The US Banking System Was Destroyed By QE… And Negative Rates Killed It


Every time there is a banking crisis some scratch their heads and wonder; how could this happen? Surely it must be greed, bad risk management or lack of regulation. More intervention should solve it. However, all those excuses miss the most critical point: The U.S. banking system was destroyed by design, and the big banks played along with it.

The fractional reserve system has always been a problem. Very few people understand how quickly the capital of a bank can dissolve. The entire balance sheet of a bank is a deck of cards and the smallest decline in the profitable asset base -loans- or the volatile liabilities -deposits- would make the entire building collapse because the problem has always been to take additional long-term risk using short-term liquid liabilities -deposits-.

“You ask and do not receive, because you ask with wrong motives, so that you may spend it on your pleasures.” James 4:3


The mismatch between assets and liabilities makes the entire balance sheet collapse and there is never enough capital and reserves to cover the losses. However, decades of prudent banking and increasingly sophisticated risk management tools helped reduce the risk of a bank failure. It was never going to be perfect, but it worked for the most part.

The real problem started when the “monetary innovators” decided to invent the wheel and ignore what money and risk are. This time was going to be different.

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