by Michael Snyder, The Economic Collapse Blog:
Our economy runs on credit, and our banks are the beating heart of that system. Without healthy banks, how would Americans buy homes, purchase vehicles or get credit cards? The way that our system is currently constructed, it is absolutely imperative for our banks to function properly. Unfortunately, the truth is that our banks have gotten into deep financial trouble. They are sitting on hundreds of billions of dollars in unrealized losses, and the primary reason why those losses have become so large is because we have witnessed a historic bond market crash over the past several years…
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Treasury bonds — debt instruments the government issues to fund its spending — have been on a nightmarish run since the onset of the pandemic, with investors fretting about rising interest rates and the long-term viability of the US’s massive deficit.
BlackRock’s iShares 20+ Year Treasury fund, which tracks longer-duration debt prices, has plunged 48% since April 2020.
Thanks to that historic bond market crash, our financial institutions were sitting on 650 billion dollars in unrealized losses as of September 30th…
As a result of that sell-off, some of the US’s biggest banks are now sitting on unrealized, or “paper,” losses worth hundreds of billions of dollars. That means the value of their bond holdings has plunged, but they’ve chosen to hold on rather than offload their investments.
Moody’s estimated last month that US financial institutions had racked up $650 billion worth of paper losses on their portfolios by September 30 — up 15% from June 30. The ratings agency’s data still doesn’t account for a hellish October where the longer-term collapse in bond prices spiraled into one of the worst routs in market history.
Go back and read that last sentence again.
After what we witnessed during the month of October, what is the real number now?
Has it surpassed 700 billion dollars?
Has it surpassed 800 billion dollars?
Nobody really knows.
However, what we do know is that we have never seen anything like this before.
The good news is that there won’t be a major problem in the short-term unless there is a run on the banks.
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