As long as the big banks are not raising interest rates on saving accounts, this means they are having plenty of cash. Smaller banks have been raising rates (or not and seeing outflow and going bankrupt).
I did get an arrogant offer from Bank of America for higher rates - but only on deposits on top of my current balance. So it seems they are having plenty of margin to catch the decrease in bonds evaluation. Interest rates on savings have always been a bell whether.
Rates are now not higher than they were pre-2000 before Greenspan started the money press. Mortage rates are also not an historic high or even historically unusually high.
Unless of course they are driving us all off a cliff ... :-)
The one thing banks NEVER have is plenty of cash. Rather, they put that cash into either loans or other investments (most frequently into securities of one sort or another).
This is where things get sticky.
So long as banks can receive dollar for dollar on their outstanding loan book and securities portfolios, they will always have enough cash to cover deposit outflows. Among domestically chartered banks the sum of securities plus the loan book plus cash assets exceeds deposit volume and generally always has.
However, actual cash is the smallest part of that mix, and the values carried on the books for both loans and securities are only marked to market when it is intended those assets are going to be quickly resold. Thus what appears to be adequate cash buffers against deposits may or may not be.
If deposit outflows should resume for any reason, at some point in the near future banks will begin to experience liquidity problems. This has been the scenario unfolding all year long.
My question is regarding all of these flashing warning signs, and the outbreak of World War 3.
When I was studying Econ in the ‘70s, economists were still debating cause and effect during the Great Depression. Some said that the Depression ended not because of any New Deal policies, but because the economy roared back to life when America had to gear up to fight World War 2.
But many aspects of today’s financial markets and the world’s macroeconomics are much, much different. So, if -God forbid - WW3 breaks out next week, how would you expect it to affect these flashing warning signs? (And yes, a book could be written about it, but a paragraph of your ever-insightful analysis would be all I’d ask.)
The USA entered WWII with a public debt to GDP ratio of about 50%. At the end of the war, the ratio was in the range of 110 to 120%. In other words, the FedGov had plenty of headroom to borrow, and of course those funds were used for war time production, which boosted the economy.
But currently, public debt to GDP is already somewhat north of 120%, so that headroom doesn't exist, and trying debt-finance a large war now would only make things worse.
Yes, that is one of the differences that I alluded to in my post - our macroeconomics are not the same now as they were in 1941. So, I’m wondering how financial markets, bond valuations, etc. would respond if WW3 began? I don’t see us as being in a good position to fight a world war!
Re: the Great Depression. FDR's own Treasury Secretary Henry Morgenthau said in 1937 the New Deal was a failure. The American economy rebounded because the US was arming the United Kingdom and later the Soviet Union. US industrial capacity greatly expanded during the war years because this was the only industrial country that didn't get bombed all to Hell.
It is conceivable that a widening of the wars in Ukraine and Israel could have a similar stimulative effect on the economy. The challenge will be how fast can US firms expand operations and reshore factories.
In that regard, a prime beneficiary might not be the US but actually Mexico, which is already poised to take over a fair amount of manufacturing from China. If this does happen Trump's renegotiation of NAFTA will have proven to be an exceedingly prescient economic and foreign policy masterstroke.
However, the key word is "if". Ukraine has proven that the nature of war is shifting. The US is not vulnerable to traditional attacks and invasion, but 9/11 alone proved the US is vulnerable to asymmetric attacks. If Iran develops a single nuclear warhead, it would not need a missile to deliver it; a single suicide bomber would suffice.
The economic shocks of such attacks are impossible to assess. Suffice it to say they would not be either good or small.
This is an unfolding scenario, of course, so things will change in real time. Makes analysis a study in minimizing how wrong I am!
As long as the big banks are not raising interest rates on saving accounts, this means they are having plenty of cash. Smaller banks have been raising rates (or not and seeing outflow and going bankrupt).
