U.S. Treasury Secretary Janet Yellen Says US Default On Debt Would Trigger 'Economic Catastrophe'

 

Reuters: US default on debt would trigger 'economic catastrophe,' Yellen says 

WASHINGTON (Reuters) - U.S. Treasury Secretary Janet Yellen on Tuesday warned that failure by Congress to raise the government's debt ceiling - and the resulting default - would trigger an "economic catastrophe" that would send interest rates higher for years to come. 

Yellen, in remarks prepared for a Washington event with business executives from California, said a default on U.S. debt would result in job losses, while driving household payments on mortgages, auto loans and credit cards higher. 

She said it was a "basic responsibility" of Congress to increase or suspend the $31.4 trillion borrowing cap, warning that a default would threaten the economic progress that the United States has made since the COVID-19 pandemic.  

Read more .... 

U.S. Treasury Secretary Janet Yellen Says US Default On Debt Would Trigger 'Economic Catastrophe'  

A US debt default could spark mass unemployment, payment failures, and catastrophe that would raise interest rates 'into perpetuity,' Treasury Secretary Janet Yellen warns -- Business Insider  

Yellen warns debt default would disrupt Social Security payments, raise borrowing costs 'into perpetuity' -- Market Watch  

US default on debt will trigger an ‘economic catastrophe’: Yellen -- Al Jazeera

Some Of The World’s Biggest Economies Are Exploring Ways To Circumvent The US Currency

Bloomberg: Suddenly Everyone Is Hunting for Alternatives to the US Dollar 

King Dollar is facing a revolt. 

Tired of a too-strong and newly weaponized greenback, some of the world’s biggest economies are exploring ways to circumvent the US currency. 

Smaller nations, including at least a dozen in Asia, are also experimenting with de-dollarization. And corporates around the world are selling an unprecedented portion of their debt in local currencies, wary of further dollar strength. 

No one is saying the greenback will be dethroned anytime soon from its reign as the principal medium of exchange. Calls for “peak dollar” have many times proven premature. But not too long ago it was almost unthinkable for countries to explore payment mechanisms that bypassed the US currency or the SWIFT network that underpins the global financial system.  

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WNU Editor: The seizure of Russia's dollar assets was a wake-up call for everyone to start looking for alternatives. Raising interest rates and making the US dollar stronger so that America's inflation crisis can be dumped on everyone else has made this looking for an alternative to the US dollar into a rush.And while I do expect the US dollar to be the main currency that will be used in international trade and contracts, I give it another a decade before this is no longer the case.

First Russian Bank About to Fail

Sberbank Europe AG has "experienced significant deposit outflows as a result of the reputational impact of geopolitical tensions", the ECB said Michal Cizek AFP  

France 24: European subsidiary of Russia's Sberbank 'failing or likely to fail': ECB 

Frankfurt (AFP) – The European subsidiary of Russia's state-owned Sberbank is facing bankruptcy, the European Central Bank said Monday, in the wake of sanctions aimed at punishing Moscow for its invasion of Ukraine. 

Sberbank Europe AG, headquartered in Austria and with branches in Croatia and Slovenia, has "experienced significant deposit outflows as a result of the reputational impact of geopolitical tensions", the ECB said. 

"The European Central Bank (ECB) has assessed that Sberbank Europe AG and its two subsidiaries in the banking union, Sberbank d.d. in Croatia and Sberbank banka d.d. in Slovenia, are failing or likely to fail owing to a deterioration of their liquidity situation," the ECB said in a statement. 

"The bank is likely to be unable to pay its debts or other liabilities as they fall due," it added. 

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Update: Live updates: ECB says Russia bank subsidiary likely to fail (AP)  

WNU Editor: I am trying to find out what exposure do Western banks have in Russia. From what I have found so far, it is a lot. There is going to be shock-waves in the world's banking system this week, but by how much is anyone's guess.

On a side note. With what is happening right now, the US Federal Reserve is probably not going to raise interest rates. 

