Category Banking Crisis

May 1 2024

The President Overtaking the Federal Reserve – BAD IDEA


Posted originally on May 1, 2024 By Martin Armstrong 

Federal Reserve Eagle

I do not agree with Donald Trump’s view of the Federal Reserve. I speak on behalf of sound economic policies that benefit the people. I do not blindly support a political candidate for the sake of being on the right side. Now, I criticized Trump during his presidency for constantly pressuring the central bank to lower interest rates. There are rumors swirling that Trump, if elected, would set the price of interest rates himself without the advice of the Federal Reserve. While this may be an extreme side of the rumor, Trump and every other president would like more power over the Federal Reserve — BAD IDEA!

What we must keep in mind is that the Federal Reserve’s original design, which lasted for about one year, was brilliant. The classic banking model involved borrowing from depositors on a demand basis and lending long-term, making a profit on the spread in interest rates, such as for business loans and mortgages. This was relationship banking, not today’s transactional banking model.

This was fractional banking insofar as about 8% of the money needed to remain free to service demand requirements. The crisis comes during an economic contraction when people run to the bank for a loss of confidence and demand to withdraw their funds. This results in the value of cash rising in purchasing power compared to assets, so asset values collapse.

Federal Reserve 12 Branches

The idea of “elastic money” was to increase the supply of cash during such a crisis to meet the demand for withdrawals and that would offset the need to sell assets by calling in long-term debts. By increasing the money supply on a temporary basis, the Fed could offset the contraction in theory smoothing out the business cycle.

This was a brilliant scheme. However, it has been Congress, and not the Fed, that corrupted that mechanism. The banks technically owned the Fed as this was supposed to save the taxpayer money. The banks should contribute to their own bailout fund. Furthermore, the Fed’s design was also about buying in corporate paper when banks would not lend money. This was a mechanism used to offset rising unemployment if corporations could not fund their operations. They supplemented this by the management of regional interest rates to balance the domestic economy. Each branch of the Fed could raise or lower their local interest rate autonomously to attract capital when there was a local shortage or deflect capital when there was too much.

Congress began to manipulate the Federal Reserve for their own self-interest when World War I broke out on April 6, 1917. The alteration to the design of the Fed was to direct it to buy government bonds, not corporate. In this first step, they never reverse this decree after the war. They removed the brilliant design to stimulate the economy directly by purchasing corporate paper during a recession. In the last 2007-2009 crisis, the government wrote a check to TARP and hoped that the banks would lend money, but they did not. Removing this first pillar of the independent Fed distorted the entire system. It then made little sense for bankers to own shares in an entity that was no longer privately controlled.

DowIntRates 1929

Banks became traders during the 1929 Boom-Bust Cycle. Goldman Sachs became deeply involved in the bull market, establishing numerous trusts and mergers. Goldman Sachs expanded the leverage going right into the eye of the storm that was about to hit starting on September 3, 1929. The crash wipes our 70% of Goldman’s entire market.

The Glass-Steagall Act, also known as the Banking Act of 1933 (48 Stat. 162), was passed by Congress in 1933 and prohibited commercial banks from engaging in the investment business. Around 5,000 banks failed during the Great Depression largely because banks sold trusts and foreign sovereign government bonds to the public in small denominations. Bill Clinton later repealed Glass-Steagall and handed the power back over to the bankers. Disaster strikes every time the government tries to manipulate the free market.

People believe the Fed has the power to create money out of thin air, yet never explain why the Fed was given that power. You cannot have a fixed money supply as the population increases, then you end up with DEFLATION, which is the rise in the value of money. You can double the money supply, but if the people hoard it, as they tend to do during private waves when the public loses all trust in government, you will never create inflation. There was a huge contraction in the velocity of money during the Great Depression for this very reason.

The Biden Administration, as has the Trump Administration, has come after the Fed. Politicians merely want the economy to appear strong under their reign and fail to see the long-term impact of policies. Politicians have no knowledge of economics or the insight to run the Fed. Not to mention that law does not permit Washington to bark orders at the Fed, although Washington does oversee the Fed and can force the central bank to change its policies to align with government spending or repel debt buyers.

Trump on Interest Rates

Trump is a borrower, not a lender. His bankruptcies were the result of the business cycle and he leverages himself to the hilt so when the recession comes, he gets in trouble and when it is booming he claims to be a fantastic investor. But he is no trader. He could have hedged the business cycle but did not.

