I personally believe that at the rate we are going, there are two main avenues to a potential US financial Armageddon. Such a crisis, because of US financial dominance and because of the interconnections of globalism, which was a huge mistake for humanity, would be global.
One avenue to crisis is the Federal Reserve’s current policy of raising interest rates. This policy follows many years of nearly zero interest rates in nominal terms, and negative interest rates in real terms. During these many years the financial assets banks accumulated on their balance sheets, such as bonds, pay a low rate of interest.
When the Federal Reserve raises interest rates, the values of the lower interest rate financial instruments fall, thus shrinking the asset side of banks’ balance sheets but not the liabilities side. Thus the Fed’s policy is pushing banks toward insolvency; and if the central bank continues to raise interest rates, the higher rates will push more banks into insolvency. Central banks make mistakes just like everyone else. In Europe Credit Suisse, a large international bank, is in trouble, yet the European Central Bank just announced a rise in interest rates.
The second avenue to crisis is the trillions of dollars in derivatives held by the five large US banks, which are international in their transactions. According to published reports, the five largest banks have $188 trillion in derivative exposure. This sum is vastly greater than the banks’ capital base. No one knows what the risk is in these derivatives. But the dollar amount is much higher than in 2008, so the potential for a worse crisis exists. A crisis only takes one mistake by one bond trader at a large institution to ignite a crisis.
To summarize, smaller conservative and prudent banks that invested in “safe” assets such as US Treasury bonds face bank runs. Larger banks with massive derivative risks are one bond trader’s mistake away from exploding the financial system. The 2008 crisis and the potential for more crises rests entirely on the repeal of Glass-Steagall and the enactment of Frank-Dodd.
We are looking at the total, complete failure of intelligence on the part of the US government and economists. Their handiwork has the capability of collapsing the existing financial system of the world. It was the work of total certified idiots.
There is, of course, the question: Is this real stupidity or is a plot unfolding to collapse the financial system as we have known it in order to “save” us with the introduction of central bank digital currency? Are we passing from the remnants of democracy and self-government into total tyranny? Yes, people are stupid. But are they this stupid? Could this be intentional with a secret agenda in mind such as digital currency?
I rest my case. Go figure.