Global Banks Face $5 Trillion Credit Squeeze

Money News ^ | 07/21/10 | Dan Weil

[TigerLikesRooster]

Global Banks Face $5 Trillion Credit Squeeze

Wednesday, 21 Jul 2010 08:43 AM

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By: Dan Weil

Banks across the globe had to raise trillions of dollars in capital as a result of the financial crisis, and now the bill for that borrowing is coming due.

It’s not a pretty picture. Worldwide, banks must repay or roll over $5 trillion of debt to bondholders and other creditors through 2012, according to the Bank for International Settlements.

“There is a cliff we are racing toward — it’s huge,” Richard Barwell, an economist at Royal Bank of Scotland, told The New York Times.

“No one seems to be talking about it that much. (But) it’s of first-order importance for lending and output.”

[TigerLikesRooster]

P!

[rbg81]

Not sure why this is such a big deal. These banks can issue new bonds at (likely) lower interest rates. Or am I missing something.

[hkp123]

Only 5 trillion? try 500 trillion, then we’ll talk.

[steveab]

Just print more money. That’s always been the answer.

[4Liberty]

[4Liberty]

img src=” http://conservativedatingsite.com/blog/wp-content/uploads/2010/06/Obama_Who_Will_Pay_Piper_01_440x329.jpg";>

[4Liberty]

[4Liberty]

[Pelham]

I think one problem is that there aren’t enough savings in the entire world to finance the predicted loan demand.

[rbg81]

Savings? You’re so old fashioned. You do realize they’re going to finance this with funny $$ printed out of thin air—right?

[GOPJ]

Thanks for the ping.

[GOPJ]

“There is a cliff we are racing toward — it’s huge,”

Higher interest rates - much higher. Collapsed bond market - many bad stuff...

[Southack]

No, not printed out of thin air...printed to fund new debt that is issued for each new Dollar/Euro/Yen/Yuan issued.

And it is *debt* that is deflationary.

[Southack]

Nope. Lower interest rates as Europe, Asia, and the U.S. track Japan’s response to their 1989 collapse.

Deflation. Government buying its own debt to drive down interest rates.

[Pelham]

Well they don’t actually print anything of course, the new money being credits in the banking system. But there are limits to how much of this new money the economy can absorb. The bond vigilantes watch the amount of debt being monetized, and at some point they will drive up interest rates despite the best efforts of the Fed to hold interest rates down. And that is when the Treasury finds itself in a bind. Higher interest rates mean trouble covering interest on the national debt while still paying for “essential services”.

[Pelham]

Debt itself isn’t deflationary. It’s bad debt that causes deflation by destroying assets in the banking system and making the money supply contract.

[Southack]

Nope. All debt is deflationary because debt accumulation limits credit availability.

[Pelham]

“All debt is deflationary because debt accumulation limits credit availability.”

I don’t know where you get that idea. Deflation is a reduction in the money supply. Debt doesn’t contract the money supply. In fact in a fractional reserve system such as ours an increase in lending actually increases the money supply, something well known to the Austrian School which tends to object to the process.

[Southack]

Nonsense. The money supply is all cash plus all credit. Forgetting the second half of the equation will ruin your math.