by Michael Snyder, The Economic Collapse Blog:
When there is fear in the air, banks start getting really tight with their money, and right now there is lots of fear in the air. A major credit contraction would be a nightmare scenario for the economy, and as you will see below, there is evidence that this is already starting to happen. Hopefully our leaders can find a way to calm things down, because we all remember what happened during the last financial crisis. Banks decided to substantially tighten their lending standards and that really deepened the economic downturn. So our leaders should be doing what they can to support the stability of the system, but in so many cases they end up doing just the opposite.
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For example, on Wednesday U.S. Treasury Secretary Janet Yellen publicly admitted that blanket coverage of all uninsured deposits in U.S. banks is not even under consideration…
In response to a direct question about whether the Treasury would circumvent Congress to insure all deposits, Yellen replied, “I have not considered or discussed anything having to do with blanket insurance or guarantees of all deposits.”
When she made this statement, she poured even more lighter fluid on small and mid-size banks all over the country.
Wealthy individuals and large companies have already been pulling billions of dollars out of such banks, and a lot more money will inevitably be pulled out in the days ahead.
Now that these banks are bleeding deposits at an unprecedented rate, what do you think their approach to lending will be?
Needless to say, they are going to be extremely averse to taking risks at this point.
And that means that lending standards are going to be getting a lot tighter.
In response to a tweet in which Joe Biden touted the accomplishments of his administration, Elon Musk warned that “the banks are melting”.
In my first year in office, we protected more lands and waters than any president since John F. Kennedy.
We’ve also made the largest investment to fight climate change – ever.
Today, we’re building on that momentum by protecting additional natural wonders. pic.twitter.com/bMwc915fuG
— President Biden (@POTUS) March 22, 2023
Musk is quite correct.
Our banks are definitely in the process of melting, and hundreds of them could soon be in very serious jeopardy.
And just to make sure that hordes of banks will soon be teetering on the brink of disaster, the Federal Reserve hiked interest rates once again this week.
As CNN’s Richard Quest has pointed out, our banks “are stuffed to the gills with these government bonds”, and every time rates go up those bonds become even less valuable…
Quest said, “Now, if inflation was your goal and your number one target, then you’d have gone 50 [basis points]. But, obviously, the overriding concern today is the banking sector. And remember, Zain, the problem with the banking sector is that all the banks are stuffed to the gills with these government bonds. Raise the interest rate, and the bond becomes less valuable. So, even today’s action at 0.25% makes things that little bit worse for the banks.”
Later, he added, “More banks are going to go out of business. More state and regional banks in the United States will need to be resolved — to use the technical phrase — they’ll be taken over, they’ll be wound up, they’ll be taken into ownership, all sorts of things.”
So is there evidence that all of this banking turmoil is starting to directly affect the behavior of U.S. consumers?