After the Federal Reserve incentivized borrowing with more than a decade of artificially low interest rates and easy money, the debt chickens are coming home to roost. Last week, Fitch Ratings downgraded the US’s long-term credit rating from AAA to AA+, and on Monday, Moody’s cut the credit rating of 10 small and midsize banks.
Moody’s also placed six large banks on review for potential downgrades and revised 11 more banks from a stable outlook to a negative outlook. This indicates that the financial crisis continues to bubble under the surface.
The Moody’s report said funding risks and weaker profitability in a higher interest rate environment are squeezing the entire banking sector’s credit strength.
Many banks’ second-quarter results showed growing profitability pressures that will reduce their ability to generate internal capital.”
Moody’s said a “mild recession” in early 2024 could put further stress on banks and problems in the commercial real estate (CRE) sector could spill over into the financial sector.
Elevated CRE exposures are a key risk given sustained high interest rates, structural declines in office demand due to remote work, and a reduction in the availability of CRE credit.”
Notably, Moody’s only predicts a mild recession. But given that interest rates are at a level not seen prior to the Great Recession and there is far more debt and malinvestment in the economy now than there was then, it remains unclear why we should expect a more moderate downturn than we experienced in ’08.
The Moody’s report also mentioned the “sizable unrealized economic losses” in many banks’ bond portfolios, saying they could cause investors to lose confidence. This is exactly what sank Silicon Valley Bank, Signature Bank and First Republic Bank.
The Federal Reserve managed to paper over the banking crisis with a bailout program. But the most recent Moody’s bank rating downgrades reveal the problem wasn’t solved.
“As you look ahead, it doesn’t feel like the pressure from interest rates being higher and overall monetary policy tightening is close to abating,” Moody’s associate managing director Jill Cetina said.
We’ve seen funding strains in the banking sector. The interest rate risk, I think, was something that the US banking sector was not prepared particularly well for, and because of that, we have some challenges at certain banks.”
Here is the list of downgraded banks:
- Commerce Bancshares
- BOK Financial Corporation
- M&T Bank Corporation
- Old National Bancorp
- Prosperity Bancshares
- Amarillo National Bancorp
- Webster Financial Corporation
- Fulton Financial Corporation
- Pinnacle Financial Partners
- Associated Banc-Corp
These banks were put on review for potential downgrade:
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- Bank of New York Mellon Corporation
- Northern Trust Corporation
- State Street Corporation
- Cullen/Frost Bankers
- Truist Financial Corporation
- U.S. Bancorp
These banks had their outlooks shifted from stable to negative:
- PNC Financial Services Group
- Capital One Financial Corporation
- Citizens Financial Group
- Fifth Third Bancorp
- Huntington Bancshares
- Regions Financial Corporation
- Cadence Bank
- F.N.B. Corporation
- Simmons First National Corporation
- Ally Financial
- Bank OZK
The Big Picture
Debt problems in the banking sector are just a small part of a massive debt bubble blown up due to a decade of artificially low-interest rates in the wake of the Great Recession and a tidal wave of easy money during the pandemic.
Most people blame the shakiness in the financial sector and the broader economy on recent interest rate hikes, but the real problem started years ago.
After the Great Recession, Federal Reserve policy intentionally incentivized borrowing to “stimulate” the economy. But this monetary inflation inevitably led to price inflation. That forced the Fed to raise interest rates. The central bank managed to cool price inflation (for now), but it also threatens to pop the debt bubble.
In other words, high interest rates are only a problem today because the Fed incentivized so much borrowing yesterday. What the Fed giveth, the Fed taketh away, and it was inevitable that these debt chickens would come home to roost.
Banking isn’t the only sector being drug down by debt. The national debt now stands at $32.6 trillion. The US government has borrowed more than $1 trillion since the debt ceiling deal. The interest payment on all of the debt is set to rise at an alarming and unsustainable rate.
Corporations are levered to the hilt with the number of corporate defaults already larger than the total in 2022.
And American consumers are also buried under a mountain of debt. Credit card debt topped $1 trillion for the first time ever in the second quarter of this year. More concerning is the fact that consumers may be close to reaching their borrowing limit. After increasing at a frenetic pace for more than a year, revolving credit suddenly plunged in June.
With interest rates at levels not seen since 2006, it is inevitable that these debt bubbles will pop. The recent credit downgrades reflect this reality.
We saw what that looks like in 2008 and we know it won’t be pretty.
Article cross-posted from Schiff Gold.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
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