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Shadow Bank Liabilities Plunge By $700 Billion In Q2, $2.1 Trillion Year To Date
Continuing the analysis of today's Z.1 report, we next focus on recent developments in the shadow banking system. And it's a bloodbath: total shadow bank liabilities dropped by $680 billion in Q2, and a massive $2.1 trillion YTD. If one wonders why Ben Bernanke (yes, it's technically TurboTim) continues to print trillions and trillions of debt, and it is still doing nothing (yet) to stimulate the system, here is your answer.
As credit will only exist if i) it is needed and ii) there are cash paying assets (or at least the myth thereof) to support its existence, the latest plunge in the shadow banking system is merely the most recent confirmation that the deleveraging in America is only just beginning. In fact, from the peak of the credit bubble in Q2 2008, through Q2, total bank liabilities (shadow and traditional) have plunged by $2.6 trillion, from $32.1 trillion to $29.5 trillion. Yet it is the collapse in shadow banking that was responsible, with shadow liabilities falling by a stunning 20% from $21 trillion to $17 trillion in just over two years even as banks have benefitted from the transfer of cheap government cheap on their traditional lending books (think Fed intervention and QE, leading to record low interest rates).
What this means is very clear: the shadow banking system is collapsing, period. Yes, the rate of collapse is slower than in Q1, but the total plunge was still a whopping $4.2 trillion annualized for 2010. And the delta between Shadow Banking and Traditional liabilities has collapsed from $10.7 trillion at the peak in March 2008, down to under $4 trillion. This is a record amount of "money" being removed from the system, and explains why, for now at least, the velocity of money is nothing faster than a crawl.
That said, if and when this indicator plateaus and recommences climbing, will be a very "sensitive" moment for all deflationists and inflationists as it will mark the inflection point from credit contraction to renewed credit creation. Alternatively, the Fed can merely force credit into traditional bank liabilities, which banks can then proceed to use and purchase stocks and commodities, at a zero cost of debt. What that will do to select asset prices, we leave to our readers' imagination.
Chart 1: Total sub-components of the shadow banking system
Chart 2: Comparison of shadow banking and traditional commercial bank liabilities
Chart 3: Consolidated shadow and commercial bank liabilities and sequential change
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There was a pick-up in corporate fixed capital investment in 2q, which we already knew from GDP data, but the level was still ~16% down from 2007-2008. As we also know from the GDP data, a lot of 2q's fixed capital investment was imported equipment.
From a supply side standpoint that's not great but good - corporates were slowly reviving their moribund efforts to renew production capacity, which is good for productivity.
From a demand side standpoint it was a big disappointment - renewed corporate debt expansion went into imported fixed capital not hiring, consumer demand stagnated, inventories built up.
Also, the increased pace of corporate debt growth in 2q was mainly in "other miscellaneous liabilities". Whatever that means.
http://keynesianfailure.wordpress.com/2010/09/10/delayed-deleveraging-meets-the-keynesian-endpoint/
We haven't had a middle east boost to gold for a while either.
there should be an iran nuke scare or israeli bomb run to boost up the highs a bit.
Well, the 60 billion dollars worth of high grade weapon systems that the US just sold to the Saudis should get things rolling for the invasion of Iran
I S--No time soon on that:
http://online.wsj.com/article/SB1000142405274870462120457548836114962505...
Saudis only buying half of the lot initially.
- Ned
70 million people live in Iran and suffer under dim-witted rulers just like your unthinking ass. Try to remember that "Anger is the antidote to Thinking." Your proof is redundant.
my take is that the FED was a tool as was the dollar. Owners move on to harvest another country having sold America , its peoples sweat and future.
Bernanke et al were bit players. This has been going on along time and is no accident.
in full agreement, i wonder that they aren't even close to done with us yet...
Spot on MereH.
Me thinks it will be one or more of the BRIC nations.
The "winner" will be the "loser".
ORI
http://aadivaahan.wordpress.com
Any time a black person is put in charge, you know the shit will hit the fan (extra heavy on the shit and the fan speed and torque).
The last time I saw this and commented was with O'Neil at Merrill Lynch'em.
Sorry to say, but a set-up by the powers that be.
Yeah, that ought to really do wonders for race relations -- and everyone wonders why Kali is licking her chops!
