U.S. Financial System: Is It Finally Stable?

By Elliott Wave International

Four years after we brushed up against "financial Armageddon," did you think you'd be reading this?

Federal Reserve Chairman Ben Bernanke said...banks need to have more capital at hand in order to ensure the financial system is stable. Bernanke said regulators were taking steps to force financial institutions to hold higher capital buffers...

- Reuters, April 9

It appears our financial system is still not as stable as it needs to be. But guess who relaxed the banking system's "capital buffers" in the first place?

The Fed increased the credit in the system in the 1990s by the de facto removal of reserve requirements for banks.

- Robert Prechter, Elliott Wave Theorist, November 2011

Prechter's September 2011 Theorist provides this additional insight:

In the late 1990s and mid 2000s, the loan-to-deposit ratio for U.S. banks was nearly 1.00, meaning that almost all deposits were lent out. That shortfall alone was a serious problem, because if even 5% of depositors had decided to withdraw their money, banks would have been unable to pay. Some of the banks' loans were quickly callable, but by 2006, the credit-fueled real estate boom had claimed a large percentage of outstanding loans, both inside and outside the banking system. These loans are not quickly callable. The problem was serious in 2002 and enormous in 2006. Now it has become acute, because many loans are becoming fossilized, as the market for mortgage investing has dried up while foreclosures on the "collateral" have been slowed by court actions and politics.

The specter of a banking panic has become far darker since the collateral for bank deposits -- land and buildings -- has fallen globally in value at the steepest rate since the Great Depression. One day this shortfall in collateral value will impress itself on people's minds, and there will be an unprecedented run on banks around the globe as panicked depositors try to become the first ones out the door. Banks are designed so that the first depositors to withdraw get 100%; the losers wait in a long, slow line to split the proceeds that come from selling the deeds. Yes, I know about the FDIC, but I don't believe it will be able to fulfill its promises when most banks go bust.

We believe that you should plan ahead for a run on bank deposits. Let me share with you another excerpt from that Reuters article. These are direct quotes from Bernanke (emphasis added):

Additional steps to increase the resiliency of money market funds are important for the overall stability of our financial system and warrant serious consideration...

The risk of runs ... remains a concern, particularly since some of the tools that policymakers employed to stem the runs during the crisis are no longer available...

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8 thoughts on “U.S. Financial System: Is It Finally Stable?

  1. It is hard to put your trust in the US Financial System, when political leaders not only refuse to prosecute those running the show on Wall Street, but instead put them in charge of the Treasury department, where they continue to monetize the Federal debt and debase the US dollar.

    As Jim Willie says, the "Too big to fail" label has now morphed into "Too hot to touch"; the ability to create endless amounts of electronic/paper dollars effectively gives the banking syndicate unlimited power. This includes the power to buy US elections and elected officials, continue with endless naked shorts of precious metals in order to prop up the US dollar, and direct US foreign policy/military to act against anyone perceived to be working towards ending the status of the US dollar as the global reserve currency.

    For those of us living here in the US, there are not necessarily any simple solutions to avoid the increasing chaos, which surely will continue to increase. I agree that it is a good idea to own physical gold and silver, but I can't help but remember that gold has previously been confiscated by the Federal government.

    This makes me think it is perhaps wisest to get yourself a living situation where you can survive during any sort of breakdown. For me, this is enjoyable, as I like gardening, fishing and working outdoors, With food prices going through the roof, it isn't a bad idea to have some sort of fallback position, regardless of food availability. The mid-size city where I live has just made it legal to have some of your own chickens . . . plant a couple apple trees in your yard, too! In other words, don't put all your eggs in the gold and silver basket, put some real eggs in there, too. Even if all hell doesn't break loose, you will still have fresh eggs!

  2. We've had a pull back in commodities not included in CPI which should change it's designation as it addresses nothing concerning Primary Consumer needs like food and fuel. Grains are rebounding which signals a probable continuance of real inflation by rising food and fuel prices. If we reflect on the historically continuing reduction in dollar purchasing power and the massive issuance of currencies throughout the world, a rising price of life sustaining commodities is very probable.

    When we combine this with continuing movement of our industry's hiring movements to emerging markets and non-repatriation of profit to America added to the socialization of our Federal Government, we have challenges.

  3. If you had $1,650 in cash in one hand now, and an ounce of gold in the other hand, which hand would have the better store of value in 2020? If you think your cash will still be worth the same amount and hold the same value, I have some swampland to sell you in Arizona.

  4. "Buy a safe and sock some cash away." really ???

    US cash may take a big hit here and the mob or the gov. will be searching for your safe........so buy a shovel and bury gold and silver at night without your iPhone turned-on .........even though there's a app for that.

    1. What happened to GOLD in 2008 when the market tanked. Look at the chart and that is what will happen again. It's called "All the same markets"

  5. WOW! A very painful read and such a high probability of actually happening. I can tell by all the Fed comments and actions that they are extremely concerned about deflation. We are living in interesting times. Buy a safe and sock some cash away.

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