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I read that there is lot of banks in the US and the world yes small, medium and big banks that have massive debt problem and it been going on for years and years. I ask just how bad the problem is and could it crash and cause bank run on like in Argentina? If this happens the US dollar would be worthless.
I read that there is lot of banks in the US and the world yes small, medium and big banks that have massive debt problem and it been going on for years and years. I ask just how bad the problem is and could it crash and cause bank run on like in Argentina? If this happens the US dollar would be worthless.
And what about the corporate debt problem?
There is for sure a bank debt problem for the banks that proportionally hold too much in non-hedged long term government bonds and have seen deposits swell over the last couple three years. It's an easily solvable/manageable problem tho.
As a percentage of GDP corporate debt in The US is very similar to 5, 10, 15 year ago. And fairly low among G7 and OECD countries + China. Much lower than Canada, France, Sweden, Switzerland, Japan, China and many others.
Private sector debt as a percentage of GDP (non-financial corporate + household) over the last many years is down.
Corporate debt as a percentage of equities is very low. Lots of companies restructured debt under the incredibly low interest rates of the past several years. https://fred.stlouisfed.org/series/NCBCMDPMVCE
Corporate debt as a percentage of net worth has been bouncing around at the same level for a while. However, if corporate debt has been locked in at a low interest rate, then it really isn't as much of a concern. https://fred.stlouisfed.org/series/NCBCMDPNWMV
I do not perceive that banks have made a plethora of bad loans, in contrast to what they did in the years leading up to the 2008 mortgage crisis. So they are not facing a bankruptcy problem but, as mentioned, a liquidity problem due the drop in mark-to-market value of long-term bond holdings. So the Fed can easily remedy that. Problem for the banks, of course, is low profitability, also in the face of competition to their core businesses, such as payment agent, from technology companies branching out into consumer financing. I, for one, do very little business with 20th-century style brick-and-mortar banks.
As for corporations, many borrowed at rock-bottom rates over the past 10-15 years, though certainly those who have to rollover now will face higher interest expense. Yet I see most corporations either maintaining and a few increasing dividend pay-outs.
I do not perceive that banks have made a plethora of bad loans, in contrast to what they did in the years leading up to the 2008 mortgage crisis. So they are not facing a bankruptcy problem but, as mentioned, a liquidity problem due the drop in mark-to-market value of long-term bond holdings. So the Fed can easily remedy that. Problem for the banks, of course, is low profitability, also in the face of competition to their core businesses, such as payment agent, from technology companies branching out into consumer financing. I, for one, do very little business with 20th-century style brick-and-mortar banks.
As for corporations, many borrowed at rock-bottom rates over the past 10-15 years, though certainly those who have to rollover now will face higher interest expense. Yet I see most corporations either maintaining and a few increasing dividend pay-outs.
I don't usually buy into the "this time is different" mantra, but the holdings of bad loans today compared to 2008 are like night and day.
The first one appears to be that there is roughly $700 BILLION of losses on debt on bank balance sheets which is marked (not to be confused with marked to market, which it isn't) as "Held to Maturity. In other words, if the banks marked these bonds to market, they would have roughly $700 Billion in losses to run through their P&L.
Now, the next question is how much equity do these banks have? According to one source they have $2.2 Trillion of Equity.
That should be sufficient to carry them through a run, but of course the next question is liquidity, which is what usually sinks a financial firm. They might have the assets, but they can't convert them to cash quickly enough to stem the tide.
The US dollar and other worldwide currencies are already getting close to being worthless.
In the past, a working-age blue-collar worker would be able to buy a house and raise a family on just one income.
The only people who can do that these days are the wealthy.
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