Posted on 10/17/2014 5:02:50 PM PDT by Morgana
Submitted by Simon Black via Sovereign Man blog,
For a casual observer of the US economy (most “experts”), you could say that things look pretty good. Unemployment is at its lowest rate in six years. Earnings of S&P 500 companies are higher than ever, while their debt is lower than it’s been in the last 24 years.
Nonetheless, rather than getting excited for good economic times, the big commercial banks are all battening down the hatches. They’re preparing for bad times ahead.
I often stress the importance of being prepared, so in theory, that should be a great sign.
But then, you look at what they are “defensively” investing in, and you see that what they consider as prudence is simply insanity.
What banks are stockpiling these days are US government bonds, and they’re not doing this casually, they’re going nuts for them.
In just the last month alone American banks increased their holdings of US treasuries by $54 billion, to a record $1.99 trillion.
Citigroup, for example, held $103.8 billion worth of bonds at the end of June, up 19% from the end of last year.
This is like preparing for an earthquake by running out and buying whole new sets of porcelain dishes and glass vases.
(Excerpt) Read more at zerohedge.com ...
better than buying bonds from Argentina
“But that’s nothing compared to the long-term threats of the US government not being able to repay the loans.”
The last time that the United States failed to pay the interest on its debt was....... never. The US has paid on time since Alexander Hamilton became the first Secretary of the Treasury and reorganized the debt inherited from the Continental Congress in 1789.
The article is ridiculous.
Maybe they’re being persuaded. Wouldn’t want to lose that FDIC coverage.
I am no banker and I took Money and Banking at UNC 66 years ago under Dr.; Guttmann, a German Jew who fled Hitler and whose accent was so thick that I understood very little.
But if I had to bet, I would bet that there is no money and banking reason behind their purchasing so much US debt.
I would bet that they are being pressured, just as they were in the days of TARP, by the federal reserve.
The feds can’t buy any more treasury bonds, but they need money so who would you turn to if you were the treasury?
As Willie Sutton said when asked why he robbed banks; “Because that is where the money is.”
I just hope that it ends there and does not end up raiding pension and investment funds.
They can always print the money to pay the interest. But the question is will the money be worth anything in the future?
The last time that the United States failed to pay the interest on its debt was....... never. The US has paid on time since Alexander Hamilton became the first Secretary of the Treasury and reorganized the debt inherited from the Continental Congress in 1789.
The article is ridiculous.
But when in our history have we had 85 trillion in total liability, counting unfunded pensions?
To say something will never happen only because it has never happened in the past is real nonsense.
That is like saying your house never has burned, so it never will so you really do not need insurance.
Bury your pension and investment funds in the back yard and keep a lot of pit bulls around.
Bury your pension and investment funds in the back yard and keep a lot of pit bulls around.
“Money of the Mind.” As Jim Grant would say....
fyi
From the article:
Beyond that, regulations imposed after the last crash to reduce risk require banks to hold $100 billion in liquid assets, which of course includes bonds. Thus, they are not only encouraged, but actually forced to buy government bonds.
fyi
The important number is the amount of money required for debt coverage as a percentage of GDP. Do you see that number anywhere in the article? Of course not because it’s a stupid scare story and not something that anyone schooled in finance would take seriously. Banks buy Treasuries because they are the safest investment that they can make.
We run a funded public debt as set up by Hamilton and it hasn’t failed to pay in 225 years, despite 5 major wars and the Great Depression.
“The feds can’t buy any more treasury bonds, but they need money so who would you turn to if you were the treasury?”
The Federal Reserve can buy the entire Treasury issue if it wants to. It’s called monetizing the debt. There is nothing prohibiting it from doing so.
In other news from Fantasy Land...
“They can always print the money to pay the interest.”
They aren’t going to do that. The last one to do something like that was Lincoln when he suspended the gold standard and issued Greenbacks.
What’s important to watch is the ‘Interest Expense on the Debt Outstanding’ as a percentage of total tax receipts to the Treasury.
They got their back scratched and now they have to scratch back?
“regulations imposed after the last crash to reduce risk require banks to hold $100 billion in liquid assets, which of course includes bonds. Thus, they are not only encouraged, but actually forced to buy government bonds.”
That doesn’t force them to buy bonds. It does force them not to get overextended. Banks took on too much risk during the bubble.
Folks, some large amount of those bonds are purchases on behalf of the Federal Reserve. The FED orders its member banks to buy bonds and those banks resell the bonds on the open market, but mainly to the smaller banks downstream who may be taking advantage of the FED’s fund rates. Some of what is thought to be expansion of the money supply is actually this buying behavior, instead.
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