Chairman Jerome Powell and Trump clashed repeatedly. Not so coincidentally, Powell and numerous Fed bank presidents have their terms expiring in 2028 – a key year, as indicated by our models. The Biden Administration has already driven the economy off a cliff. The central bank is merely trying to heal an already injured economy with a limited medical kit.

The Fed is INDEPENDENT and will not be bullied by Biden or Trump. The Fed understands that it has become the world’s central bank and its actions in raising rates have had a far greater impact externally particularly in emerging markets because so many other nations issue their debt in US dollars.

Feb 27 2024

Ep 3292a – Big Names Selling Off Stocks, Pattern Established, Market Correction Coming


Posted originally on Rumble By X 22 Project on: Feb 26, 2024 at 7:45 pm EST

Jan 7 2024

Mark Pittman & the Bankers


Posted originally on Jan 6, 2024 By Martin Armstrong 

https://youtube.com/watch?v=GZkLXCZRBKY%3Fstart%3D9%26feature%3Doembed

The late Mark Pittman was a journalist for Bloomberg when, once upon a time, there were still a few actual investigative reporters. Mark did a piece on my operation in Japan. He knew what we were doing, that the accounts were mine, not clients, and that I was buying distressed portfolios. Not one client ever signed a complaint, and there was NO DEFAULT. When they charged me. I met Mark at the Hyatt in NYC across from the Train Station. He knew it was a setup and said: “Marty, we are not going to allow them to do this to you.”

Trenton no Defaults 9 13 1999
HSBC Gag Cover

The law says that if you commit fraud, you MUST help the victims get their money back. Further proof of how New York City is a cesspool of corruption: when they realized I was helping my clients go after the bankers, they put a gag order on me to stop me from helping my clients against HSBC/Republic. They have been doing the same to Trump. The Special Prosecutor went as far as to demand a gag order on Trump so that he could not even criticize Biden while campaigning. You cannot make up this stuff. If you wrote a fiction novel with these maneuvers, they would say it is too far-fetched.

I think it is absolutely critical as Trump is put on trial in New York City. I was granted bail in New Jersey. Not a single NY journalist ever reported the Truth no less the courts. I was interviewed by a journalist who asked about the bank illegally trading in my accounts. She asked if they were using my accounts to “launder money for the Russian Mafia as they were doing in Madof?” The banks claimed in Madoff’s case not to have known. That is absolutely IMPOSSIBLE, for you have to know your client rules. They verified every account and the corporate documents behind each one. Madoff pled guilty to an information quickly. He was not indicted and could have defended for a few years. The only reason he did so was clearly to protect his family. Just as in my case, the bank claimed it had no idea where the money was. It is impossible to get $1 billion out of a bank, and nobody knows where it went. There is NO SUCH thing as a fair trial in New York City. Trump is doomed there, and this is all about interfering in the 2024 election.

Pittman Mark

Mark understood the bankers very well. Bloomberg removed Mark from covering my case and replaced him with David Glovin, who could never praise the government more. It was Mark at Bloomberg who battled in court for years to get the details of those bailouts released to the public. Mark was probably the most professional journalist I ever met. I was told after my case began that Bloomberg purged all the reports Mark had previously written about our firm from their terminals and certainly Japan. It was as if Bloomberg was in on the whole scam.

Mark’s wife, Laura, wrote to me about Mark’s death. It was a sad day, for there was NEVER anyone at Bloomberg I ever met who had the integrity of Mark Pittman.

Pittman lAURA lETTER
Dec 28 2023

A Feature, Not Flaw – REPORT: Western Banks Drop 60,000 Employees in 2023


Posted originally on the CTH on December 27, 2023 | Sundance

If you followed my research on banking and the reality of the Russian sanction regime, this report takes on an entirely new dimension.  The article is from ZeroHedge, and the topline is not the real story.

ZEROHEDGE – The collapse of three US regional banks – First Republic Bank, Silicon Valley Bank, and Signature Bank – marked some of the largest failures in the banking system since 2008. Central banks contained the “mini-crisis” earlier this year with forced interventions and the mega-merger of Credit Suisse and UBS. Despite the interventions, global banks still axed the most jobs since the global financial crisis. 

