Sunday, May 02, 2010

10 years worth of bank failures in 4 months

This is real, it is bad and it is getting worse.

So far in 2010 the FDIC has announced the closure of 64 banks, with seven more being stacked on the pile on April 30.
Last year at this time the toll was 32, which in itself was a disturbing number. How disturbing? Banks don't usually fail en masse, and when the economy was enjoying better days it took 5 years to rack up 32 bank failures, from the end of 2003 to the end of 2008.

The acceleration of failures, and the swelling burden on the US taxpayer to bail out the depositors, ought to be disturbing the general populace. One would think that evidence of real hardship that affects everybody in the USA, relentlessly creeping like an oil slick in the Gulf of Mexico, would make it onto the nightly news or a large-circulation daily front page or two. Nope.

At least the
LA Times covered it in the business section with the almost-comical closing comment that "depositors' money is not at risk, with the FDIC backed by the government." Hello? This opinion might reassure a failed bank's depositor but surely it should trouble a taxpayer. Billions of dollars are being lost.

There are still two possible outcomes at the macro-economic level. Debt which is not repaid is deflationary. But if the government response to widespread failure of debt is to increase its money supply, debasing its currency, this is inflationary.

The markets are saying "Inflation". The
price of gold has set new records, the stock market is maintaining its Zimbabwe-like levels and the public mood in North America is nothing at all like it is in, say, Greece. For now.