On another side note. I always buy a small amount of Canadian gold and silver at the end of the month via through my TD account. I like TD because their prices are always the cheapest. Not tonight .... for the first time ever .... the TD Bank is sold out of its supply of Canadian gold and silver.

Are The Next 45 Days The ‘Most Critical Period In U.S. Financial History’?

Market Watch: The next 45 days are the ‘most critical period in U.S. financial history,’ says stock-market expert who profited in 1987 and 2008 crises

After recovering a chunk of the losses racked up during the worst of the coronavirus-induced selloff last month, the stock market finds itself at a crucial inflection point, writes Alan B. Lancz.

“The next 45 days may just become the most critical period in U.S. financial history,” he wrote in a newsletter published Wednesday. “While on average we may face a bear market every 10 years, this one is like no other,” he said.

The contrarian money manager, who is a disciple of famed investor Sir John Templeton, said that the timing and execution of the reawakening of the U.S. economy from its dormancy could be one of the biggest factors in determining how the market recovers from COVID-19, which has forced swaths of businesses to shut down to help stem the spread of the deadly contagion that has infected more than 2 million people and claimed 137,000 lives, according to data aggregated by Johns Hopkins University as of Wednesday evening.

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WNU Editor: We are in uncharted territory right now, and no one knows what will happen next. Here is just one example on how upside-down the markets and prices for commodities right now. Last night the price for a Canadian barrel of western crude hit -$0.01/barrel (see tweet below).

Western Canadian Select oil is now trading at negative prices.👇

Killing & delaying pipelines landlocked us.#Covid19 collapsed demand.

The Russian-Saudi price war surged supply, filling up inventories.

The future of hundreds of thousands of Canadian jobs is at stake. pic.twitter.com/n2pGHsh30E

— Jason Kenney (@jkenney) April 20, 2020

Update: More here on the crash of Canadian oil prices .... Historic Oil Crash Sends Canadian Oil Prices Negative (Zero Hedge).

German Politicians Are Accusing The US Of Waging ‘Economic War’ Over Deutsche Bank

A Deutsche Bank logo adorns a wall at the company's headquarters in Frankfurt, Germany June 9, 2015. REUTERS/Ralph Orlowski/File Photo

CNBC/Financial Times: US accused of waging ‘economic war’ over Deutsche

German politicians have accused the U.S. of waging economic war against Germany as concern continues to rise among the country’s political and corporate elite over the future of Deutsche Bank, its biggest lender.

Some of Germany’s top industrial chiefs have also rallied to the bank’s side following the market storm that last week threatened to engulf Deutsche, stressing its importance to the German economy and expressing confidence in the leadership of John Cryan, the bank’s chief executive.

Deutsche has been under intense pressure since the U.S. Department of Justice requested it pay $14 billion to settle claims of mis-selling mortgage securities last month, sparking fears about the bank’s capital levels. Shares in the bank fell below €10 to their lowest level since 1983 before bouncing back on Friday after some media reports suggested Deutsche was close to a much smaller $5.4 billion deal with the U.S. authorities.

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WNU Editor: While the media's focus is on Deutsche Banks liquidity .... traders and hedge funds are worried about this .... Deutsche Bank’s Biggest Risk? $46 Trillion in Derivatives Exposure (ETF Daily News).

More News On Dustche Bank

Deutsche Bank races against time to reach U.S. settlement -- Reuters
Deutsche Bank, U.S. DOJ Continue to Discuss Mortgage-Securities Settlement -- WSJ
German business leaders offer support to Deutsche Bank -- The Guardian
Deutsche Bank defended by German firms -- BBC
Germany's Merkel cannot afford to bail out Deutsche Bank: media -- Reuters
Some Deutsche Bank Clients Unable To Access Cash Due To "IT Outage" -- Zero Hedge
Deutsche Bank woes reveal a new financial crisis -- Jeremy Warner, Stuff.co.nz
Deutsche Bank: The Most Important Bank In Europe Is Facing Collapse -- Michael T. Snyder, Investing.com
Deutsche Bank Isn't Like Lehman -- and It Is -- Tom Graff, Real Money
Deutsche Bank: 5 scenarios for the German bank -- Financial Times

Are We On The Verge Of Repeating The 2008 Financial Crisis?

