The global bank credit crisis
Globally, further falls in consumer price inflation are now unlikely and there are yet further interest rate increases to come. Bond yields are already on the rise, and a new phase of a banking crisis will be triggered.
This article looks at the factors that have come together to drive interest rates higher, destabilising the entire global banking system. The contraction of bank credit is in its early stages, and that alone will push up interest costs for borrowers. We have an old fashioned credit crunch on our hands.
A new bout of price inflation, which more accurately is an acceleration of falling purchasing power for currencies, also leads to higher interest rates. Savage bear markets in financial and property values are bound to ensue, driving foreign investors to repatriate their funds.
This will unwind much of the $32 trillion of foreign investment in the fiat dollar which has accumulated in the last fifty-two years. And BRICS’s deliberations for replacing the dollar as a trade settlement medium could not come at a worse time.
Global banking risks are increasing
Gradually, the alarm bells over credit are beginning to ring. Monetarist and Austrian School economists are hammering the point home about broad money, which almost everywhere is contracting. It is overwhelmingly comprised of deposits at the commercial banks. And this week, even China’s command economy has had credit problems exposed, with another large property developer, Country Garden Holdings missing bond payments.
A global cyclical downturn in bank credit is long overdue, and that is what we currently face. Empirical evidence of previous cycles, particularly 1929—1932, is that fear can spread though the banking cohort like wildfire as interbank credit lines are cut, loans are called in, and collateral liquidated…
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