A new report from the Financial Times shows twenty of the world’s largest banks slashed 61,905 jobs in 2023, a move to protect profit margins in a period of high interest rates amid a slump in dealmaking and equity and debt sales. This compared with the 140,000 lost during the GFC of 2007-08. (more) 

Look carefully at the graphic labeled “global banks.”  What do they all have in common?

These are not global banks, they are all “western banks.”  Do you remember a key component of my trip to eastern EU {Password Protected}.   That part of my research trip was specifically to understand the contradiction between what the west says about the Russian financial sanctions, and the reality of the irrelevance of those sanctions in Russia.

I didn’t talk, I watched; I listened.

Here’s how it really looks from the outside looking at the USA.  The same way the Patriot Act was not designed to stop terrorism but rather to create a domestic surveillance system. So too were the “Russian Sanctions” not designed to sanction Russia, but rather to create the financial control system that will lead to a dollar-based western digital currency.

BRICS+ was creating a non-dollar-based currency alternative for trade. Then comes the western financial sanctions, under the auspices of punishment for the Ukraine conflict. However, think “stopgap.” The sanctions didn’t block Russia, they walled-in the WEST.

The sanctions were not designed to keep Russia out of western banking, they were designed to keep us in.  Start thinking from that perspective, and all of the downstream activity, including the aggressive USA govt/banking response to crypto markets, makes total sense.

♦GROUND REPORT – You might ask how I know the Russian sanctions are ineffective – here’s an example.  After doing advanced research, I went to three separate banks as a random and innocuous customer.  I put my reason in the kiosk at each bank, got my ticket number and sat down to listen to the conversations. When my ticket number came up on the digital board, I just ignored it and sat for hours listening to conversations.  No one ever noticed or questioned me – not once.

At every one of the banks, the majority of the customers, at the “new account” desk, were foreign nationals asking about setting up business accounts to trade with Russia. In every bank the conversations were friendly and helpful, with the bank staff telling the customers exactly how to set up their account to accomplish the transactions.  No one was saying no; instead, they were explaining how to do it in very helpful detail.

Within Russia, there are now 3rd party brokers with international accounts, an entirely new industry, which creates a layer of transactional capability for the outside company to sell goods into Russia.  A Samsung TV travels from South Korea to the destination in the RU with the financial transaction between manufacturer and retailer now passing through the new ‘broker’ intermediary. Essentially, that process is what was happening in the banks for small to medium sized companies.

The USA led “western” sanctions against Russian interests were not designed to keep Russia isolated financially, they were designed to keep USA and Western banking customers walled in.  The end goal?  To create a dollar based CBDC for western finance.

In order to accomplish that goal, WESTERN govt/banking needs full control.  Any alternative (BRICS+ currency/trade) is a threat.

The Western sanctions created a financial wall around the USA, not to keep Russia out, but to keep us in.  The Western sanction regime, the financial mechanisms they created and authorized, creates the control gate that leads to a “dollar based” digital currency.

In essence, the Ukraine war response justified a system that creates a digital dollar.

The loss in “western banking” jobs, the downsizing within the banking system, is a feature – not a flaw.

Dec 1 2023

Bank Acquisitions Coming 


Posted Originally on Dec 1, 2023 By Martin Armstrong 

Bank Broken

A recent report by KBW Regional Banking Index (KBW) suggests that Comerica, Zions, and First Horizon are at risk of being acquired by greater competitors. Larger banks with strong returns, such as Huntington, Fifth Third, M&T, and Regions Financial, are positioned to grow by acquiring smaller lenders. Additionally, KBW analysts noted that Western Alliance and Webster Financial could also consider selling themselves. The report highlights that regional banks with assets between $80 billion and $120 billion are facing increasing pressure on returns and profitability, making them potential targets for acquisition by larger rivals.

This analysis underscores the challenges faced by banks in this asset range, as they have the lowest structural returns among banks with at least $10 billion in assets, necessitating growth to help pay for upcoming regulations. The report also mentions that banks with higher returns, such as East West Bank, Popular Bank, and New York Community Bank, could end up as acquirers rather than targets. This analysis reflects the evolving landscape of the banking industry and the potential for consolidation among regional banks.

Three banks have already collapsed in the US this year. New proposed regulations would require banks with over $100 billion in assets to hold onto long-term debt equal to 3.5% of total assets or 6% of risk-weighted assets. Now banks just below the $100 billion mark will potentially face the burden of adhering to these new regulations. Regional bank shares have fallen by over 20% this year. Smaller banks are already struggling to remain profitable, while midsized banks will be forced to join a larger banking organization to stay afloat.