I did get an arrogant offer from Bank of America for higher rates - but only on deposits on top of my current balance. So it seems they are having plenty of margin to catch the decrease in bonds evaluation. Interest rates on savings have always been a bell whether.
Rates are now not higher than they were pre-2000 before Greenspan started the money press. Mortage rates are also not an historic high or even historically unusually high.
Unless of course they are driving us all off a cliff ... :-)
The one thing banks NEVER have is plenty of cash. Rather, they put that cash into either loans or other investments (most frequently into securities of one sort or another).
This is where things get sticky.
So long as banks can receive dollar for dollar on their outstanding loan book and securities portfolios, they will always have enough cash to cover deposit outflows. Among domestically chartered banks the sum of securities plus the loan book plus cash assets exceeds deposit volume and generally always has.
https://fred.stlouisfed.org/graph/?g=1aB42
However, actual cash is the smallest part of that mix, and the values carried on the books for both loans and securities are only marked to market when it is intended those assets are going to be quickly resold. Thus what appears to be adequate cash buffers against deposits may or may not be.
https://fred.stlouisfed.org/graph/?g=1aB42
If deposit outflows should resume for any reason, at some point in the near future banks will begin to experience liquidity problems. This has been the scenario unfolding all year long.
https://newsletter.allfactsmatter.us/p/wall-street-thinks-the-banking-crisis
Which means yes they are driving us off a cliff....and quickly when (if?) deposit outflows resume.
My question is regarding all of these flashing warning signs, and the outbreak of World War 3.
When I was studying Econ in the ‘70s, economists were still debating cause and effect during the Great Depression. Some said that the Depression ended not because of any New Deal policies, but because the economy roared back to life when America had to gear up to fight World War 2.
But many aspects of today’s financial markets and the world’s macroeconomics are much, much different. So, if -God forbid - WW3 breaks out next week, how would you expect it to affect these flashing warning signs? (And yes, a book could be written about it, but a paragraph of your ever-insightful analysis would be all I’d ask.)
The USA entered WWII with a public debt to GDP ratio of about 50%. At the end of the war, the ratio was in the range of 110 to 120%. In other words, the FedGov had plenty of headroom to borrow, and of course those funds were used for war time production, which boosted the economy.
But currently, public debt to GDP is already somewhat north of 120%, so that headroom doesn't exist, and trying debt-finance a large war now would only make things worse.
Yes, that is one of the differences that I alluded to in my post - our macroeconomics are not the same now as they were in 1941. So, I’m wondering how financial markets, bond valuations, etc. would respond if WW3 began? I don’t see us as being in a good position to fight a world war!
No one is ever in a good position to fight a total war. That was true in 1914, it was true in 1939 and 1941, and it is true today.
Re: the Great Depression. FDR's own Treasury Secretary Henry Morgenthau said in 1937 the New Deal was a failure. The American economy rebounded because the US was arming the United Kingdom and later the Soviet Union. US industrial capacity greatly expanded during the war years because this was the only industrial country that didn't get bombed all to Hell.
It is conceivable that a widening of the wars in Ukraine and Israel could have a similar stimulative effect on the economy. The challenge will be how fast can US firms expand operations and reshore factories.
In that regard, a prime beneficiary might not be the US but actually Mexico, which is already poised to take over a fair amount of manufacturing from China. If this does happen Trump's renegotiation of NAFTA will have proven to be an exceedingly prescient economic and foreign policy masterstroke.
However, the key word is "if". Ukraine has proven that the nature of war is shifting. The US is not vulnerable to traditional attacks and invasion, but 9/11 alone proved the US is vulnerable to asymmetric attacks. If Iran develops a single nuclear warhead, it would not need a missile to deliver it; a single suicide bomber would suffice.
The economic shocks of such attacks are impossible to assess. Suffice it to say they would not be either good or small.
This is an unfolding scenario, of course, so things will change in real time. Makes analysis a study in minimizing how wrong I am!