Forbes: Deutsche Bank Shares Keep Plunging And Spooking Financial Markets

With a storm consisting of big short sellers, nervous hedge funds and U.S. federal prosecutors brewing, Deutsche Bank shares plunged in New York trading again on Thursday and spooked financial markets.

In recent years, the U.S. Department of Justice has been able to pull off a careful dance of imposing enormous multi-billion dollar fines related to the financial crisis on big banks without causing a market-crushing banking disaster. But the demand by federal prosecutors that Deutsche Bank pay $14 billion has caused many market players in September to question the big German bank’s capital cushion.

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WNU Editor: Deutsche bank is not going to collapse. But the bail-out is going to cost multi-billions if needed.

More News On Troubles At Deutsche Bank

Deutsche Bank got slammed again -- Business Insider
Deutsche Bank crisis threatens to roil global markets -- Market Watch
Pressure is building for Germany to show it's ready to rescue Deutsche Bank -- CNBC
Berlin faces Deutsche Bank bailout dilemma -- RT
Why is Deutsche Bank now the biggest worry in the financial world? -- The Telegraph
The Deutsche Bank crisis: How we got here, and where we are -- Evelyn Cheng, CNBC

Are We Facing Another 2008 Financial Crisis?

© Kai Pfaffenbach / Reuters

RT: Deutsche Bank woes stoking fears of 2008 financial crisis repeat

Europe’s biggest lender Deutsche Bank has lost more than half of its value since January, posing a threat to the stability of other banks across the continent. Some analysts are worried it could invoke a large-scale crisis, bigger than in 2008.

After a massive sell-off on Monday, Deutsche Bank’s market value shrank to €14.5 billion. In dollar terms it is only $2 billion more than the $14 billion penalty the bank faces from the United States Department of Justice over its mortgage-backed securities business before the 2008 global crisis.

Deutsche's problems have raised questions about the health of other big European lenders. The share price of the Royal Bank of Scotland has plunged 13 percent and Italy’s UniCredit is down 12 percent this month. The Bloomberg Europe 500 Banks and Financial Services Index is down 4.2 percent for September. This is the worst result since June, when the Brexit referendum heavily hit the markets.

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WNU Editor: There is confusion on what the German government is going to do .... Germany 'prepares Deutsche Bank rescue' (BBC) .... or this .... Germany denies preparing Deutsche Bank rescue plan (Reuters). But one thing is certain .... German Chancellor Angela Merkel is racing reelection next year, and this crisis will definitely kill her chances of being re-elected.

Update: A small reprieve (maybe) .... Deutsche Bank is rallying off record lows for a whole bunch of reasons (CNBC).

Are We Facing Another Financial Crisis?

Financial Times: Falling revenues put pressure on investment banks

Top 12 institutions face calls for radical action to boost income.

The world’s biggest investment banks saw combined revenues sink by 15 per cent in the first half of this year, the most since the aftermath of the financial crisis, underlining the urgency of taking radical measures to boost returns to shareholders.

The second quarter saw more activity than the first, where there were simultaneous falls across stocks, bonds and commodities and a dearth of companies doing deals. But the rebound was not strong enough to avert a slump in total revenues from investment banking for the top 12 banks, according to figures from Coalition, a London-based group that combines public information with independent research and validation by a network of market participants.

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WNU Editor: Donald Trump is right on this one .... Trump says U.S. interest rates must change as Fed weighs rate hike (Reuters). Unfortunately .... when interest rates do rise .... and they will rise Trump or no Trump .... the impact is going to be serious across the board, starting with the interest that governments must pay on their debts.

Are We Facing Another Banking - Financial Crisis?

Market Watch: Why a selloff in European banks is ominous

Europe’s bank index has posted its longest weekly string of losses since 2008.

European banks have been caught in a perfect storm of market turmoil, lately.