Aug 10 2023

Moody’s Slashes Bank Ratings


Aemstrong Economics Blog/Banking Crisis Re-Posted Aug 10, 2023 by Martin Armstrong

Moody’s has cut the credit ratings of ten small and mid-sized banks. The agency cited higher funding costs, rising interest rates, and increased risked due to the failing commercial real estate sector. M&T Bank, BOK Financial, Webster Financial, Pinnacle Financial, Old National Bancorp, and Fulton Financial were among the banks that received downgraded ratings.

But it does not stop there. Moody’s is also reviewing six giant banks, including Trist Financial, Bank of New York, Cullen/Frost Bankers, State Street, Northern Trust, and US Bancorp, as they may also be downgraded. Eleven other banks such as Capital One, Citizens Financial, and Fifth Third Bancorp has their ratings changed to negative. Moody’s predicts a “mild recession” on the horizon for 2024. They believe the quality of assets will decline with certain banks facing increased risks due to their commercial real estate (CRE) portfolios.

“U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody’s analysts wrote in an accompanying research note explaining the decision. The agency also noted that investors are vulnerable “to a loss of confidence.”

The US banking system is failing. Moody’s noted that rising interest rates would “exacerbate” the ongoing banking crisis, and they foresee the Federal Reserve continuing with hikes for longer than anticipated since inflation was never transitory. The Fed maintained artificially low rates for too long, and their attempts to ease inflation by hiking rates are failing, as is the ECB’s. We will see the behemoths like JPMorgan Chase sypher in failing banks, making it easier for agencies to switch to CBDC. European banks will be the first to fail, so keep an eye on Europe.

Aug 3 2023

They See It Coming – Fitch Joins S&P to Downgrade USA Credit Rating


Posted originally on the CTH on August 2, 2023 | Sundance 

Collapse is never a sudden occurrence; it is an outcome of gradual erosion over time. A weakening that takes place almost invisible to those who pass through the construct, until eventually, at an uneventful time in the mechanics of history, the process gives way.

Fitch has joined with the prior position of Standard & Poors to downgrade the USA credit rating. The weight of debt, in combination with reverberations from the continued hammering deep inside the political fundamental change operation, has triggered another flare.

In the bigger picture, this is a self-fulfilling prophecy driven by the latest focus on unsustainable economic policy, aka The Green New Deal. The efforts of the fiscal, monetary and economic policy are all aligned to shrink the U.S. economy, thereby creating the era of “sustainable energy” a possibility. Unfortunately, this is akin to a household intentionally shrinking their income while at the same time taking on credit card debt. The process itself is not sustainable.

(Reuters) – Rating agency Fitch on Tuesday downgraded the U.S. government’s top credit rating, a move that drew an angry response from the White House and surprised investors, coming despite the resolution of the debt ceiling crisis two months ago.

Traders’ immediate response was to embark on a safe-haven push out of stocks and into government bonds and the dollar.

Fitch downgraded the United States to AA+ from AAA, citing fiscal deterioration over the next three years and repeated down-the-wire debt ceiling negotiations that threaten the government’s ability to pay its bills.

[…] “In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” the rating agency said in a statement.

U.S. Treasury Secretary Janet Yellen disagreed with Fitch’s downgrade, in a statement that called it “arbitrary and based on outdated data.”

[…] In a previous debt ceiling crisis in 2011, Standard & Poor’s cut the top “AAA” rating by one notch a few days after a debt ceiling deal, citing political polarization and insufficient steps to right the nation’s fiscal outlook. Its rating is still “AA-plus” – its second highest.

After that downgrade, U.S. stocks tumbled and the impact of the rating cut was felt across global stock markets, which were in the throes of the euro zone financial meltdown.

In May, Fitch had placed its “AAA” rating of U.S. sovereign debt on watch for a possible downgrade, citing downside risks, including political brinkmanship and a growing debt burden. (read More)

What do Barack Obama and Joe Biden have in common?  They were both in office, executing an identical economic, fiscal and monetary policy, when the USA credit was downgraded.

