Loading ...Former Goldman Banker Reveals The Path To The Next Depression And Stock Market Collapse
Zero Hedge
No one in either political party mentioned any of this during the mid-term elections. Yet, our political-financial system has gone from the dysfunctional to the failed to the surreal. Speculation, once left to individuals and investors, is now federally sponsored, subsidized and institutionalized. When this sham finally buckles and the next shoe falls and rates do eventually rise, the stock market will tank, liquidity will die, and the broader economy will plunge into a worse Depression than before. We are not there yet because of these coordinated moves and the political force behind them. But we are on a precarious path to that inevitability.
Last quarter, US Treasuries were the fastest growing form of security bought by banks, increasing by 26.3% or $72 billion over the prior quarter. As the Fed tapered, banks stepped in to do their part in the coordinated Fed-private bank QE game. In the past year, banks have added $185.8 billion of US Treasuries to their books, more than doubling their share of government debt.
Just seven banks comprised nearly all ($70.5 billion) of this quarterly increase: State Street Bank, Capital One, JPM Chase, Wells Fargo, Bank of America, Bank of NY Mellon and Citigroup. By the end of the third quarter of 2014, Citigroup, with $95 billion, was the largest holder of US Treasuries, followed by Bank of America at $54.8 billion and Wells Fargo at $37.8 billion from nearly zero at the start of 2014. Bank of NY Mellon holds $25.3 billion and JPM Chase holds $15 billion US Treasuries.
This increase in US Treasury holdings reflects another easy money element of our federally subsidized banking system. Banks take deposits from individuals for which they pay close to zero in interest, in fact, charge customers fees for keeping their money (courtesy of the Fed’s Zero-Interest-Rate policy.) They can turn that around to make a cool risk-free 2.3% by parking the money in 10-year US Treasuries. Why lend to Joe the Plumber, when the US government is providing such a great deal?
But, the recent timing here is key. Banks only started buying US Treasuries in earnest when the Fed announced its tapering plans. Thus, not only are they participants in the ZIRP game as recipients of cheap money, they are complicit in effecting monetary policy. As the data analyzed so expertly by Bill Moreland at www.BankRegData.com makes clear, there has been no taper. Thus, the publicized reason for tapering – better job and economic growth – is also bogus.
During the third quarter, Wells Fargo and Bank of America matched Fed purchases of US Treasuries, keeping the total amount of US Treasuries in QE land
neutral. With such orchestration to keep rates down and the prices of US Treasury securities up, all the talk about whether the labor force is strengthening or inflation exists or not is mere show. Banks haven’t even propped up the labor market in their own industry. They chopped 11,400 jobs last quarter. In the past two years, they cut 57,236 jobs.