Lackluster profits and negative interest rates, have prompted investors to dump shares in the sector that was touted as one of the best investment ideas just a few months ago.

The region’s banking gauge, the Stoxx Europe 600 Banks Index FX7, -4.48% has logged six straight weeks of declines, its longest weekly losing stretch since 2008, when banks booked 10 weeks of losses, beginning in May, according to FactSet data.

Read more ....

WNU Editor: I am the first to admit that I am not an expert on these matters, even though I am  optimistic  that we will not experience a repeat of 2008. But being one who lived through the Russian banking-financial crisis in the early 1990s, I can only give the following advice. "Expect and prepare for the worst, be happy if it does not happen".

More News On Worries That Another Banking - Financial Crisis Is Developing

Is Another European Bank Crisis Starting? -- Peter Tchir, Forbes
Deutsche Bank is at a record low and investors are once again scared of European banks -- Business Insider
Deutsche Bank AG: More Turmoil for European Banks -- BFN
Greek stock market falls sharply on banking sector meltdown -- AFP
Russia shuts down two more banks -- AFP
Bank of Japan, in a Surprise, Adopts Negative Interest Rate -- NYT
Mid-tier Chinese banks piling up trillions of dollars in shadow loans -- Reuters
Emerging-Market Central Banks Battle Capital Flight -- WSJ
Is there a banking crisis in the United States? -- CNBC
Banking's Reservoir Dogs -- Lionel Laurent, Bloomberg
Bank investors have suffered two lost decades -- CNBC

The World Is Not Ready For The Next Financial Crisis

Central bankers have ventured beneath the "zero lower bound" on rates to combat economic weakness

The Telegraph: The world is defenceless against the next financial crisis, warns BIS

Monetary policymakers have run out of room to fight the next crisis with interest rates unable to go lower, the BIS warns.

The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank of International Settlements has warned.

The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies.

These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates.

WNU Editor: When is the world ever ready for a financial crisis? But as bad as past financial crisis have been .... my gut is telling me that the next crisis is going to be a doozy for all of us.

Is The US Military Training For A Possible Of US Dollar Collapse?

WNU Editor: If you have the time .... watch the 30-minute documentary, Meltdown America, and witness the harrowing tales of three ordinary people who lived through a crisis (Serbia, Argentina, and Zombabwe), and how their experiences warn of the turmoil that could soon reach the US.

Hat Tip: Zero Hedge

Russian Companies And Banks Are Pulling Billions Out Of Western Banks

Russian Companies Withdraw Billions From West, Say Moscow Bankers -- Financial Times

Russian companies are pulling billions out of western banks, fearful that any US sanctions over the Crimean crisis could lead to an asset freeze, according to bankers in Moscow.

Sberbank and VTB, Russia’s giant partly state-owned banks, as well as industrial companies, such as energy group Lukoil, are among those repatriating cash from western lenders with operations in the US. VTB has also cancelled a planned US investor summit next month, according to bankers.

The flight comes as last-ditch diplomatic talks between Russia’s foreign minister and the US secretary of state to resolve the tensions in Ukraine ended without an agreement.

Read more ....

Update: Fed Custody Holdings Record Decline Fuels Russia Speculation -- Bloomberg

My Comment: Darn!!!! I knew I should have bought some Swiss Francs last week.

U.S. Banks Took Extraordinary Steps Last Month To Prevent A Default

Insight: As U.S. Default Threatened, Banks Took Extraordinary Steps -- David Henry and Lauren Tara LaCapra, Reuters

(Reuters) - As the United States threatened to default on its debt last month, major U.S. banks set up war rooms, spent many millions of dollars on contingency planning and, in some cases, even prepared to underwrite federal government benefits.

In a series of interviews with top bank executives, new details emerged about the extent of the contingency planning that was undertaken before and during the 16-day government shutdown and as a potential default loomed.

