The financial avarice of the global banking system – U.S. banks insolvent to the tune of $3 trillion. FDIC pretends to have funds to support over $7 trillion in banking deposits.
Part of the big delusion in our banking system is the reality that debt has become a large source of money flowing through the economy. This is why housing made the perfect vessel for Wall Street and banking speculation. Banks create money by issuing loans and there is nothing larger to loan on than a home. Think about the fact that banks were giving out $500,000 for trashy run down homes overrun with rats and this was something that they were booking on their balance sheet as an asset. The FDIC and other regulators simply sat back and watched as the wolves ate the financial chickens at the roost. Many Americans think that banks actually have the money in a vault when they make a loan. They do not. Just like Houdini the illusion is what is powerful. In fact, the FDIC has an insurance fund that is close to negative and this institution is supposed to back up over $7 trillion in saving deposits. How is that even possible? Only when a world is blindly accepting to a banking system and believe the media jargon that banking is too complicated for them to understand. This is what the central and investment banks want because it makes the theft easier.
The secretive workings of the central banking syndicate – Federal Reserve balance sheet reaches another record. Fighting monetary inflation by creating it.
Central banks provide a mystical approach to solving economic problems although they were initially created to solve short-term financial panics. The first central bank was the Bank of England which was established in 1694. It started out as a private institution but eventually took on a monopoly over all banks in England (all private banks either joined or were forced out). The allure of the system is to even out the panics by centralizing power in one place. The central bank of the United States came over two centuries later in 1913 as the Federal Reserve. The Fed has a mission to help moderate inflation and keep unemployment in check. But what happens when the central bank goes from main protector of the economy and becomes a large reason for the financial problem itself? There is little debate that monetary policy at the hands of Alan Greenspan led to the housing bubble. The subsequent bust is leading to our current financial problems. What people forget is that the Fed is designed to protect the banking system even if this is contrary to the overall success of the economy and most people.
The brittle financial American middle class – 50 percent of Americans would be in financial trouble if $2,000 of expenses came up in 30 days. By 2020 the world’s richest households will control $202 trillion in wealth, 4 times current global GDP.
This economic recovery has excluded working and middle class Americans which begs the question, what really defines a financial recovery? In past and distant recoveries the economic gains were widely distributed amongst all Americans. Most realize that income gains will never be equal simply because in a market based economy those with certain desirable skills will be rewarded more than others. Yet in the last decade the banking sector has co-opted the government to turn it into a welfare state for the large banks. Desirable qualities are now replaced by predator diseased qualities of ripping off the taxpayer for bad market based bets. That is why recent data showing that nearly 50 percent of Americans are unable to come up with $2,000 in 30 days if an emergency came up is startling. $2,000 for most is the basic monthly expenses on food, home, and other little items. So half our country is living one paycheck away from financial collapse. 44,000,000 Americans are living with food assistance from the government already. Keep in mind the recovery has been going on now for close to two full years. According to the NBER the recession was over in June of 2009. The fact that $2,000 is enough to bankrupt half of American households tells you about the new state of our economic recovery.
Day of reckoning for commercial real estate in 2012 – largest amount of loans maturing next year as $150 billion in CRE debt comes due. Federal Reserve running out of options in hiding financially disastrous real estate loans.
The Federal Reserve has tried its best to hide the secrets of past banking blunders deep in its balance sheet. Commercial real estate (CRE) loans made in haste during the real estate bubble are part of this national disgrace in banking folly. As the Federal Reserve and U.S. Treasury digitally print the dollar into oblivion the bad CRE loans still linger in the Fed balance sheet. As it turns out the Fed has become the dumping ground for all things real estate and has traded toxic loans for quality liquidity to fuel the banks back up. CRE debt in the form of empty shopping malls, failed hotels, and tumbleweed occupied strip malls is only a flavor of what the Fed is taking on. Yet many of these loans are still occupying the balance sheet of many banks. As it turns out, there was so much junk in the CRE market that the Fed could only balloon their balance sheet and still not encompass one half of the CRE market. Many CRE loans are coming due in 2012. Is the day of reckoning for CRE coming in 2012?
The Federal Reserve’s elaborate financial charade on the American people – Big banks hold excess reserves that represent 10 percent of U.S. GDP. Federal Reserve has failed on largest goals for our economy.
The antics of our Federal Reserve rival those of the now disgraced IMF chief although they won’t grab as many gossip headlines. The Federal Reserve has fashioned a system that has allowed economic bubbles to surface every very few years like high school reunions. Bubbles are not normal. These are financial disequilibrium events that occur simply because excess money is flowing through the system. The housing bubble was the perfect example of what happens when a central bank does not mind its own store. The Federal Reserve, our central bank and supposed expert on all things money, sought to protect the banking system at all costs during this recent crisis. It is amazing how the actions conducted by the Fed were never fully scrutinized in the media thoroughly even though this is where most of the money was funneled. It was simply assumed that the trillions of dollars in loans, purchases, and accounting chicanery that went to the largest banks was somehow the perfect way to avoid a crisis. Who really avoided the crisis here? The working and middle class is still disappearing. Yet the large Wall Street banks are back to their profitable ways since they figured out that the best thing for business is a crisis. These banks (just like the Fed) have little desire to help the American public even though they are only standing because of the power of the people.
Scorching the desert housing markets – Arizona and Nevada real estate blossomed with cheap fuel and easy access to debt. For last two years 40 percent of buyers came from all cash purchases. What happens when the well runs dry in the financial desert?
The Arizona housing market is a perfect example of what happens when the housing religion spirals out of control and implodes in dramatic fashion pushing up against environmental limits. I remember driving in the blistering summer heat through Arizona before all the housing mania launched out of control in the late 1990s and thinking that the only reason the land was hospitable was because of cheap fuel and air conditioning. It costs money to move large amounts of water to an otherwise arid region. You have months of 100 plus degree weather and electric bills that run the size of your mortgage payment. A beautiful state but one based on access to affordable fuel. The housing market has crashed for both Arizona and neighboring Nevada. These areas are no stranger to booms and busts yet this time it is different. The cheap energy model that kept these locations operating is largely coming to an end. These are commuting locations. Have you ever tried walking down the Las Vegas strip during the summer time? You might as well pack two gallons of water and a cowboy hat before making it two blocks. The market has melted in the region like rubber on the bottom of your shoes.
The endgame of the credit card nation – 40 year bull market in revolving debt expansion comes to a sudden halt. U.S. consumers on average have 4 credit cards with 1 out of 7 having 10 or more.
Credit cards are the gateway financial opiate of choice for many spenders. Banks understand that if consumers begin mistaking debt for actual wealth then this would lead to more willingness to borrow on bigger ticket items like cars and homes as the appetite for credit expands. This psychological gamble paid off multiple dividends over the decades as many real income strapped Americans started confusing housing debt, auto loans, and plastic shiny cards in the wallet as some kind of newfound wealth. Access to debt suddenly became a new definition for wealth. No other country has manic usage of debt like the United States. 1 out of 7 Americans carries over 10 credit cards. Another 1 in 7 uses at least half the balance on their credit card. How is it possible to give so much access to debt to a nation where the average per capita income rounds out at $25,000? The misguided notion that deficits do not matter that engulfed the country like a bad fad in the 1970s and 1980s largely set the stage for our current peak debt situation. Credit card debt is now fiercely contracting and the 40 year run is over.