So what we are saying here is the banks are awash with free money,the banks don,t wish to lend to bad risks so that ultimately means they want to make a return,so a lot of this cash goes into bonds,stocks and commodities which ultimately means they are making money out of each other and government QE.The cash or computer credits are going round in circles,which brings us to the ever increasing stockmarket on little trading and one must assume virtually non-existent private trading, no matter what the news,surely the above game only works while the markets go up givings profits.So what happens when the markets go down,down,down, or is this something we can,t ever be allowed to see again.Buy Gold,buy Silver,get out of this crap.
The banks and markets (courtesy of HFTs) can spin around forever, the only question at this point is: "Is the radius of the circle constant or decreasing?"
Good point. I think the radius is decreasing because the Banks need to take Money out of the Market for their profits and the Traders Bonuses.
Unless of course if the Money being printed by the FED is being used to replace the Retail Investor Money with Tax payer money.
It has always been my thought that the PPT plays a big role in this whole scam. They pump the stock markets and the profits are taken off the top by the financials. It is really brilliant if you think about it.
It provides liquidity for the financials and builds their reserves, the financials buy and then sell for profit and provide their bonuses (look profitable to public), the PPT doesn't care about the stocks they buy (IE loss) because the printing press is running full speed, the S&P and DOW companies can just issue more shares via a secondary. And all made possible by low borrowing costs. Rinse, repeat ad infinitum.
This is a backdoor bailout for the banks at taxpayer expense. I've mentioned it here before but I don't know if I am right or wrong on this. I am leaning toward right. It's fucking criminal.
The drastic measures taken by America’s shadow government… from the inflation tax to bailout mania to the dot.com and housing bubbles to PPT pumping and skimming the profits for the insolvent financials, all at the expense of the taxpayers and the economy… are not fixes, they are spectacular failures. And that, TheGoodDoctor, finally, carries the clarion ring of truth.
Obama is a sideshow. He is not the main event. Bush was not the main event. It’s not a game of Democrat against Republican. The presidency and the Congress are immaterial to this fight. The fight is with a gang of criminals who have taken over the country. The fight is to detach their grimy fingers from the Statue of Liberty.
The fight occurs when everything goes tits up.When the countries of the world says we ain,t excepting dollars that used to be worth x and are now worth y because there are too many of them and also we can buy less with them.Until that day comes the shit carries on.But that day will come and that will be the reckoning when things finally go into freefall.
Well said JR.
The Statue of Lib, of course is "their" symbol you know.
But overall, could not agree more.
ORI
all i've been saying since day one is "banks borrow, too." that and "go ahead and create a new era of personal responsibility."
Had a realtor who’s also in property management tell me last week in Oregon that the banks don’t want to lend below 5%. They’re requiring very high credit scores, etc. He’s advising all there to hang onto their houses for two years, if they don’t have to sell.
JR
I just drove through the Olympic Peninsula-so much industry gone forever.
Jobs to China.
Kayman: signs of the times. These two headlines, Stacking Them Deep and Lights Out, tell the U.S. story.
I noticed in the newspaper, The World of Southern Oregon’s South Coast where I have a small interest, a front-page photo of a load of logs being lashed down by longshoremen on board the ship Matakana Island, headed for China. This is the second log export ship to leave for China from North Bend in the past five years. The area’s timber industry was once one of the major lumber product sources for the U.S. homebuilding industry; no longer.
Above the photo is the liquidation news and termination of Perry’s Electric, the largest supplier of plumbing and electrical materials for a hundred miles along the Oregon Coast—Lights Out. There has been no buyer for this 50-year-old business. Says owner Eldon Johnson, “I hate to see it for the community, but no one has the resources to buy and operate it.”
There are 13 employees, all full-time except one, in an area already hit severely hard by unemployment. Except for management, Perry’s employees are union members. And one of the reasons for closing was that the company was facing a large-sum payout to the union’s pension trust fund. Relations with the union have always been sound, Johnson said, but ballooning benefits costs prompted him to get out. “I decided things might get worse.”
Johnson, 80 years old, said this is the toughest recession the area has seen. He has noticed customers returning unused products, something less common in better times.
Perry’s Roseburg shop closed several years ago, facing competition from chain store newcomers Lowe’s and Home Depot.
man those GSE's are just gobblin that shit up huh? this one won't end well can you say flash crash in housing?