The planning for worst-case scenarios didn't come cheap. JPMorgan alone has spent more than $100 million on contingency planning for U.S. budget crises in recent years including this one, sources close to the bank say. It has reviewed and analyzed thousands of trading contracts, updated computer systems to handle fiscal emergencies, hired consultants, and built new models to figure out what might happen to securities prices.

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My Comment: This is very scary stuff because if things do unravel .... it will impact everyone.This is one of those situations where you do not need bombs and explosions to wreck people's lives and produce millions of victims .... destroying their money will accomplish the same thing.

In the meantime .... the US government continues to dig a deeper hole.

Stress Testing For Financial Armageddon

Fed Gives Banks New Dire Scenarios for 2014 Stress Tests -- Bloomberg

Lenders including JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) will have to show they can survive the demise of a trading partner or a plunge in value of high-risk business loans in the 2014 version of U.S. stress tests.

The scenarios for the annual tests, outlined by the Federal Reserve in a statement yesterday, reflect some of the most pressing threats seen by regulators as they gauge the ability of the U.S. financial system to withstand economic shocks. Bankers will have to show what would happen to the value of leveraged loans they hold, the impact of another housing bust and how they’d fare if a firm that owes them substantial sums collapses.

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My Comment: I love these disaster scenarios (NOT!) .... I lived through it in Russia in 1992 .... it is not a pretty sight. But by conducting these scenarios (and to this degree) one has to wonder if the Fed knows something that they are not telling us.

Update: The warning signs are there.

How US Defaulting On Its Payments Could Shake The World

Sign of the times: A message outside the Lincoln Memorial which has closed due to the government shutdown. Economists are more concerned about a possible U.S. default later this month

Will Budget Deadlock Trigger Global Financial Armageddon? How US Defaulting On Its Payments Could Shake The World -- Daily Mail

* U.S. government shutdown lingers on as Congress fails to agree budget
* Fears grow that infighting will prevent agreement on raising the debt level
* America is expected to reach its legal debt limit of $16.7trn on October 17
* Economist says default 'would be Lehman Brothers to power of thousand'

World stock markets began to shake today in response to a U.S. government shutdown that shows no signs of ending soon - and could pave the way for a much more devastating default.

Investors have generally taken the view that the first such shutdown in 17 years would prove temporary, but there are growing worries about its implications for talks on raising the U.S. public debt ceiling later this month.

While the shutdown would have to drag on to have a substantial effect on the United States economy, a failure to raise the debt ceiling carries the threat of a government default on its debt with wide and unpredictable consequences.

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My Comment: From my vantage point .... the U.S. is already facing generational bankruptcy .... the only question that needs to be answered is when will it be made official.

America Is Facing Generational Bankruptcy

Congressional Budget Office Predicts Unsustainable Debt -- New York Times

WASHINGTON — As the White House and Congress careen toward another fiscal showdown, the nonpartisan Congressional Budget Office warned on Tuesday that President Obama and lawmakers have been cutting the wrong kind of federal spending as they try to avoid unsustainable levels of debt in coming decades.

In its annual long-term outlook, the budget office projected that because of government spending cuts and rising tax revenues from the recovering economy, annual deficits will fall in the short term — to a projected 2.1 percent of the economy’s output by the 2015 fiscal year, or about one-fifth of the peak shortfall at the height of the recession in 2009. But starting in 2016, the office projected that deficits will rise again as more aging baby boomers begin drawing from Medicare, Social Security and Medicaid’s long-term care benefits.

By 2023, the annual deficit would rise to an estimated 3.5 percent of the gross domestic product, which is just beyond the level that many economists consider sustainable in a growing economy. By 2038, it would be 6.5 percent.

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More News On The CBO Report Predicting That America Is Facing Generational Bankruptcy

New study warns of U.S. long-term debt problems -- USA Today
U.S. on ‘unsustainable’ budget course: CBO -- Market Watch
CBO Report Warns Of Long-Term Debt Problems -- NPR
Congressional Budget Office study warns of long-term debt woes in United States -- Washington Post/AP
CBO Says Short-Term Deficit Cut Won’t Avert Fiscal Crisis -- Bloomberg Businessweek

My Comment: The predictable response from many politicians .... and the media .... is this. Take it from one who has seen the euro deficit crisis up close and who now lives in Canada that experienced these problems over a decade ago .... the problem is not that we are taxed too little .... the problem is government is spending too much. Government has to cut back on it's spending and promises .... including even the military budget .... but this U.S. President and Congress have other priorities.

