Just how bad is the bank debt problem?

[Bubble99]

I read that there is lot of banks in the US and the world that have debt problem. But mainstream news is not talking about this or the government.

Just how bad is the banks in the US and the world the bank debt problem?

Could this trigger market crash?

 

[avz]

I am not an expert but the debt itself usually is not a problem. It is servicing the debt in a situation when interest rates go through the roof that is a problem.

 

[Juicy Box]

I read that there is lot of banks in the US and the world that have debt problem.

What is the debt problem you have been hearing about? Debt itself isn't a problem of a bank, nor the economy.

If you are referring to recent bank failures, like SVB, the failures had more to do with mismanagement and bad behavior of the banks than anything else.

I guess you can also say that the government has encouraged bad behavior of the banks by bailing them out in the past, and continuing to bail them out, in the SVB scenario.

 

[Bubble99]

I don’t think there was bank problem to now? The last bank problem was 2008 and 2009

But are we talking millions of dollars in debt or billions of dollars in debt? Are these small and medium banks or big banks?

 

[pshufd]

The 2 main problems that banks have are:
1) Borrowing shorter term and loaning it out at much lower interest rates where they need to roll over their borrowing at rates higher than they are getting paid on their loans. This would be like loaning out $1,000 at 2% interest for 20 years, borrowing at 0.1% interest to loan the money out for a year, and then borrowing it at 0.1% again to pay off the first 0.1% loan. The problem occurs when rates go up to 5% to borrow money for a year and then you're losing money.
2) Loaning money to someone to buy or build assets backed by collateral. And then the collateral isn't producing as much income as expected so the value of the collateral drops and, eventually the borrower goes bankrupt. This is currently happening to the commercial office space

 

[Chuckeee]

2) Loaning money to someone to buy or build assets backed by collateral. And then the collateral isn't producing as much income as expected so the value of the collateral drops and, eventually the borrower goes bankrupt. This is currently happening to the commercial office space

This is a BIG problem in the Chinese residential real estate market

 

[pshufd]

This is a BIG problem in the Chinese residential real estate market

The dollar amounts are staggering. But the San Fransisco Commercial Real Estate market is in similar shape if not a lot smaller due to work-from home.

Defaults raise alarm over stability of San Francisco’s commercial property

Owners have handed back the keys to some of the city’s most valuable real estate

www.ft.com

 

[Regulus67]

The financial system is debt based. So new currency, aka money, is created when banks give a loan.
With interest, the amount having to be paid back to the bank, is greater than the original amount that was created.
This necessitates a new loan, otherwise there wouldn't be enough to cover the interest.
In this way, debt has to continue to expand. Otherwise it will collapse the present monetary system.

In Europe we had negative interest, set by the ECB. That is the opposite of growing money supply.
The law states that big institutions like pension funds have to invest in Government bonds. Which has destroyed those funds.

Japan is a great example. Professor Richard A. Werner is probably the best expert on this issue.
Perhaps the documentary on Japans economy is a good place to start, if you wish to learn more?

Catherine Austin Fitts with Solari Report, is probably the best source, in regard to the US economy.
Martin Armstrong of Armstrong Economics is the best source, when it comes to the worldwide monetary system, with his Socrates computer.

As a side note. In the US you have fixed mortgage rates. Which creates issues like pshufd explained.
It is different in europe, where mortages will have adjusted rates over time.

 

[pshufd]

As a side note. In the US you have fixed mortgage rates. Which creates issues like pshufd explained.
It is different in europe, where mortages will have adjusted rates over time.

Fixed interest rates can work if banks borrowed money at the same fixed terms as their loans. But short-term rates were so low that there's just this irresistible urge to borrow short-term and lend long-term because people don't understand or experience history. The low short rates for such a long period of time creates financial structures that fail in normal times. Unfortunately, if you're in a period of abnormal times, it feels like what you're in is normal.

I remember when interest rates fluctuated between 5-8 percent and retirees had CDs to help support them in old age. Then rates went to near zero and these folks were forced onto the risk curve to get more yield. It was basically a way to bail out the banks by squeezing those with savings that didn't want the risk of the market.

 

[Regulus67]

This is a BIG problem in the Chinese residential real estate market

China might have a problem in that area, for sure.
But from what I have understood, studying finance for 30 years; is that it is probably less of an issue than we might suspect.
China manufactures all kind of stuff. They do not have a consumer based economy, yet.
The total production of a country is what produces it's wealth.
In fact, the Chinese are involved in some of the largest construction projects in the far east.

How it will all end, is anyone's guess. The US has severely increased it's sanctions on Chinese companies as well.
And how will companies like Apple handle the conflict? As a US company with production in China.

