Dr Doom: “Most banks are technically insolvent”

Most US Banks are Technically Near Insolvency

In this section, the speaker discusses how most banks in the US and around the world are technically bankrupt due to fractional reserve banking.

Dr. Doom's Argument

• Nuriel Rubini, also known as Dr. Doom, argues that most US banks are technically near insolvency and hundreds are already fully insolvent.

• According to Rubini, all banks in the US and essentially all banks in the world are technically bankrupt all the time due to fractional reserve banking.

Bankruptcy of Banks

• The speaker explains that even with the exorbitant privilege of fractional reserve banking, most banks according to Rubini are bankrupt.

• The banking system has about 2.2 trillion dollars in equity which is the difference between a bank's assets and what it owes primarily deposits set against this buffer.

• The FDIC estimates that banks have at least 620 billion dollars in unrealized losses while a recent Stanford study thinks it's much worse that banks have roughly 2 trillion in unrealized losses.

• This means that banks are right on the edge waiting for a light drizzle to collapse.

Unrealized Losses

• An unrealized loss means you lost money but you don't have to admit it yet not unless you sell.

• Recent outflows from small Banks to large Banks because of FDIC's mixed messages reveal that many of them did gamble their Christmas money on GameStop and revealing that hundreds of them maybe more won't be able to make rent.

Outflows from Banking System

In this section, the speaker talks about outflows from the banking system as a whole and where all that money is going.

Tracking Outflows

• Nick Bhatia has been tracking the outflows from the banking system as a whole.

• In the last month, about 300 billion came out of the banks where is all that money going some could be going to coffee cans and home safes but overwhelmingly it's going to money market funds which are a non-bank way to park cash that currently pays over four percent.

Deflationary Effect

• All those outflows shrink the money supply fast they're deflationary because money markets can't fractional reserve and coffee cans definitely can't fractional Reserve.

• The speaker will talk more about deflation and subsequent inflation in coming videos.

Conclusion

In this section, the speaker concludes by summarizing what these hundred billion dollar outflows are doing to banks.

Impact on Banks

• Recent outflows from small Banks to large Banks because of FDIC's mixed messages reveal that many of them did gamble their Christmas money on GameStop and revealing that hundreds of them maybe more won't be able to make rent.

• The big concern is what these hundred billion dollar outflows are doing to banks.