National Security And The Fiscal Cliff

How The Fiscal Crisis Puts National Security At Risk -- Robert Kagan, Washington Post

In the interest of national security, and the preservation of the world order the United States has upheld and benefited from since World War II, Republicans and Democrats must make the necessary compromises and agree on a deal to address the nation’s fiscal crisis in both the near and the long term.

I am not an economist or a budget analyst, so I don’t presume to know exactly what a “grand bargain” should look like. It seems pretty obvious that a compromise will require both tax reform, including if necessary some tax increases, and entitlement reform, since those programs are the biggest driver of the fiscal crisis. What I do know, as a national security analyst, is that our continuing failure to address the crisis in a way that makes possible a return to stable economic growth has become a serious foreign policy problem.

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My Comment: I am not optimistic that a 'comprehensive' deal will be reached. What we will have will either be a delay in sequestration .... or .... and this is what I expect .... tax increases with promises of entitlement reform that (surprise surprise) will not happen. The debt ceiling will be raised again, and this fiscal crisis will revisit us again within two years. In the interim .... the economy will slip into a so-so recession, and the US defense budget will still be cut drastically .... sequestration or no sequestration.

Why Are U.S. Banks Being Told To Prepare For Collapse Right Now

Exclusive: U.S. Banks Told To Make Plans For Preventing Collapse -- Reuters

(Reuters) - U.S. regulators directed five of the country's biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help.

The two-year-old program, which has been largely secret until now, is in addition to the "living wills" the banks crafted to help regulators dismantle them if they actually do fail. It shows how hard regulators are working to ensure that banks have plans for worst-case scenarios and can act rationally in times of distress.

Officials like Lehman Brothers former Chief Executive Dick Fuld have been criticized for having been too hesitant to take bold steps to solve their banks' problems during the financial crisis.

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My Comment: Why are US Banks being told to forget about help from the US government in the event of a financial crisis? Why is the US government telling the banks this info now? What do they know that they are not telling us?

Many Military Families Are Hurting Financially

Financial Struggles Common Among Military Families -- CBS News

SEATTLE — Military families aren't surprised when they hear about the financial struggles that Staff Sgt. Robert Bales, his wife and children faced at home. It's part of their lives, too.

They say money problems can never justify doing what the military says Bales did: kill 17 civilians in a nighttime shooting rampage through two Afghan villages on March 11. Still, the details emerging about his life served as a prominent reminder of the hardship they have endured over a decade of two wars.

"The stress factors with the families is just unbelievable," said Roger J. Mealey, a Vietnam veteran who runs a website to aid struggling military families.

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My Comment: You definitely do not join the military for the money.

Britain Draws Up Plans In The Event Of A Catastrophic Banking Collapse

Evacuation: The Foreign Office is drawing up plans for the thousands of British expats in Spain - many around Marbella (pictured) - and Portugal in the event of a catastrophic banking collapse

A Financial Dunkirk: Britain Draws Up Plans To Rescue Expats If Spain And Portugal Are Hit By Financial Oblivion -- Daily Mail

Evacuation plans for British expats stranded in Spain and Portugal if their banking systems collapse are being drawn up by the Foreign Office.

The contingency plans are being put in place to help thousands of Britons if they were unable to get to their money in the event of a catastrophic banking collapse in two of the most vulnerable eurozone economies.

Around one million British expats live in Spain, particularly around Marbella and Malaga, and some 50,000 in Portugal.

Read more ....

My Comment: If the financial/banking system collapses .... the last thing that will be on everyone`s mind will be to save a few thousand tourists stuck on a vacation spot in Spain or Portugal.