Certainly the upcoming elections in the United States and the ongoing wars in Ukraine and the Middle East are sufficient reasons to go through the ‘fine’ economic news that would otherwise at least cause questions. One of these questions is worth paying attention to as it literally concerns the “Next Day” in the Economy, whatever the polls in the US or the war fronts in Ukraine and the Middle East take out. Lagarde, in excellent English now, informed yesterday with statements to the international financial press that inflation is well-founded in the ECB towards the 2% target. But he still does not consider that we are done with this problem. And as a culmination he mentioned the ECB’s assessment that in the coming months we will have a new rise in inflation. We put aside the extreme contradiction of its statements on inflation and move on to the interesting reference with which it completed its statement. According to the “addition” this claimed that, in 2025 there is the possibility of a “shock”. No further explanation. And without her being asked for such… What is this possible “shock” within 2025? Because the ECB’s competence concerns the banking system and its stability it is worth taking a look at some interesting elements that came from the other side of the Atlantic by the FDIC (Federal Deposit Insurance Corporation) and which may “lighten” the picture somewhat. According to the data released by the FDIC the day before yesterday, there is an almost vertical increase in ‘red loans’ to banks with assets over US$250 billion. That is to say, the large banks, not the small and medium-sized ones that began to go bankrupt in the spring of 2023 with the sharp increase in interest rates. Among them it identifies 66 ‘foreign’ banks including European banks without being called. At the same time it gave evidence of an extreme increase in so-called “unrealised losses” at levels exceeding half a trillion dollars (515 billion dollars). To understand this size to say that it is seven times greater than it was just before Lehman Brothers collapsed in September 2008. How has this ‘event’ been dealt with ‘pre-election’ in the US? It is dealt with on the one hand by a decision of the competent institutions which drastically reduces Basel III’s commitment to increase own funds. As a partner in the storm of the vertical increase in ‘red loans’, the method known to us to transfer the problem to the future has been chosen. How? Through securitisations, with a ‘new’ product that converts ‘loss’ into an asset asset which is subsequently sold. In other words, loans found to expire ‘red’ in 2024 are extended for 2025 or 2026 and their instalments are replaced by a single payment in the ‘new’ maturity period. This loan is then ‘securised’ by guarantee or without guarantee, (depending on the loan) and sold as an asset with a new maturity. On this issue has already been warned (with a relevant working paper) by the New York Fed, as we are told, already a few months ago, as well as the risk of finding the banking system in the face of a new crisis cycle that will have nothing compared to that of March 2023 with the small and medium-sized banks. We recall that in 2008 the banking crisis started somewhat like this, but with much less “explosive” in the system. And it was extended to the Eurozone – the US & EU banking systems – in time dt. Among the victims, as we know, the Greek banks which still need their “pills” (postponed taxes, NPLs securitisations, etc.) to get up from the …bed of the TSF… For the ECB and Mrs Lagarde, no relevant public reference has been made to these problems. And it is understood that by November 5, no one will refer to them. Nevertheless, Eco-clastics are able to know from a reliable source – informed by being at the IMF Summit – that “at least two closed doors, meetings” were held at which high-ranking Fed officials informed their European colleagues. In the context of this information it was assured that “the situation is in the knowledge and control of the competent authorities”, but it was admitted that “the situation presents serious risks” combined with the extreme and almost uncontrolled increase in debt. According to the IMF data, the attempted loan by the Washington government by the end of the year is increasing at a rate similar to that of the first year of the pandemic (!). That’s how things seem to be, and it would be nice to see what’s coming over the elections on November 5th.
What is the shock Lagarde warns about 2025 and what does it have to do with banks?
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