Tuesday, October 04, 2016

It’s Not Just Deutsche Bank,
The Entire Financial Sector Is Sick
"These are great times for financial assets — and by implication for finance companies that make and sell them, right? Alas, no. Just the opposite. Each part of the FIRE (finance, insurance, real estate) economy is imploding as 'modern' finance hits the wall. Interest rates, for instance, have fallen for three decades… In this kind of paper paradise it’s no surprise that banks and their cousins have grown fat, happy and arrogant. And with the above trends now ending, it’s also no surprise that business models premised on their continuance are failing. Everyone by now knows the Deutsche Bank story of bloated costs, horrendous derivatives exposure and debilitating criminal penalties. But lots of other finance companies are staring into the same abyss .. If every part of the financial sector hits the wall simultaneously, the resulting crisis will overwhelm the ability of governments and central banks to keep the game going. Their last, desperate policy experiment will involve coordinated currency devaluations to make debts less onerous. When this fails because everyone responds by borrowing even more — thus making the total debt burden more rather than less onerous – a big part of the FIRE economy will die a noisy death. This will be a disaster if you work on Wall Street, rely on a public sector pension and/or own a bunch of bank stocks. It will be hard but survivable if your wealth is in real rather than financial assets. Gold, as always, is the safe haven."
- John Rubino*
LINK HERE to the commentary

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