Friday, April 24, 2020

Fed official uncertain how economy will fare during the coronavirus crisis

From: Ron

https://www.cbsnews.com/video/coronavirus-crisis-fed-official-neel-kashkari-uncertain-how-economy-will-fare-60-minutes-2020-03-22/

Linda,

Thank you.

Kashkari gives direct answers regarding the integrity of the banking system.
Based upon review of independent economists not associated with the Fed. or Treasury I would disagree with a few minor points.

There never was a true recovery from the 2009 "Great Recession" as Kashkari claims.
There was an insolvency problem.
The Fed. at that time created money but the underlying debt including at that time approximately one trillion in total derivatives worldwide was never addressed.

Eleven years later total debt private and public has quadrupled including hypothecation of collateral

In essence the same collateral is now being used to secure multiple debts.

In addition,total derivative value worldwide could be as high as one quadrillion.

This is never discussed in TV.

Kashkari discusses corporate debt and lack of confidence but the much larger problem affecting Americans is government debt.

Governments at all levels are insolvent.

The US admits to $23 Trillion($23,000 billion) in debt.

The Federal government has signed on to $212 Trillion in obligations such as SS and Medicare
(Source Professor Kotikoff ; Princeton Dept. of Economics).

There is an additional $23 Trillion missing from HUD and DOD over a ten year period.
These were made as unexplained adjustments in their yearly budgets.
HUD and DOD budgets are no longer available to the public for different reasons.
(source: Dr. Mark Skidmore; Univ. Of Mich.,Dept. of Economics.)

Total government and private student loan debt is between $1.5- 2 Trillion.
About 15% of student debt is in default.
Perhaps as much as 50 % would be in default but for IBR
(Income Based Repayment whereby the borrower pays as little as $0. per, mo.)
A defacto default?

State and municipal debt is an overlay on this already intractable national debt.
California admitted debt is about $550. billion.
The total state pension deficit is over $One trillion
(source:Brookings Institute).

As Kashkari explains infinite money can be created but what he doesn't mention is at a cost in the value of the dollar.

Historically governments never pay back all their debt.
(Bulgaria did in the early 1930s then went bankrupt shortly thereafter).
Governments create money until confidence is lost in the issuer and the money becomes worthless.

The value of the dollar is currently about 102.
USDX as of this AM and rapidly rising because as the reserve currency most contracts are denominated in dollars and parties to those contracts cannot find enough dollars for their obligations.
At some point the dollar value will be the last currency to collapse as those contracts are breached for lack of payment.

I state all this because simple Fed, money creation is not the entire picture.
If it were so governments could just print as much money as possible for all payment.

What is currently holding the dollar up is money especially from Europe rushing into the US
to avoid a broken EU system including negative interest rates.

Am not a financial advisor but I have taken cash out of banks for tangibles that remain in my possession
( just as the Wells Fargo mgr. was attempting to do.)
Bargains given the current high dollar value.

Leaving all money in banks paying little or no interest may not be wise in my humble opinion.

Couple other points.
Since the end of 2015 depositors under Federal law are now considered unsecured creditors loaning money to the banks.
Banks are no longer viewed as fiduciaries.
As unsecured creditors depositors are last in line at a bankruptcy filing.
FDIC insurance is only funded at about 1.5% of total insured deposits in the US.
In the event of bank failures FDIC would also need to go to the Fed.

Just my thoughts,

Ron

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