Wednesday, January 30, 2008
According to the Federal Reserve Board website, U.S. non-borrowed bank reserves have gone form $37 Billion to $199 Million (nope, that's not a typo) in the last month. We have been discussing this with Sitka Pacific Capital's Mike 'Mish' Shedlock for the last two weeks. He concludes: "Banks in aggregate have now burnt through all of their capital and are forced to borrow reserves from the Fed in order to keep lending." Simply put, the U.S. banking system has no reserves. In addition, the FDIC has recently begun modernizing large-bank insurance rules. (What are they planning for? Click the preceding link to find out!). We hope this is a wake-up call to everyone as the the extent of the credit crisis. Bank account balances not used for conducting transactions should be held in the form of U.S. Treasury Bills at a conservative brokerage or trust. Under the mattress is also perfectly acceptable (your parents or grandparents had to do it!). Banks will soon be forced to sell assets (yes, even 10 year treasury Bonds) at deeply discounted prices to pay depositors.(1)
Paul J. Lamont (http://www.financialsense.com/fsu/editorials/lamont/2008/0130.html)
