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A dramatic bank meltdown might soon occur as the economic fallout of the health crisis has greatly shaken global financial stability. America has fallen into such a steep recession that previous crises now look like “good times”. Up until this point, over 70 million jobless claims were registered, and at least 10% of the entire U.S. workforce remains unemployed. The amount of debt accumulated by households and businesses all across the country has made banks record roughly $1 trillion in losses, with hundreds of billions more forecasted. Simply put, the U.S. bank system is on the verge of disaster, and mounting difficulties could spark a bank collapse that is likely to push America even deeper into the economic meltdown. That’s what we’re going to expose in this video.
The challenges ahead are complex and the path is uncertain. Unemployment rates largely exceeded Great Depression levels, hundreds of thousands of businesses have permanently closed, and over 25 percent of small businesses predict declaring bankruptcy in the next six months. Industries such as oil and gas, travel, and retail, were the hardest-hit by the recession and are likely to be completely restructured. For its part, banks were affected by record-low interest rates and a flattened yield curve, which means net interest income has significantly declined. Credit losses are expected to exceed $1 trillion. And the effects of it will extend over many years, perhaps more than a decade.
American banks are burdened with a staggering amount of credit losses. According to experts with the management consulting firm, McKinsey & Company, credit losses may range from $400 billion to $1 trillion between 2020 and 2024, and net interest income may decline by up to $200 billion from its 2019 baseline, considerably compromising revenues over the next 18 months, and possibly sparking a widespread bank collapse.
Consequently, loan, securities, and derivatives portfolios are likely to face extreme downward pressures, setting the stage for a banking collapse particularly considering that several other sources of bank income have already started to dry up. After the previous financial crisis of 2007-08, policymakers tried to improve a series of safeguard measures to reduce the chances of instability in the banking system, which have contributed to the initial resilience seen on the system at the beginning of the current recession.
Some banking sectors, such as shadow banking, however, needed immediate government intervention. The Federal Reserve, then implemented extraordinary emergency measures, including stimulus plans, tax rebates, and record low-interest rates, in an effort to prevent total collapse, since the entire economy was at stake. But as we have repeatedly discussed in this channel, very quickly things spiraled out of control, and the primary response to the issues brought on by the health crisis was the issuance of more and more liquidity.
If policies aren’t reversed and borrowers become massively delinquent on their loans, the potential bank meltdown will affect several other financial institutions, such as pension funds, mutual funds, and insurance companies. Some experts argue that the banking collapse will be fueled by banks greed to make more profits no matter what. Before the health crisis ever started, bankers were repeating the same mistakes they did during the previous financial crisis.
We are seeing the exact same scenario, but the unexpected arrival of a ravaging health crisis added a twist bankers and bondholders couldn’t see it coming. Suddenly, a large chunk of the population and countless businesses lost their ability to meet their loan payments, and so far have accumulated over $40 billion in rental and mortgage debt. The same that happened before is happening once again right now: the subprime mortgage market is becoming a ticking bomb, ready to explode at any time.
The credit crunch will then affect businesses’ and individuals’ ability to financially recover. It can impact entire cities, as major urban centers are witnessing a commercial real estate collapse, and municipal bonds are used to used to fund cities’ maintenance, colleges, and hospitals. Every aspect of the economy will be on the hook. And the higher interest rates go, the lower will be borrowers’ ability to meet their late payments, which will result in more defaults, and worsen the current recession. To put it another way, a bank collapse is only a matter of time, and it will create a financial tsunami that will jeopardize America’s recovery and growth for years and years.
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