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All That Is Broken With The US Financial System In One Chart
We have shown this chart before. We will show it again because, to nobody's surprise, nothing has changed since then.
The chart in question, which we believe demonstrates all that is wrong with the US financial and banking system, shows JPM's quarterly deposits, which in Q3 just hit a new all time record of $1.335 trillion, and its loans, which despite the much hyped rebound in Q2, once again declined to $743 billion from $747 billion in Q2 (so much for that lending-driven recovery?) leading to a new record low Loan-to-Deposit ratio of 56%. So while deposits are obviously hitting new record nominal highs quarter after quarter, when was the last time JPM's loans printed at all time highs? The answer: just as Lehman filed for bankruptcy, when the number was $761 billion.
And for those who missed our explanation last time, here it is again, updated for the times:
As the blue bar shows, total loans issued by the biggest US bank were $743 billion in Q3 2014: about $20 billion less than in the quarter Lehman blew up. Four years later, and the US commercial bank lending apparatus is still in a state of depression. Or so it would appear on the books.
But why doesn't JPM lend out more: after all that is the main pathway to stimulate the economy as all pundits will tell us. Simple: it doesn't need to. As the red bars show, total consumer deposits held by the bank just rose once more, this time to a record $1,335 billion, up $15 billion in the quarter, pushing the deposit-over-loan difference to a new record $591 billion. This is happening exclusively due to the Fed, which when banks do not "create" money from loans (as they clearly don't), has to step in with QE and create money on its own.
It also means that JPM has to allocate this excess capital somehow and until the London Whale blew up, was simply funding its prop trading desk with this deposit cash as "dry powder" to manipulate and corner various derivative markets courtesy of its unregulated London traders. Another result of course is that risk assets are bid up to record highs - excess reserves are a perfectly fungible source of margin collateral - even as the actual flow through of the Fed's "wealth effect" is halted precisely due to the complete collapse in new loan creation - the primary "transmission mechanism" of economic growth.
In other words, by keeping the pedal to the metal on QE for the past 6 years, the Fed has giving the banks all the benefits of money creation (soaring deposits), without any of the risks (loan creation in a record low Net Interest Margin environment). And if you are JPM you will be perfectly happy with this arrangement and not seek to lend out any money, as the case has been for the past six years. Which means consumers who wish to take out loans to fund ventures and other growth strategies are fresh out of luck, because the banks that ordinarily supply them with this risk capital have simply shut down the process entirely, and instead are gambling in the stock market.
* * *
And that is precisely the jist of all that is broken in the US financial system, and why the Fed is in fact making things worse, not better, and is progressively destroying the wealth of the middle class, stunting any growth opportunities the US may have, and all the residual wealth is pumped into the hands of those benefiting solely from rising asset prices.
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>Stocks finish red
>Stocks finish green
nothing has changed since then.
But....Obama brought change!
That shart...er, chart looks tits up....
They should loan all that money to Broke Ass Uncle Sam. Or else, he might just take it.
The right scale on that chart measures the pressure with which the fed is pushing on the rope.
Doesn't seem to be having any effect on raising the blue bars...
this is one of the best posts i've read on here in a while. the market is a fabrication and getting to be more so every month.
JPM has some serious issues that are just starting to leak.
Good thing they are more connected than Lehman if their long term viability comes under serious scrutiny.
Based on deposits JPM is now way to bigger-er-er-er to fail. They take your money, buy treasuries and earn carry, so who cares about loans!
Their deposit base can be farmed out to other zombie banks/shells if need be, however.
If JPM wasn't receiving interest from the Fed on its excess reserves, it couldn't survive - this, even considering its profitable (for now) revolving credit operations, as it is deeply exposed to tenuous & tremendous extant loan repayment obligations.
That's how precarious the banking/financial sector is right now due to the Bernanke/Geithner/Paulson led radical monetary experiment begun in 2008.
The world is a vampire.
Liquidity, liquidity seemingly everywhere, yet not any sound, long term business model to spare.
Just continued CB intervention to prop up the zombies.
Pretty sure they do? No?
Bills, Notes, Bonds........................................
Every time a POMO is announced, they front run it by buying the bonds and flipping them to the Fed.
