US Banks Haven’t Behaved Like This Since 2009

If there is one thing Ben Bernanke got right, it was this. In 2009 during the worst of the worst monetary crisis in four generations, the Federal Reserve’s Chairman was asked in front of Congress if we all should be worried about zombies. Senator Bob Corker wasn’t talking about the literal undead, rather a scenario much like Japan where the financial system entered a period of sustained agony – leading to the same in the real economy, one lost decade becoming a second and then a third.

Bernanke retorted that there weren’t going to be zombies in the United States. The American people needn’t worry because the key to staving off economic apocalypse was pretty simple.

If there is one message that I’d like to leave you with, if we’re going to have a strong recovery, it has got to be on the back of a stabilization of the financial system.

Bernanke was already busily trying to do just that, steady the banking system. Unfortunately for all of us, while he could see what needed to be done, doing it was altogether a different matter. His tenure was a total failure for this one thing. Neither he nor any of his fellow central bankers had any idea how to put this theory into practice.

They really don’t know what they are doing.

As I write almost every quarter at each update of the Federal Reserve’s Financial Accounts of the United States (Z1), there is a necessary debate still waiting over how much debt is the “right” amount. There are legitimate concerns about too much. What isn’t up for argument is the last ten years; Bernanke was, again, correct in that debt is a requirement in the modern financialized economy and to make it we all need confident, functioning banks.

No matter what the Federal Reserve tried, credit growth remains conspicuously stalled. The latest Z1 update for Q3 2018 shows quite a bit to be concerned about in terms of financial participation. The overall credit market is slowing – again.

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Moon Kil Woong 4 months ago Contributor's comment

The banks should be concerned about their exposure to property prices as property prices are slowing in their upward push. Sadly, banks have too much property ownership and the public has too little property ownership revealing the issue that housing is still way out of line.

Gary Anderson 4 months ago Contributor's comment

So true. And Moon, the Fed has protected its banks, but not mainstreet. Eventually, a sick mainstreet impacts the banks.