May 30 2023

Turkey & the Election


Armstrong Economics Blog/Turkey Re-Posted May 30, 2023 by Martin Armstrong

QUESTION: Mr. Armstrong; I’m not sure if you remember me. I was with the Islamic bank that our board ordered we were to open a branch in Turkey and we turned to you to create a hedge since the Turkish Lira was not a tradable market. You saved the bank a fortune and I think that was the first synthetic hedge anyone ever created back in the ’80s thanks to your computer correlations.

The press was claiming that Erdogan would lose and that would be a victory for democracy that would send a message to strongmen rulers in other parts of the world. Well, they got that one wrong and we have the same type of democracy that the rest of the West has – career politicians entrenched for life. Now the press is all flustered saying this victory for Mr Erdogan is sending a message to people like Modi in India as he faces his third general election within the next year that he too can win.

I remember the forecast you told the bank back then that come 2026, Turkey might break with NATO and align with Russia in hopes of restoring its former glory of the Ottoman Empire. Well, I thought that was rather way out there back then. Today, I see how that is now perhaps a 50/50 bet.

Has anything ever changed in your computer on that very long-term forecast since the other one you had said the British pound would fall from $2.40 to par and that seemed farfetched as well but the computer was correct.  Would you care to comment on Turkey?

ABD

ANSWER: Oh yes, I remember you. The ’80s were the wild times. If I am correct, we bumped into each other in the early ’90s in an elevator in London. No, nothing has changed. This was the turning point and it still appears to be building up but a break with NATO is still possible post-2024 increasing in intensity for 2026. Your memory is very good still. Erdogan is not a fool. He sees the Ukraine mess and how the West is deliberately creating WWIII. He sees the opportunity ahead even if he does not articulate it publicly. We have reached the 340-year mark from the 1683 attempt of the Ottoman Empire to conquer Europe. We are approaching the 4th wave from 1683 and that is 344 years. So we are on target and nothing has changed.

May 9 2023

Powell on Bank Acquisitions


Armstrong Economics Blog/Banking Crisis Re-Posted May 9, 2023 by Martin Armstrong

After the FOMC decision, Jerome Powell stated during his Q&A that the Federal Reserve does not have a plan to consolidate banks. “I personally felt that having small, medium, and large were a great part of our banking system,” Powell stated, noting that they all serve different customers. Powell said it could have been a good outcome had one of the regional banks bought failed First Republic instead of JPMorgan Chase. However, the chairman noted that the FDIC mandates that banks be acquired using the least costly resolution option.

The FDIC says it does not give preference to bidders. How can a bank qualify? According to the FDIC website: “Bid lists are created for each acquisition opportunity based on potential acquirer’s qualifications and interests and characteristics of the failing bank such as capital ratios, regulatory ratings, assets and core deposits as reported on the most recent Call Report and geographic location of the bank. Each bid list is developed using several criteria sets to identify approved potential bidders for an acquisition opportunity, while considering factors that match likely approved bidders to an acquisition opportunity.”

Due to the recent banking failures, the FDIC has also created guidelines specifically for failed bank acquisitions:

“The FDIC markets troubled institutions to healthy insured depository institutions. The FDIC is statutorily required to resolve failed institutions using the least costly resolution option minimizing losses to the Deposit Insurance Fund. The FDIC's primary objective is to maintain financial system stability and public confidence. Returning assets to the private sector in an orderly manner at the best price is another key objective. The FDIC also tries to reduce the impact on the community.

Recapitalization before failure is the preferred method to resolve open troubled financial institutions. FDIC markets institutions in case a failing institution is not able to resolve its issues on its own. If an insured depository institution is unable to resolve its issues, the FDIC will implement its resolution process by which qualified bidders may seek to acquire the assets and assume the liabilities of the failing institution.”

Obviously, smaller banks will not have the ability to compete. All banks are struggling with liquidity issues, and mid-sized institutions will likely be unable to offer the “least costly resolution option.” Ideally, they want failing banks to be attained prior to failure, and only large institutions can provide that cushion. Nothing in the FDIC guidelines at the time of this writing currently limits what a large institution could acquire. The computer states that we will see more banking failures across the globe. Based on these guidelines in the US, it is reasonable to assume that large banks like JPMorgan Chase will benefit from future acquisitions and continue to grow. It is unclear whether banking monopolies are permitted under the 1890 Sherman Antitrust Act, but it remains to be seen what alternatives the system will have as more banks go under.