11-06-2007, 12:59 PM
New to the Forum
Join Date: Sep 2007
Is the US Banking System Healthy?
I think not, so much so I am moving any assets I have from electronic blips to something I can hold in my hand.
"THE BANKING SYSTEM IS HEALTHY"
Ben S. Bernanke, Federal Reserve Chairman, October 15
This is the kind of statement which ought to make a rational person's hair stand straight up on end. The first logical question which arises upon hearing this is: "Why mention it"? Why even call attention to this? Obviously, if the US banking system IS healthy, the fact need not be mentioned.
How NOT To Alert The General Public:
A healthy banking system should be the norm, the everyday, how things actually are. That being so, it should and ought to require no mention. But if it is known to some (and Mr Bernanke certainly should be one of them) that the US banking system is not healthy, then (being a Central Banker) his first action should be to stay quiet about it so as not to alarm people. After that, he should go about fixing the problem, again in ways which do not alarm other people. Once the system is fixed, he should stay quiet and then perhaps write about it all in his memoirs long after all the events have passed.
But if a Central Banker like Mr Bernanke does choose to inform the public, the much safer way is to address any problem after the fact. The safe way is to state that there was a problem in the past but it has now been solved. The worst thing any Central Banker can do it to address the public out of the clear blue sky that "the banking system is healthy".
This method of informing the general public causes the next to instantaneous reaction to doubt what they are being told. The public hardly ever believes reassuring words. No sooner have they heard them than the public asks themselves: "Is the US banking system REALLY healthy"??
An Already Negatively Primed US Public:
The US public is now being primed to believe the worst. Any more reassuring statements from on high will act to increase the public concern. Then, all it takes is a fast flying rumour - it doesn't matter whether it is right or wrong, all it has to be is negative - and then a crisis of confidence can explode across the field. Here, obviously, if the US banking system is in a state of good financial health, such a crisis of confidence will blow over in a few days with no lasting market damage.
Equally obviously, if the US banking system is NOT in a state of rude financial health, then any such rumour could act as the spark that ignites a real US financial and banking crisis. Once that takes place, then the political and financial powers that be do have to swing into action to salvage the situation, in the process validating the darkest hidden fears of the public. The crisis than then easily become systemic.
There Are National Crises And International Crises:
A national financial or banking crisis is normally largely confined to the nation in which the crisis occurs with some spillover to the broader international economy. Normally, a national crisis affects a particular nation's own monetary system and the international exchange value of its currency. This has happened many times in the past, in Latin America for example. But a genuine financial and banking crisis taking place inside the US financial system is something entirely different. The US supplies the world's reserve currency, the US Dollar. A US crisis would have global effects nearly instantaneously since the US Dollar is the world's reserve. Once begun, a global sell-out of the US Dollar would be an unstoppable event. But this is the price the US now might have to pay after its veto action at this most recent G-7 Summit in Washington.
"The banking system is healthy!". So says the master of the US Dollar, Ben Bernanke. Is it?