The Americans are preparing for the next financial crisis

Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, the central bank of the United States. (September 2014. US Governmnet work. No known copyright restrictions).

Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, the central bank of the United States. (September 2014. US Government work. No known copyright restrictions).

Last week, Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, in more than one ways revealed that the American central bank prepares to confront the next financial downturn. On Wednesday, 28 September, speaking at the House Financial Services Committee in Washington D.C. , she defended the Fed’s rigorous supervision over the eight American banks, which are considered by law as ‘too big to fail’. Officially, in case of insolvency the careless bankers will be rescued with taxpayers’ money.

The next day, Thursday, speaking at a Kansas City conference, Yellen said that the Fed could better support the American economy in a bad turn, if the central bank could purchase stocks and corporate bonds in the capital market. All this happens at a time when the Fed has already injected $4.5 trillion for free into the American banking system. Let’s take one thing at a time.

More capital needed

In her biannual appearance at the House Financial Services Committee, Yellen had to defend the Fed’s role in closely watching the banking system. Despite the Wells Fargo incident, where the lender opened two million accounts without the customers knowing it, some Republican representatives insisted that the Fed is drying up liquidity by the tough application of the rules. Still, Yellen said the Fed prepares even tougher and more risk-sensitive criteria, to be applied in the next series of the semi-annual stress tests on the eight largest US banks. Not to forget, that the American taxpayers are the insurers of the eight.

According to Reuters, she very explicitly concluded that the new criteria “would result in a significant aggregate increase in capital requirements”. Up to now nobody had expressed a reserve about the capital adequacy of the US banks. Instead, everybody had been pointing to the dangerously low capitalization of the European banks.

US and Eurozone

However, the Deutsche Bank case proved that if the European banks get pneumonia, their US peers cannot avoid contagion, so they need improved capitalization too. Reality underlined the contagion effect last week. The Wall Street stock exchange main indexes danced to the music played by the German lender, going up and down according to the rhythm. No wonder then, why Yellen thinks that it’s better to be prepared than not. No need to say that the American experts expect the next financial crisis to start from Eurozone.

Incidentally the Deutsch Bank affair is currently taking political dimensions, shadowing Angela Merkel’s chances to win a general election next year. The bank was initially bombarded by the American business media. They then were followed by the US Department of Justice, rendering the lender unable to recapitalize itself from capital markets.

Deutsche Bank on the spot

By the same token, last week, the German Chancellor rejected the option to bailout Deutsche Bank with taxpayers’ money, if need appears. In such an eventuality, which is, giving more money to bankers, Merkel’s party, the Christian Democratic Union (CDU) would lose much ground to the new Eurosceptic and anti-immigrant party Alternative for Germany (AfD). However, if Deutsche Bank comes to a critical point, both Berlin and Brussels would find it very difficult to let the largest German lender go bankrupt and trigger a global financial crisis.

Unfortunately, Deutsche is not the only German bank in dire straits. Many regional saving banks are dependent on Deutsche’s health. Then comes the second largest German lender, the ailing Commerzbank, a global financial group which is about to cut more than 9,000 jobs. In any case, the entire Eurozone banking system is in trouble.

Just think of the non performing loans of the Italian and Greek banking systems at the dizzying heights of around 40%. No wonder then why Yellen wants to strengthen the capitalization of the American banks, in order to bring them to an improved position, when the next financial typhoon strikes.

More cash needed

Last Thursday she was much more explicit about that, while addressing the bankers of Kansas City. In this case Yellen was plainer in indirectly foreseeing a financial crisis. She said that in an eventual recession, the Fed should be able to inject cash into the American financial system, through purchases of stocks and corporate bonds.

This is a bare recognition that, again, the Fed has to use the famous ‘Milton Friedman’s Helicopter’, spreading more free money above Wall Street, in order to save us all from a new financial Armageddon. This is where imprudent and unscrupulous bankers have brought us all again. Currently, the Fed is prohibited by law from buying corporate assets and Yellen wants to change that.

If the American people knew

If this issue gained widespread publicity for the hard-working American taxpayers to grasp, then Donald Trump would have no problem at all winning the 8 November election and becoming the next US President. He has already accused Hillary Clinton of receiving millions of dollars from Wall Street bankers.

