Dow Plunges 900 Points: As the Global Financial System Begins to Break, the Collapse Will Be Sudden
The comments below are an edited and abridged synopsis of an article by King World News
As the global financial system begins to break, the collapse will be sudden.
Topics discussed in this article: Rising rates lead to financial accidents; inflation and stagnation; financial sector woes; the US dollar liquidity position; Europe’s liquidity position; unwinding commodity derivatives; malinvestments in the non-financial economy; and conclusions:
“Even at this early stage of a new trend of rising interest rates, strains in the global banking system are becoming apparent. Bank balance sheets are as overleveraged as they have ever been particularly in Europe and Japan. And with rising interest rates ensuring a bear market in financial assets and widespread exposure to malinvestments leading to non-performing loans, banker sentiment is swinging firmly towards risk containment.”
“Money supply figures, which are showing a slowing down in the rate of credit expansion, only tell some of the story. Commercial banks in the US and the EU are using reverse repos to jettison liquidity on the deposit side of their balance sheets, to keep pace with the drive to reduce the asset side of their balance sheets.”
“Acting like the canary in a coal mine, we can already see derivative liquidity drying up in regulated gold and silver futures. This is probably being replicated in other commodity markets as well. But a far larger issue is FX crosses, swaps and forwards, whose notional values are not properly reflected on bank balance sheets, just one side of counterparty exposure being more than double the combined global systemically important banks total capitalisation of roughly $40 trillion.”
As with all credit contractions, when and where the system will break is impossible to predict. But when it happens, the crisis will be sudden. Let’s hope that the year-end financial window-dressing season passes without incident.