By doing this they make 15% a year risk free.
Why would they loan money to some schlub with a dry cleaning store for 5%?
Yeah no shit big bank deposits are so much greater than loans now!
Because the Feral Reserve (meaning the big banks who OWN it) have been stacking up cash cause they know the economy is imploding!
QE was never intended to prop up the economy as much as it was to pack the big banks vaults to withstand another and much worse melt down
And now they're crushing gold prices and boosting the dollar to make all that funny money worth something.
And they give a shit about the stock market now.
And with all that free trillions from the Fed, it's not like any bank needs Joe Whitecollar and his measly couple of hundred thou of savings to buy bonds or CDs or whatever. So no passive income for those not in the club as well as not a lot of loan money for them to start or expand their business, buy real estate, etc. The only one who wants Joe's money is, of course, the government, who isn't going to pay anything above the inflation it's creating in education, health care, etc. It's that or take your chances trying to buy high and sell higher.
I'm a tad more cynical. I can see the banks shutting down lending(much like the runup to 1929) and waiting on the courthouse steps to purchase real assets for a song. Wash, rinse, repeat.
PONZI.
Try telling the business and economics graduates that what they have been studying all this time was actually how to put lipstick on a ponzi pig. Ultimate Lulz.
I realized that once I graduated and was looking at jobs. All of them seemed to be built on financial bullshit and paper pushing.
Sounds like you are ready for management!
Since you won't know what your Obamacare policy (or Medicare Supplimental policy for that matter) will cover until you receive the collection notice for a hospital bill you NEVER received, savings are more attractive than debt.
A marginal $10-20K that might have been put into some sort of entrepreneuiral endevour now sits in the bank waiting to be used for an emergency room visit that cost $500 in 1990.
Common man? 10-20K in the bank? That's all the LOLs I need for the day.
Right. It takes the common man a week or two to put his hands on just $2,000 now.
Dump that .22 and get a .45. Your income will triple!
This is easy....just have the Fed take out another HELOC!
You know....I haven't seen a damn dime of that money.
You must be one of those 'producers' I've heard about; sux 2BU!
Do these charts even matter?
Banks aren't lending. Period.
Talk about the pendulum swinging too far in the other direction.
You would think at this point that (in addition to reserve requirements) a certain loan-to-deposit ratio would be a requirement for maintaining a state or fed bank charter.
Or better yet stop artifically supressing the price of risk (ZIRP), let rates rise and the banks will be forced to make loans to make money.
What exactly does the government think the Public Interest is here?
Remember how all the IBanks quickly got Bank status as the previous crash was occuring.
Doesnt matter. Fed lends to banks...and we the people (working people)..pay it back. Perfect.
What are you trying to finance, but can’t?
The federal government, social security, Medicare, the MIC the DNC, the RNC, obamacare.... the list goes on and on....
The only word that comes to mind is 'disgusting' - it's disgusting that the taxpayer is paying to make banks rich by letting them gamble for free, with the taxpayer always ready to catch them, if and or when they fall. No, what's really disgusting is that there are cheerleaders for this, calling this good. Rah, rah, this is good. And poptart. I could use a poptart, so 2 words.
I live near The D. Detroit along with the Republican governor can’t consume our money fast enough. The “tri-county” area keeps expanding (seven counties now) sucking in out paychecks.
We were forced into subsidizing the Detroit Institute of Arts and the ‘leaders’ gave all themselves huge raises.
Plus these scumbags gave themselves $50,000 bonuses!
“The increases — a 13% bump in total compensation for director Graham Beal to $514,000 annually and a 36% raise for second-in-command Annmarie Erickson to $369,000 — keep their pay on par with their peers around the country. But they came in the same year that tri-county voters approved a property tax for the DIA that museum leaders said was necessary to keep the institution alive. The 10-year tax funnels about $23 million annually into DIA operations.”
So many parasites. Living like that while the population can afford water.
I wait for my Ebola diagnose.
If it makes a difference in the life of one child, it will all be worth it.
Yes, I love where that logic goes. As spending approaches infinity, number of children helped approaches zero.
