2007 All Over Again, Banking Crisis Imminent

• 2007 All Over Again, Banking Crisis Imminent
  by http://dollarcollapse.com/  
  Our good friend Michael Pollaro just sent a chart from the St. Louis Fed that shows the US drifting back into yet another banking crisis.

• The green line tracks fluctuations in the US yield curve, defined as the difference in yield between 10-year and 2-year Treasuries. When the yield curve is steeply positive, banks are able to borrow short at low rates and lend long at higher rates, earning a nice return and in the process driving economic growth. When the yield curve flattens the opposite occurs, with banks unable to make money and becoming reluctant to lend. So a flattening yield curve implies a slowing economy. Note the similarity between the past few years’ spread contraction and the one that began in 2004 and culminated in the Great Recession.
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  Now check out the red and blue lines representing different measures of credit quality. The lower they are, the fewer loans are in various categories of “non-performance,” and vice versa. What’s happening now is similar to the spike in bad loans that started in 2005.
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  The implication: Despite the headline numbers (like Friday’s largely-fictitious jobs report) that imply a stable, modest expansion, under the surface the financial system — composed of business loans, bank profits, etc. — is deteriorating fast.
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  read more.

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