Unquestionably, Janet Yellen is one of the very few people who have all the available information about our economic future. On top of that, she is amongst the even fewer, who are and feel responsible for protecting the economy from being dissolved. She has to do that, because during the past twenty years irresponsible politicians canonized the banks as the masters of the world. So, Yellen seems to have willy-nilly acknowledged that the Fed again has to feed the banking leviathans with more free cash.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Stop illegal trade in cats and dogs, say MEPs

The importance of the strategy of health of a country working in accordance with the theory

Five-year low inflation for Eurozone and now Mario has to finally wake up the Germans

MWC 2016 Live: Roshan CEO opens up on Afghanistan challenges

Mergers: Commission approves the merger of Fiat Chrysler Automobiles N.V. and Peugeot S.A., subject to conditions

Draghi’s negative interest rates help Eurozone’s cohesion

Password managers aren’t all they’re cracked up to be. Here’s why

EU helps tackle air pollution in Kosovo with €76.4 million

EU-Turkey leaders’ meeting, 9 March 2020

We must work together to build a new world order. This is how we can do it

Sea urchins are overwhelming parts of the ocean. Could turning them into sushi be the solution?

Challenges surrounding COVID-19 vaccination in Japan: Fraught history and current vaccine hesitancy

Workers want flexibility. After COVID, they just might get it: Poll

Finnish Presidency outlines priorities to EP committees

Cross-border cooperation: the EU Interreg programme celebrates 30 years of bringing citizens closer together

European Banking Union: Like the issue of a Eurobond?

Half of the world’s population lack access to essential health services – are we doing enough?

Cash-strapped cities must look to private partners

7 ways the ‘biological century’ will transform healthcare

No patents on naturally obtained plants and seeds

Prolonged economic crisis and drought demands urgent response for Zimbabwe’s ‘hardest hit’: UN relief chief

‘Still time’ to stop a ‘bloody battle’ for Libya’s capital, insists Guterres

Here’s what travelling could be like after COVID-19

Pharmaceuticals spend millions to push TTIP while consumer groups spend peanuts

Employers’ organizations work towards improving the enabling environment for sustainable enterprises

How storytelling can be a force for social change

The EU Commission to fight unemployment tsunami with a…scoreboard

World simply ‘not on track’ to slow climate change this year: UN weather agency

The ECB accuses the politicians of inaction, continues injecting billions to banks

GSMA Announces First Keynote Speakers for 2019 “MWC Los Angeles, in Partnership with CTIA”

Iraq: Over 150,000 children endangered by ‘freezing’ temperatures, warns UNICEF

‘Warp speed’ technology must be ‘force for good’ UN chief tells web leaders

This man is helping explorers carry out scientific research at the ends of the Earth

Coronavirus: Commission adopts new exceptional support measures for the wine sector

EU-wide survey shows Europeans support the launch of the Conference on the Future of Europe

EU Parliament: ECB accountable for not supporting real economy

Will CETA be implemented after eight long years or it will be vetoed by the EU citizen?

Parliament approves €104.2m in EU aid to Greece, Spain, France and Portugal

Europe should make voice ‘more heard’ in today’s ‘dangerous world,’ says UN chief

Moving from commitment to action on LGBTI equality

Data is the new gold. This is how it can benefit everyone – while harming no one

EU approves €100 million for the post-earthquake reconstruction in Albania

Donor countries need to reform development finance to meet 2030 pledge

Three steps we must take to secure the future of our forests

FROM THE FIELD: Enslaved Guatemalan indigenous women wait for reparations

Bacteria vs. humans: how to fight in this world war?

Quality education an ‘essential pillar’ of a better future, says UN chief

Advanced economies still have plenty of work to do to reach Sustainable Development Goals

We can build a carbon-neutral world by 2050. Here’s how

No end to Deutsche Bank’s problems: new litigations in the US and frailty in EU stress test

European Parliament calls on Russia to end occupation of Georgian territories

Emotional stability and the COVID-19 pandemic: is it possible to reconcile them?

This massive project in Spain is the latest milestone in Europe’s solar power boom

On International Youth Day the European Youth Forum calls for true youth participation

Trust in OECD governments back at pre-crisis levels as governments seek to be more open and engaged

Customs Union: Fake and potentially dangerous goods worth nearly €740 million stopped at EU customs in 2018

People, not technology, shape the future of manufacturing

MEPs: Hold companies accountable for harm caused to people and planet

ILO: Progress on gender equality at work remains inadequate

Australia wants to build a giant underground ‘battery’ to help power the nation

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s