*wipes tear, whimpers*
Somebody has to backstop all those derivatives when SHTF. It sure isn't going to be the morgue.
People are generally brain-dead but they ARE hip to the bail-outs. The syndicate will have to come up with a new term and spin for it. On the other hand, what will the pissed off public do anyway....
Stare contently at the iDistract(N+1).
Bail-ins.
Just re-label the chart. Everything will be just fine.
Banks found it easier to earn the skim from QE, which is now over.
Fun times ahead.
pods
exactly as was the stated policy. now if middle class america could be a primary dealer. oh wait i used to know a few of those :-/, but hey we be doin gods work...
I'm sure most here realizes that if the loans matched the deposits, we would be having hyper-inflation right now. Banks don't loan deposits, they loan new money created by the signature of the applicant. Right out of thin air.
Wrong: deposits are created by commercial bank loans. At least they are in a normal economy (i.e., not the broken financial system this chart shows). When deposits are created by outside money, i.e. Fed reserves, you get hyperinflation... in the S&P 500.
You are right about one thing: if loans do catch up to artificially bloated deposits, you will get hyperinflation in everything but the S&P 500.
stagnant incomes(nominaly) but a cabosh to that idea...
entrepreneurs going into caves with all other bears:>/
edit; maybe we will find bin's bones,ha...
- Banks don't loan deposits, they loan new money created by the signature of the applicant.
- Wrong: deposits are created by commercial bank loans.
And commercial bank loans are created by/from?
Am I the only one who is confused?
u r correct. many ways to create money, every visa transaction that is not paid off as one example.
Aren't we talking about fractional reserve lending? I mean the way the system has been operating until the Fed's massive intervention.
Debt creation...every new loan is an asset, and paying off the loan is the destruction of an asset.
According to the Keynesians, the public has failed the system due to its failure to acquire more household debt, thereby failing to create more assets in a 'normal' growing economy. Nevermind average household incomes have dropped approximately $4,000 since....since the economy officially exited the Great Recession during June 2009.
So, basically, I (the public) can sit at my bank with the loan officer and keep signing the loans to infinity and that will keep the system stable and growing?
Dont waste too many words trying to expain it, it can be done with 1, PONZI (as stated above by an insightful poster)
Well I think many have described fractional reserve lending as at least a de facto, if not de jure ponzi. What is the ratio 9 to 1? Every dollar can be reloaned 9 times?
meow
There is ONE and ONLY ONE semi stable path to fix this and that is a major move of the RMB against the G3. But, China doesn't seem to be able to get out of its own way (though the refusal to engage in broad stimulus is a start). Gold must skyrocket, revaluing all financial assets in real terms and the currencies will adjust in the process because of the migration of monetary gold from West to East.
ZH previously reported that China had 3X "printed" to what the US had.
Why would that entity not want to keep the game of kick the can going?
Just who funded all those empty hi rises? Entramanuers?
monetarism, morto
The problem with banks is borrowing short, and lending long. With rates low, they mostly can go up, which means tits up for the banks. Why lend if you can't sell the loans.
Shows the fallacy of the FED strategy from day one, right there.
Learn some economics please.
Nobody will hire or expand business if COSTS OF BUSINESS is through the roof due to Quantitative Easing
Remember the word PROFIT? Anybody remembers it?
The whole system is government by one equation:
PROFIT = SELL PRICE - COST
Forget inflation, forget deflation.
It's all about..........PROFIT
Profit?
It's the Baby Boomers. Baby Boomers all get a trophy. Poor stewards of your future, you still get your trophy - Bailouts all around!
What a lame argument.
Bet you continue to use the dog ate it.
What costs?
Oil is down, inflation is below 2% (so they say).
To me it seems like a demand issue (falling turnover), people not willing to spend or not able to spend (unemplyment, low wages).
too much debt in the debt choked system, UNLESS, it can be bought by low iq subprime buyer....
Economy has reduced output. Exports to USA have plummeted
Oil is in hyperinflation
Costs are in hyperinflation
Unless oil drops to $20 to $50, costs will stay in hyperinflation.
Economics has one axiom:
Demand is infinite
Supply is scarce
That is why economics exist
No such thing as 'lack of demand' for goods and services
No such thing as 'lack of demand' for goods and services
You are confusing demand with need or want.
