Banks Sitting On $650 Billion In Losses

Since the Federal Reserve has been hiking rates in a desperate attempt to slow the economy and inflation, one economic fact has become clear; our banks are most likely insolvent. When interest rates were low, just a few years ago, banks had heavily invested in treasuries and bonds which have collapsed! Bond prices are extremely down, over 50% in most cases as 2022 was the worst year for bonds in forever!

2023 is also not good, not good at all! Banks are holding massive bond losses and the numbers keep getting worse. By the end of September, losses were north of $650 billion. Remember Silicon Valley Bank? It crashed earlier this year because its bond portfolio was so far in the hole depositors all wanted their money out and they did not have the money to pay back the depositors. Could other banks be in the same position? Yes, remember that in 2020 the Fed lowered the reserve ratio to zero which means banks are no longer required to keep any portion of deposits on hand, they can loan or invest the entire amount in search of yield or profit leaving depositors in the lurch if to many want their money at once.

Just imagine you had a portfolio of stocks that was worth 50% of what you paid for them but you were still holding the positions in those securities, things would not be all that great at your household. Your unrealized loss has cratered your net worth and there is no way out. This is the position our banking system is in. The Fed hikes rates so high so quickly banks (and governments and companies too) were caught holding the hot potato. Of course, we have something called FDIC right? Federal Deposit Insurance Corp. is supposed to backstop the banks, but that fund is nowhere near enough to handle what’s coming as the banks fail.

This is a dismal situation that leaves us all in a tight spot, to say the least. Please, do your best to stock up on food and other items that you might need to keep your family safe, rember it’s not too late to fill your pantry with storable food and learn how to use it, you can cut your grocery bill in half and hopefully build enough security into your life to get thru what’s coming.