money was printed to support the wars.
Ultimately, only more capital enables real wages to increase. Ludwig von Mises had much to say
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This from BankImplode.com discussing the inflation-deflation debate. The conclusion, though not definitively stated, is that we are headed for inflation and likely hyperinflation. Readers know that this outcome is also my undesirable prediction.
“Inflation is always and everywhere a monetary event,” so sayeth Milton Friedman. Following this intellectual tradition, recently Mish and other analysts define inflation as an increase in the money and credit supply. They then point to a myriad of the examples of the deflation they claim that we must be in: the crashing of the housing market, the parched riverbed of what once was the corporate-paper Ponzi Stream, the “zero velocity” of our money (which is being hoarded by the ailing banks), and massive mark-to-market destruction of the capital of a national economy built on hot air. Facing a mountain of evidence such as this, who could argue against it? No one in their right mind. But no one in their right mind should miss the bigger picture, either.
Swirling around outside of all of the narrow definitions preferred by academics and investment advisers is an undeniable reality to which they turn a blind eye. The Federal Reserve note is crashing against gold. A glance at the chart makes this reality as undeniable as it is untenable, for us all.
Despite all the disparaging remarks against the old “relic,” the banks and currency traders all know that gold is the origin, the precious metal around which the values of all currencies fluctuate. Real money,
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