Want = desire for something, which can be infinite.
Demand = want + ability to pay.
(Some may further classify effective demand = want + ability and willingness to pay)
Demand = need or want
Ability to pay = Ability to produce in order to obtain reserves in order to pay
Hence 'ability to pay' has to do with supply, not demand
Demand does NOT = need or want. Need and want are both FACTORS of demand- neither term, in isolation, is synonymous with demand.
As stated above: Wants are tied to desire. Read and consider Plato's graduation beyond the limits of Socratic thought. Wants are the bases of the greatest human achievements (we had no reason to go to the Moon) and also of the worst human achievements (murder/genocide does not occur without the desire to kill another human being without the only moral regard for doing so (self-preservation)
Needs are tied to requirement - Read and consider Malthus- Needs are primordal- Needs can compel people to shed themselves of civility and embrace their inner animal in the expression of their natural right/compulsion to survive.
If you kill to consume (and consume what you kill); all in order to satisfy NEED, then you are expressive of a moral justification - even if what you kill and consume is another person - HOWEVER, it is morally SUPERIOR, when confronted by someone who wishes to kill and eat you, to kill THEM first in self-defense, and in expression of your right to survive. The tangential benefit of this is that you DON'T have to engage in the reprehensible task of eating them afterward - although I guess you could if you wished {yuck}
We all have the right to survive- none of us has the right to thrive- thriving is the functional output of want overcoming someone else's need (I have more, you have less, and you may not have what I have because it is MINE).
Now, Demand, and the ability to pay, are both secondary conditions most closely associated with willingness to TRADE. Supply is similar, as real trade does not (can not) occur where supply does not exist. I can stand and wave a 1-once Gold nugget in your face and DEMAND that you provide me a drink of water. If you have no water, then I go thirsty, reagrdless of my "demand". Likewise, if you DEMAND 2 ounces of Gold from me, in exchange for your SUPPLY of water, and if I only have 1 ounce of Gold with which to trade, then I may still go thirsty (although I may comfort my psyche by rationalizing my thirst as a product of YOUR greed... the end result is the same, regardless- I'm still pretty fucking thirsty)
So: It is not possible to NEED something that does not exist - Consider the need for immortality. Such a need can never bloom into economic DEMAND until immortality is POSSIBLE (ie: in SUPPLY)
WANT, however is ALWAYS possible, (whether rational or not), even in conditions of zero supply, or even in conditions of zero trade activity. (IE: I want to be immortal - it does not translate into an economic demand for immortality)
A rational mind, free of encumbered thought (cognitive bias, prejudice, etc) should now be able to see WHY Economics is not, and never will be, true science.
There are 4 vectors (forces) at work on the economic dynamic- WANT, NEED, SUPPLY, DEMAND... and any real scientist understands that 4 vectors can only be represented (in spatial terms) using a 2 dimensional plane (where each vector diverges from a comon reference point in 4 different directions- think X and Y axes), or in 3 spatial dimensions (using X, Y and Z axes), or in FOUR spatial dimensions (where each vector is allowed its own axis)...
So, until Economics can define and justify which vector (WANT, NEED, SUPPLY, DEMAND) is best suited to be represented as the temporal (time based) axis , Economics will continue to flounder about in its never ending quest to try to cram systems of 4 inter-dependent variables into 3 (or even 2) dimensional spatial constructs.
If Krugman was really as smart as he thinks he is, He would have identified this dimensional shortcoming early in his education, and would have instantly shifted his major to astrophysics...
I therefore deduce (with all supporting arguments encapsulated above) that Krugman is not as smart as he thinks he is, and he is absolutley not as smart as Stephen Hawking.
Now, if only Hawking would get around to proving that money and economics play NO part in why we do the greatest things we do, then science would finally, once and for all, have its head pulled completely out of its ass....
Thank you Professor, was a pleasant to read what you wrote!
Atleast there is someone who knows the difference between needs, wants and demand and how they relate to economics.
costs to buy raw materials the 0.1% is sitting on
Raw materials become affordable to expand business only if they drop at least 50% and stay there for at least 1 year.