Here in Europe, car manufacturers have to start preparing to leave Europe.
I am in the construction business, as a tower crane driver.
In Sweden, we have basically stopped the housing construction. Despite having a large influx of "refugees".
The government has basically shut down the production of concrete. So do we only use wood in construction going forward???

But back to the banks. I believe the majority will be obsolete in the near future.
With CBDCs (Central Bank Digital Currency), the bank money will no longer be used. And bank money is already digital only. So how can a bank issue a mortgage without the ability to create it? Or any other credit?

This was how the Soviet system functioned. Only one bank, which decided to who and for what, money was delegated.

 

[pshufd]

China might have a problem in that area, for sure.
But from what I have understood, studying finance for 30 years; is that it is probably less of an issue than we might suspect.
China manufactures all kind of stuff. They do not have a consumer based economy, yet.
The total production of a country is what produces it's wealth.
In fact, the Chinese are involved in some of the largest construction projects in the far east.

How it will all end, is anyone's guess. The US has severely increased it's sanctions on Chinese companies as well.
And how will companies like Apple handle the conflict? As a US company with production in China.

Here in Europe, car manufacturers have to start preparing to leave Europe.
I am in the construction business, as a tower crane driver.
In Sweden, we have basically stopped the housing construction. Despite having a large influx of "refugees".
The government has basically shut down the production of concrete. So do we only use wood in construction going forward???

But back to the banks. I believe the majority will be obsolete in the near future.
With CBDCs (Central Bank Digital Currency), the bank money will no longer be used. And bank money is already digital only. So how can a bank issue a mortgage without the ability to create it? Or any other credit?

This was how the Soviet system functioned. Only one bank, which decided to who and for what, money was delegated.

China has major problem from the housing crash due to how they fund local governments. The primarily fund via real estate transfer taxes. If real estate doesn't move, then the local governments don't have revenue. The CCP would do large stimulus programs in the past to add confidence in assets and consumer spending but the people have had problems for a couple of years resulting in them hunkering down. So internal consumption has been wanting.

 

[Bubble99]

It's an inherent flaw with any usury (interest). The aggregate obligation (principal & interest) far exceeds the whole set of available money tokens. In other words, the money needed for all to pay their creditors DOES NOT EXIST.
Look at the USA's national debt.
https://www.usdebtclock.org/
NATIONAL DEBT = $32.726 trillion dollars
(Debt per citizen = $97,606 dollars)
INTEREST = $664.93 billion dollar bills

https://www.federalreserve.gov/releases/h41/current/
Search report for “currency in circulation”
Federal Reserve Banks . . .
Currency in circulation . . . 2,328,554 millions (2.3 trillions)

[Note: “Dollar bills” being debt, are part of the 32.7 T national debt. They cannot grow without an increase in the debt. Debt cannot pay debt, having a minus value. Even if the dollar bills could, there isn't enough of them.]

US Population = 335,145,075
Currency (per capita) = $6,947.89 dollar bills.
Discrepancy : $6,947 - $97,606 = -90,659 (shortfall)

This problem extends to all private debt, as well. Outstanding obligations far exceed the volume and value of circulating medium. This is partly masked by the preponderance of "electronic" money transfers. If everyone tried to "cash out" the system would implode, and folks would be fortunate to get microcents on the dollar bill.

 

[Regulus67]

I thought you created this thread because you were unsure about the banking system.
Guess I was wrong 🤣

Have a nice day

 

[pshufd]

There are a variety of problems with a variety of banks. The two major categories of problems are:

1) Non-performing loans where the assets are insufficient to cover the loan value,
2) Long-term loans to customers at low rates funded with shorter-term debt that has to be rolled over

We generally don't know what's in a banks loan portfolio so we're dependent on financial reports. Some banks could be doing quite well if they're making loans with good, secured assets and where they have borrowed long-term to loan out at lower rates. Spreads are usually higher with higher rates.

 

[pshufd]

While mainstream news may not be focusing on it as much, it doesn't mean it's not a problem. The severity varies from bank to bank, and it's hard to gauge the overall impact.

I wouldn't expect this to be well-reported in the mainstream news but it is reported in the mainstream financial news. Or you can just read the financial statements.

Citi announced the layoff of 300 senior managers. A Bllomberg bank analyst said that this could lead to far more layoffs in their departments of rank and file. Normally the rank-and-file are lose their jobs first and then the senior managers are quietly let go. One of our states largest banks is closing their mortgage origination department. In general, banks try to carry their staff over periods of high rates but I guess that they made the decision to let them go. It costs quite a bit to terminate staff and then hire them back and train them on the other side.