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.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

How to build a more resilient and inclusive global system

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

Catalonia’s vote for independence and the power of symbols

North Sea fisheries: MEPs back EU plan to sustain stocks of demersal species

Remembering slave trade offers chance to raise awareness, ‘oppose all forms of modern slavery’ – UNESCO

The psychology of pandemics

Welfare of transported animals: MEPs urge EU states to do a better job

A Sting Exclusive: “Seize the opportunity offered by Africa’s continental free trade area”, written by the Director General of UNIDO

A European student just sets the question of the day: What kind of education policies are missing in Europe?

What Ghana can teach us about integrating refugees

WEF Davos 2016 LIVE: “CO2 is not the problem, it is the symptom”, the pilots who crossed the world using solar energy cry out from Davos

US Tariffs on Steel and Aluminium: Statement of Trade Committee Chair

COP21 Breaking News_09 December: List of Recent Climate Funding Announcements

“Two Pack” approved: Is democracy chased away from Brussels?

Whose interests are protected by the new Mortgage Directive?

UN experts urge United Arab Emirates to release terminally ill woman to live her last days ‘in dignity’

Rehn ready to sacrifice part of the real economy

Parliament: No consent to EU budget until €11.2 billion unpaid bills are settled

Capital Markets Union: Making it easier for smaller businesses to get financing through capital markets

Medschool 4.0: how to succeed in the smart revolution of healthcare

European tourism remains a strong growth factor

Why medicine is relevant to the battle against climate change

Ambassador Zhang Ming: “Work Together for a Better Globalization”

Here are four steps SMEs can take for long-term success

EU fight against tax-evasion and money laundering blocked by Britain

Commission: Do it like the Americans in the food sector

How blockchain can manage the future electricity grid

European Commission requests that Italy presents a revised draft budgetary plan for 2019

Why are the Balkans’ political leaders meeting in Geneva this week?

Marking Sir Brian Urquhart’s 100th birthday, UN honours life-long servant of ‘we the peoples’

India’s economy is an ‘elephant that is starting to run’, according to the IMF

Is a deal over EU budget possible today?

Europe united in not supporting a US attack on Syria

The EU threatens to occupy Libya militarily; is another colonial war brewing?

What could a no-deal Brexit mean for developing countries?

More urgency needed to help increasing numbers ‘locked out’, before 2030, says UN’s Bachelet

Built by a woman: supporting the dreams of mum entrepreneurs

25 years on from genocide against the Tutsi, UN Chief warns of ‘dangerous trends of rising xenophobia, racism and intolerance’

Schools must look to the future when connecting students to the internet

Myanmar and UN agriculture agency agree framework to improve nutrition and food security

“We need to accelerate our negotiation on the China-EU Investment Treaty”, Chinese Premier Li Keqiang highlights from the 21st EU-China summit in Brussels

Impossible Brexit options: WTO or new referendum?

‘Ticking bomb’ health warning over deteriorating conditions facing Cyclone Idai victims

A new Europe for people, planet and prosperity for all

‘Chance for peace’ in South Sudan finally within reach, declares UN Peacekeeping chief

Do the giant banks ‘tell’ Britain to choose a good soft Brexit and ‘remain’ or else…?

Eurozone 2013: Where to?

Security spillovers from Trump’s trade wars: China, Germany prepare for global disorder

Will Turkey abandon the refugee deal and risk losing a bonanza of money?

Is our brave new world about to burst?

Giving humanitarian help to migrants should not be a crime, according to the EP

Commission deepens criticism on German economic policies

Terrorist content online: companies to be given just one hour to remove it

5 things you need to know about creativity

The EU tells the bare truth to the UK that there is no such thing as easy divorces

LGBT community in Chechnya faces ‘new wave of persecution’: UN human rights experts

3 steps to making multistakeholder partnerships a powerful force

From Russia with love: Brussels and Moscow close to an agreement on Ukraine’s gas supplies

Access to health in the developping world

UN police officer recognized for protecting vulnerable Somali women from abuse

Newly displaced fleeing attacks in northeast Nigeria, top 2,000

Eurozone: How safe are our deposits? Which banks will survive?

More Stings?

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