Economic deterioration is accelerating and won't stop until raw materials drop to what I said.
Raw materials become affordable to expand business only if they drop at least 50% and stay there for at least 1 year
So the profits at the raw material buying business grows and the profits at the raw material producing business declines. Zero sum game? How does that help? Robbing Peter to pay Paul?
See this chart.
No. The business converting raw materials to consumable output stops hiring, fires people, reduces output of simply shuts down
Unless it is a government owned business like car industry. Gov then pays raw material suppliers with digital money.
So, suppliers get digital money but not real output or real goods/services in return, hence they reduce and ultimately stop supply as it is happening right now
Saudis threated halt of supplies last week to europe
Raw materials come from third world shitholes, owned by the local 0.1% about whom the first world 0.1% dont really give a shit about.
They can be had in exchange of IMF loans or the US Mil can fetch them for the corporations.
I think the fundamental problem is, people have been long out of cash and up to their eye balls in debt, and hence not spending.
Costs can always be passed on to the consumer. You really think the houses would be worth all that if there were no mortgages and people had to buy them on cash, outright, as it should be in a healthy economy.
House prices only went up on the back of easy credit.
Costs can no longer be passed on to the consumer.
Consumer has no jobs due to costs
Third world is looking towards China and russia now, not USA due to non intervention policy currently underway by Obama
Most people I know think that the FED is part of the government. Just remember its THE BANKS currency, and with that, private gains public losses.
So the Goldman Sachs Central Banks of the FREE WORLD and the JPM Assorted Federal Reserve have cornered the global market? Whoodathunkit?
So cash is king? It seems.
Here’s the problem with cash.
As of 7/2013 there is about $1.2 trillion dollars in U.S. cash circulating.
As of 6/2010 there is about $1.2 quadrillion in the derivatives market.
When the SHTF, how likely do you think it’ll be that ‘cash’ gets canceled?
Gold is king; silver is prince
In one word...
"Sick"!
In a fiat money from nothing system isn't the value of anything/everything just that- nothing?!
Well they aren't really banks they are boiler room crooked hedgefunds.... They need to be unprotected and broken up!
Is this Jamie's personal account or the overall bank...wait is their a difference?
Very aptly put; not that I have a solution on how to resolve the debt = funny asset conundrum, apart from "pull the plug and let em swing" ; I do have a comment on what I find an amusing idiosyncrasy : the southern drawl of the "jist" of things :
Gist vs. jistA gist is the main part of something, usually used with a direct object. It can also be the ground for legal action. Gist comes from the French word gist. Often misspelled as jist.
Jist is the common phonetic spelling of a United States Southerner’s way of saying ‘just’.
As seen here : “My eye was jist a-blazin’!” [Twain]
Interestingly, the origin of gist is the Latin word jac?re.
I might also add the usages of:
I could have "went" instead of, I could have gone.
He played "good" instead of, he played well.
I should have ran instead of, I should have run.
All these evolving mispronunciations by supposedly educated people.
I jist on this cute blonde I met at the bar this weekend.
Here is a WAG as to why. Is it possible the MBS sold to the Fed is JUNK and any losses will be clawed back to the sellers ie JPM et al???
Thus, just sitting on cash until the collector calls.
would be nice to see all banks deposits over loans
zerohedge is not as good as it was, anymore.
rising deposits and stagnant loans mean that the banking business at dimons is safer now, because there is less leverage. and this is what regulators and others wanted to happen.
The equivalent for citizens is that your ratios are all screwed because you bought more of a house than you could afford (IE 50% of John Q Public's gross goes to housing, etc).
The FED should give each citizen 100,000K$ to apply to their mortgage to make their ratios better....
Solved!!!
Funny that never happened?
Better to be a bank than a serf
It's hard to tell who the lackies are; the Fed or the Party. They both need each other more than ever.
yeah...lets go out and LEND money at all time lows in rates..
the smart guys are borrowing hand over fist....
Not sure I agree 100% but it is more of a chicken and egg thing. The reason the banks aren't making more loans is because there's no demand for them in a "you didn't build that" economic environment. So the Fed is stuck trying to induce demand for loans but, due to the anti-capitalism of the current regime in DC, they are basically "pushing on a string."
