- Emphasis mine:
- An Unexpected Systemic Crisis is for Sure
by Alasdair Macleod, https://www.goldmoney.com/
Downturns in bank credit expansion always lead to systemic problems. We are on the edge of such a downturn, which thanks to everyone’s focus on the coronavirus, is unexpected.
We can now identify 23 March as the date when markets stopped worrying about deflation and realised that monetary inflation is the certain outlook. That day, the Fed promised unlimited monetary stimulus for both consumers and businesses, and the dollar began to fall.
The commercial banks everywhere are massively leveraged and their exposure to bad debts and a cyclical banking crisis is now certain to wipe many of them out. In this article we look at the global systemically important banks — the G-SIBs — as proxy for all commercial banks and identify the ones most at risk on a market-based analysis.
In these bizarre markets, the elephant in the room is systemic risk — visible to all but simply ignored. This is partly due to everyone in government and central banks, as well as their epigones in the investment industry and mainstream media, believing our economic problems are only a matter of Covid-19. In other words, when the pandemic is over normality will return. But Covid-19 has acted like a conjurer’s distraction: it has deflected us from the consequences of Trump’s trade wars with China and the liquidity strains that surfaced in New York last September when the repo rate soared to 10%.
We can only conclude that a systemic crisis leading to widespread bank failures and their being taken into public sector ownership will in turn be seen by the general public and investors alike as a failure of neo-Keynesian central bank monetary policies. A banking crisis more serious than the Lehman crisis of 2008—2009 would be a stepping-stone to a wider crisis for financial asset values, leading to an increasing pace of loss of purchasing power for the dollar, whose fortunes are now bound tightly to confidence that the US budget deficit will continue to be financed. And on the dollar’s fate hangs the future of all the other paper currencies linked to it.