The banking shell game sponsored by your bailout dollars – how banks lure working and middle class Americans into losing hard earned money. $29.5 billion in overdraft fees charged last year.
Banks really have a wonderful structure in place at least when it comes to US banking. The Federal Reserve and US Treasury have given an open ended response in terms of bailing out the banking system should any additional financial crisis should arise. Even at the moment no real changes have occurred and this is troubling given the headwinds that are approaching. In the US the largest banks, the too big to fail variety, charged Americans over $29.5 billion in overdraft fees last year. This ludicrous figure was released in a recent Pew Research study showing that banks have no desire in consumer protection and would rather operate like a loan shark. If you calculate the annual percentage based on these short-term “loans†you would understand that the overdraft piece of the pie is too lucrative to banks but provides no real service. Banks would argue that they are helping the public access money when they need it. If we did a survey, I think most would opt out of paying $35 for a burger or for a cup of coffee. Yet this is part of the larger banking shell game still going on.
The dark financial clouds engulfing Europe. CBO projects massive deficits yet Treasury Bills move lower on global mattress bet.
The Congressional Budget Office released national debt projections showing the US Federal debt will surge to over 200 percent of GDP in the next two decades. Or maybe it will go under 100 percent. It is an interesting wide range projection. You only have a few options to remedy the situation and for the moment it appears that we are simply gliding on momentum. In Europe the markets seem to think that simply adding more debt to a debt crisis is somehow the solution. As if Greece will grow out of their predicament just because central banks extend more loans with more obscure terms and conditions. While this front is presented to the public behind the scenes money is quickly preparing and gearing up for a second phase of the financial crisis.
The day the credit markets awake from a slumber – $1 trillion in consumer debt currently delinquent. Student debt continues to grow adding fuel to the higher education bubble.
With much of the attention being diverted to the cascading financial crisis in Europe something was missed in the United States. The incredibly important quarterly consumer credit report released by the Federal Reserve highlighted some disturbing trends. The first overall point is that the American consumer continues to deleverage. Yet with a system built on massive debt and consumption this can only mean a contraction. In the report however the total amount of student debt outstanding grew a whopping $30 billion in one quarter bringing the official total to $904 billion. This should tell you a few things about debt in the US. The first point is that debt backed by verifiable income is falling based on stagnant wages and debt based on easy financing (i.e., student debt) continues to expand. The report also showed that total household debt fell by $100 billion in the last quarter highlighting the continued austerity being experienced by many Americans.
The end game of global leveraged debt – double-digit percentage point market declines in Europe and Japan and the danger of refinancing debt with longer term debt.
There is a painful realization that shifting debt around like a game of musical chairs has little merit unless real production is achieved as an end result. May was a disappointing month for markets in general. While the S&P 500 certainly fell, markets in Japan and Europe took double-digit declines. The massive amount of leverage and debt is simply being shifted around via Long Term Refinancing Operations (LTROs) in Europe. The market has little faith in this since a day of reckoning is hard to avoid even though large financial institutions seem to think they can shift away risk via fancy algorithms. To the contrary, these formulas have perfected a system that is simply dismantling the US middle class. A financial crisis built on debt is trying to find a solution in higher levels of debt via these same institutions.