Interesting comments from all . Good post TD and thoughts from all .
Since a one world currency is coming , how else do you bring it about but by the slow destruction of all the fiats . One currency is the answer to this mess . Maybe debt "forgiveness" . Voluntary enslavement of the world masses to the One whom will appear to straighten this all out . For a short 3 1/2 yrs .
You must not realise how much money the Bank of England and the Swiss National bank make from trading 4X.
Japanification Bitchez!
Look at that fat assed fannie and fraudie go! the agencies are doing their bit and more. woot! woot!
edit: just read the reclassification comment. my comment still stands. resocialmafacation bitchez!
Until they realize that the assets being purchased have no value either. Then money does what it is doing now: Leave our shores. Ignore the TIC, look at investments in foreign industrial sites, foreign bonds, and commodity operations overseas by American banksters and multi-nationals.
They can smell what's coming next with this adminstration's blunderous policies which are just a continuation of the Bush idiocy.
And it smells like crap.
even shit smells good to some. zero return on capital, but infinite return on wheat and corn? i'lll take that trade....
Plunge Bitchezzzz......so this is what Basel III is all about...Plunge of credit available
http://www.webofdebt.com/articles/basel_3.php
This will cause a " Run on the Banks "
When more people Wake Up and look
at the the Real News ....Not Linsey Lowan
and Paris Hilton ...
I would bet a cup of coffee that if 20 people went to my local bank next tuesday at 10 am .. and they all demanded $ 20,000. each in cash ....out of their accounts ... the bank would say no... way...
What, are you 12 years old? Nobody should expect to be able to walk in and pull 400k in cash out of a bank with no notice - be that 20 people or 1.
If it's your money, why not ? Oh, yeah, that leveraged money creation thing works in reverse, too.
Blows the transmission out but ya it works.
"and they were flying the cash in on pallets once combat operations were done in Iraq."
The government has a lot of levering to do to prevent the compoun interest owed from eating the entire system.
Look at that chart and recognize that it shows what we call "money." And remember that every $ of that chart is actually debt and interest is owed on ALL of it. If new money does not get borrowed to pay that interest, the interest will consume the system.
i.e. Japan
The interest is consuming the system,they are just printing money to pay the interest.The timelag is how long it takes for the new paper to become valueless,and everyday it gets nearer.Very interesting times ahead.
The Canadians have the solution to this with Tony Marrone as their chief economist.
http://www.youtube.com/watch?v=wa7FragNZXQ
This is NOT bullish for gold. This is the mother of all deflationary signs! All asset classes were bid up on an insatiable demand for more and more credit. Those loans are imploding at an astronomical rate, that $700B figure is a drop in the bucket compared to what will implode into 2015. When China has its 1929, Gold will concurrently have a severe pullback. NO way does gold to to $2,000 w/i the next couple of years.
and if it get's there in 6-8 weeks then what? back to the 12 step? and if so "which one of the 12?" i prefer a Texas 2 step myself.
This is very bullish for Gold in that the fiat you value Gold in will be valueless.You have to think outside the box because the box will not be there.
Campfire stories of ghost & goblins that will appear in the midst of the night, if you don't consent to World Government change.
Strauss-Kahn on the human cost of the unemployment crisis
http://www.youtube.com/watch?v=GxBYWhFQ2AA
We have a crisis at hand.. LOL
IMF membership dues are down. Time to open membership to new tier levels.
Current revenue streams cannot sustain budget.
Bauhaus - "Party of The 1st Part"
http://www.youtube.com/watch?v=9lwQRpBzbxg
More gold for the bug out bag. And more 100's.
Asset prices are coming down. ?
The important peoples assets not yours. Unless you happen to have a monet or picasso.
How many clever PhD´s on this site. I bear to ask where all foreign investments are "parked" in these numbers ( for example FDI ) ? Can any of the brain(iacs) answer ? Humble question from humble MrTrader.
a few Monet's and a Renoir. But the Facts are most believe their wealth is higher than it actually is.
If there isn't a buyer for it what is it really worth? 00
What do you actually own in the stock market? Especially with dividends around 2%.. when the historical avg is 5%. An asset that is way over valued.
Stay in the liquid side of the pyramid.. Buyers disappear in deflating Economy such as this..and stocks are sold simply to raise liquidity or cold cash.
I found lots of interesting information here. I love zerohedge.
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