Banks’ Unrealized Losses

Posted By Darren Winters on Mar 11, 2024


Banks’ Unrealized Losses

Banks’ unrealized losses in 2023 triggered some bank failures, with five banks curcuming to bankruptcy. 

However, the banks’ unrealized losses in 2024 could trigger hundreds of bank failures 

The 10-year treasury bond yield remains stuck above 4%, which signifies that bond investors are betting that the Fed’s 2% inflation target could be another fairytale. 

Inflation for anything of value is likely in the double digits. Moreover, with escalating wars and spiralling public deficits, the shift from public to private assets could be in its infancy. War is inflationary because the state goes deeper into debt to finance it. 

As the economy transformed from civil to wartime, production and consumption shifted towards wartime efforts. 

A war economy for the civilian population means elevated inflation, scarcity, shortages and collapsing living standards. 

Cash is trash in wartime. So, why would an investor worth his salt own government bonds which promise to pay a bundle of debased currency on maturity? Frankly, a corporate bond in a company supplying the war efforts would be a better investment. There is an inverse relationship between the price of a bond and its corresponding yields. 

When investor demand for bonds is weak, the market is illiquid, bond prices fall, and yields rise.  

Banks' Unrealized Losses

It is that kind of reasoning which makes the trillions of dollars of treasury bonds that yielded 2% bought by the banks several years ago when the Fed was touting inflation as being transitory, as an asset illiquid.

In other words, banks could be staring down the double barrel of unprecedented unrealized losses on their bond portfolio in 2024. Generations of investors had imprinted in their minds that treasury bonds were a safe haven asset, but that myth was proven wrong with the worst treasury bond market crash in history in 2023, which collapsed five banks.   

There has been no market for trillions of dollars of 10-year treasury bonds when it yielded 2% at today’s inflation rate. 

The only buyer would be central banks, but that means printing more currency to buy toxic debt, which further debases the currency, causing inflation and creating a hyperinflationary money printing vicious cycle.  

Banks’ unrealized losses in 2024 could make the 2008 credit squeeze look like a picnic

Household demand has collapsed, and credit card auto delinquency rates are above13-year high and continue to rise. 

“Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels,” said Wilbert van der Klaauw, economic research advisor at the New York Fed. “This signals increased financial stress, especially among younger and lower-income households,” New York Fed, February 2024.

Mortgages falling into serious delinquencies, 90 days or more delinquent, are up approximately 50% from a year ago at .082.%, Q4, 2023. 

In Q4, 2022, mortgages falling into serious delinquencies was 0.57%.

Rising corporate layoffs, which don’t tally with the great job numbers statistics could trigger a wave of household foreclosures.

Google, Amazon and UPS are among the companies slashing staff in 2024. “Already 168 tech companies have laid off 42,324 employees,” according to Layoffs. Banks have laid off 60,000 staff in 2023 and continue to slash jobs in 2024.

Is the best jobs report ever yet another fairytale? 

With food inflation in the double digits, Americans are being told by Kellogg’s CEO to skip dinner and eat cereal instead. 

Over in Europe, the situation is worse, with the EU encouraging its citizens to eat insects instead of more expensive meat.  

So consumer demand has decreased to a point where populations are struggling to buy necessities. In short, spiralling inflation is not being driven by consumer demand but by input costs, as the ongoing currency debasement withers the purchasing power of fiat currencies.

Banks’ unrealized losses, a collapse in fiat currency, and a melt up, in metals, commodities, stocks, cryptos and tangible assets

The crash we are currently witnessing started in the bond market in 2023. 

Unsustainable public deficit, central bank doublespeak has proven the Emperor has no clothes. Investors’ trust in a currency backed by failed monetary policy has collapsed. We could be witnessing the greatest wealth transfer as capital flows shift from public to private assets is underway. If the above analysis is correct, then the bull market in assets outside a failed currency system could be in its infancy. 

Banks’ unrealized losses and the mother of all wars

Pope Francis gets it, and those well-informed with a conscience also get it. Putin’s Russia wanted to join NATO and sell affordable energy and food commodities to the European continent. Sure, there were strings attached. If you have something valuable everyone needs, you leverage the deal. That is just being shrewd and smart. Energy policy, foreign policy, and security policy are all aligned. 

But a peaceful, prosperous European continent swayed by Russia along the Silk Road outside a US-centric world threatens US hegemony and the US dollar as world reserve currency.

The Banks’ unrealized losses would then be realized, and the US Empire, fiat debt, would collapse

“Barking at the gates,” was deliberate to make Putin’s Russia the West’s boogeyman. The rejection of Russia in NATO, the encroachment of NATO near the Russian border five times and using the Minsk peace agreement as a play for time to build a Ukrainian army to kill Russians all makes sense. The likelihood of” Ukraine waving the white flag” is sadly a dream. The Ukraine war is round one of WW3. Preparations are being made for a war on the continent. Moreover, Trump encouraging Russia “to do whatever the hell they like to NATO members who don’t pay” sounds more like a Mafia boss, saying pay your protection money or else.

With nuclear deterrents removed from the continent, bearing in mind France and Britain’s use of nuclear weapons would only be deployed if their nation faced an existential threat could mean a long and bloody war on the continent, giving the CEOs of MIC a hard-on as they drown in blood profits. 

As the previously prosperous, peaceful continental Europe morphs into a wasted battlefield, the Banks’ unrealized losses in treasury bonds turn green, with global investors flocking to safe-haven US paper. 

Beggar thy neighbour policy on steroids?   

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