And yes, it has now become even more of a hinderance as a result of its (back door) support for the big governmentism of the current regime in DC.
Yep, look at the graph. Everyone must remember all those regulations that occurred right when the graph changed.....
Not sure I agree 100% but it is more of a chicken and egg thing. The reason the banks aren't making more loans is because there's no demand for them in a "you didn't build that" economic environment. So the Fed is stuck trying to induce demand for loans but, due to the anti-capitalism of the current regime in DC, they are basically "pushing on a string."
And yes, it has now become even more of a hinderance as a result of its (back door) support for the big governmentism of the current regime in DC.
Just think, the last time an industry anti-trust breakup occurred during the Reagan Administration. Now, the Party (DemPublicans) are all but encouraging massive corporate vertical and horizontal monopolies. It is one of the few areas related to the economy that I believe the federal gov't can have a positive interventionist role. FA Hayek discusses (Road of Serfdom) at considerable length the tendency of Socialist governance to create monopolies.
If we are not making anything in America, and if Americans are not buying things that other Americans are making, where is there any legitimate incentive to invest? The alternatives are to do nothing, or to invest in some financial derivative of an asset that can be 'monetized', or to loan to a foreign business entity which s actually making things that other people will buy.
AND THAT IS THE JIST OF WHAT IS BROKEN IN THE US FINANCIAL SYSTEM !!
Globaization is an economic policy that is only beneficial for those who have no country, who go "wherever their money is treated best". It is diastrous for every counry: for those whose labour are being exploited and whose natural resources are being extracted, and also for those whose working class are being impoerished and whose middle class are being diminished.
Imagine the fierce competition for capital that would ensue, should the American Government become economically nationalistic! If there was a universal highly punitive tariff imposed upon any and all goods and services imported from anywhere outside the USA and its territories, the ensuing demand for financial capital to invest in productive and constructive enterprises would be enormous and long-lasting, and so would be the demand for labor and the prospect for corporations to train their own workforces rather than opt for cheaper foreign workers.
I hear the argument, but who wants to borrow given the current economic/political environment?
1) Very few business opportunities: The only growth ventures: bullets for DHS, chlorine hand wipes, pawn shops. Seems like a formula from Youngstown, OH or Detroit, MI.
2) Real estate? Sorry: been there; done that.
3) Financial instruments? Yeah, great time to be a small investor.
4) Plus, the government's Visible Hand seems to be continuously issuing new mandates: $1500/mo/employee health care; wetland protection on farm ponds; tax audits on ZH contributors, etc. Go into business, and suddenly you need to provide housing and health care for Dreamers. Perfect.
Bottom line: why go into someplace and sign up for big payments in order to walk out with a bunch of dough (after the obligatory proctological exam, hours and HOURS of paperwork, etc.) when there is no place to put it (unless you're a Nigerian prince) with a lower risk and return good enough to:
a) make the payments,
b) make the application hassle worth it, and
c) expose yourself to market and regulatory risk?
NO THANKS.
We need some new derivative products to really ramp up the alpha...!!
My strategy is to keep sharp on skills/tools/materials that allow me to make/repair things on the local level. Once all of this takes a royal shit people will be screaming for someone that can do anything usefull. Buy the made local dip.
Ignore fractional reserve banking . Just follow optimal markups and compare with actual prices .
Wonder why there is no demand ?
Its all too expensive !
Calculate it for yourself :
See
https://www.academia.edu/8770429/Optimal_Markups_for_Sustainable_Growth
Everytime someone shows the chart of the Fed's exploding money supply, they should be legally required to show this chart also. http://research.stlouisfed.org/fred2/series/M2V
Economically speaking, that money ain't goin' nowhere.
Tale of two competing economic systems. One, a dying free market system, "greshamed" out of existence by a Statist command system. Today's pols liked what they saw in China, Russia, France and others so much, they created similar here,,,before their templates hit the skids. Now, here we are. No going back, and a pretty dim outlook ahead, it's anyone's guess from here.
My bet is on the destruction of the currency involved, in the end.
...which was the point of the Federal Reserve in the first place.