“The article highlights the potential for a significant credit crunch in the US, as half of the country's banks are already insolvent. The situation is primarily due to the crashes in the US commercial real estate and bond markets, which have combined with $9 trillion in uninsured deposits within the American banking system.
The Federal Reserve's monetary tightening is cited as a major factor in this crisis, with the full impact yet to be felt. More than 2,315 US banks are currently sitting on assets worth less than their liabilities, and the market value of their loan portfolios is $2 trillion lower than the stated book value. This situation includes large banks and even a globally systemic entity with assets of over $1 trillion.
Commercial real estate is particularly vulnerable, with a deep slump in the early stages. US commercial property prices have fallen by 4 to 5%, and a peak to trough decline of 22% is expected, which could create a "doom loop" that accelerates the downturn and feeds back into the banking system.
The US Federal Reserve is planning to continue raising rates and shrinking the US money supply at a record pace, despite the potential for a systemic banking crisis. The central bank faces a difficult choice between two negative outcomes: capitulating on inflation or allowing a banking crisis to reach systemic proportions. The Fed has currently chosen to risk a banking crisis.”
