If you take the time to read the whole report, as I did, there
was a remarkable disclosure in the latest JPMorgan earnings report: they
are the largest TBTF “US” bank that historically has been known for making
loans to the enslaved broader population...and they reported that in 2021/Q1 their
total deposits rose by a staggering 24% year/year and up 6% from
2020/Q4, to $2.278 trillion, while the total amount of loans issued by the bank
was virtually flat at $1.011 trillion, and down 4% from a year
ago....they are taking in more money than thy are loaning out! For the 1st
time in their history, JPM had 100% more deposits than loans, the ratio of
loans to deposits dropped below 50% for the 3rd quarter in a row
after plunging in the aftermath of the Covid-19 nasty pandemic:
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An even more spectacular divergence between
total deposits and loans, emerged at Bank of America where deposits similarly
hit a new all-time high of $1.88 trillion, even as the bank's loans have
continued to deteriorate at an alarming rate and are now at $911
billion, below the level during the great TBTF banker led financial crisis: in
other words, there have been 12 years with basically zero loan growth at Bank
of America! (so, where are the profits coming from?
The same trend exists at Citigroup... and Wells Fargo the
data across the TBTF (4) banks shows something astonishing as there has been no
loan growth since the global TBTF banker led great financial crisis, while
total deposits have basically doubled! As such there are two major undertones we
should draw from the collapsing loan-to-deposit ratio.
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The first, one is that this ratio is a closely
watched metric that measures how much lending a bank is doing when compared to
its capacity to lend.
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The second, is arguably the most fundamental
question in modern fractional reserve banking: what comes first, loans or deposits,
in other words do private, commercial banks create the money in circulation (by
first lending it out) or is the central bankers responsible for money creation?
Interestingly there are now far more deposits than there are
loans in the US banking system.
As you are all aware now knows, we live in a New MMT world
where the “BS” FED and Treasury have merged and where one basically monetizes what
the other has to sell. And since “Alice and the Mad-Hatter” have alluded to;
the new world of MMT says that there is nothing to worry about from such debt
monetization, even so-called cheerleading respected economists have been swept
into this frenzy and illusion and are urging the US to issue as much debt as thy
possibly can (with the placating Biden administration glad to accommodate).
There is just one problem: the core tenet of MMT is no
longer applicable. As a reminder, according to MMT loans create deposits
not the other way around, and this massive crazy-ass socialist crackpot
theory further claims that Reserve balances have nothing to do with this they
are part of the banking system that ensures financial stability. Watch the
following clip from one of the head Lonny Tune developers of MMT, Warrn Mosler who explains how so-called loans
create deposits.
Only now when we look at the data that is not the case, as
the empirical data mentioned above makes it plainly obvious that the core theory
of MMT on which all its other pathetic staggered premises are built on a false
foundation, with huge negative consequences. Starting with the collapse of
Lehman-Brothers loan creation has been virtually non-existent (as total loans
are now at close to the same levels seen at the time of Lehman's demise) while
deposits have risen close to $10 trillion; a interesting development as it is
here that the FED's massive excess reserves have gone the delta between the two
is almost precisely the total amount of reserves
injected by the FED since the Lehman-Brothers debacle-crisis.
So, I suspect you are all waiting with baited breadth
wondering what does all of this mean? In a nutshell, with the FED now slowing deposit
formation, banks will have no choice but to issue loans to offset the lack of
outside money injection by the FED. In other words, while bank deposits have
already experienced the benefit of future inflation and have manifested it greatly
in the stock market as the TBTF bankers reap trading profits, it is now the time
of the matching asset to play catch up. This also means that while deposit
growth (i.e., parked reserves at the FED collecting interest) in the future
will slow to a trickle, banks will have no choice but to flood the country with
trillions in loans, about a third of the currently outstanding loans, just
to catch up to the head start provided by the FED! Once banks launch this wholesale lending
effort, it is then that the true destructive inflation from what the FED has
done in the past decade will finally rear its ugly head. Right now, we have
seen that excess deposits over loans is entirely driven by the trillions in
reserves pumped into the coffers of their bastard sons, the TBTF bakers by the FED! It also explains why even as the FED has
pumped trillions of illusionary reserves into banks (that have parked the
majority at the FED collecting interest), which have ended up as deposits on
bank balance sheets (giving the illusion of profits), the velocity of M2
money has plunged to an all-time low (and will soon drop below the
fractional reserve system singularity of 1.0x), as loan demand is
nowhere near enough to offset the FED's forced deposit creation which
incidentally ends up not in the economy but in the capital markets (stock
market, commodities, and other assets), resulting in broad deflation
offset by asset price hyperinflation.
Another reason why this premise is critical: in a world
where the dominant daily argument is whether the US is facing deflation or
inflation, and where many so-called old-time real economists like myself have
become convinced that we are facing a significant surge in higher prices. But
don't take my word for it here is an excerpt from the latest "Flows and
Liquidity" report from JPMorgan strategist Nick Panigirtzoglou in which he
confirms all of my observations and writes that “a common feature of this
week's US bank earnings reports has been the weakness in loan growth. Indeed,
weekly data from the FED's H8 release shows that the pace of US bank lending remains
in negative territory, exhibiting persistent weakness since last summer.”
He went on to state that the
weakness “followed a temporary spike in bank lending during 2020/Q2,
immediately after the virus crisis erupted, and is reminiscent of the US bank lending
trajectory after the Lehman crisis. After a temporary spike immediately after
the Lehman crisis, driven by companies and consumers tapping bank credit lines,
the pace of US bank lending had remained largely in negative territory up until
the middle of 2011. Although it entered positive territory after 2011, the
pace of US bank lending had stayed significantly below pre -Lehman crisis
levels, an important feature of the secular stagnation thesis."
A repeat of the post Lehman crisis period and the protracted
weakness in bank lending would cast doubt to the idea of a sustained inflation
impulse over the coming years. It would also act as a drag for money supply and
liquidity creation going forward, reducing a key driver of asset prices.
We could likely infer further slowing in money creation over
the coming years according to JPM, unless bank lending improves. JPMorgan's note
concluded, “whether the protracted post Lehman period weakness in bank lending
is repeated in the current post virus cycle will be critical in determining
both the inflation and liquidity picture over the longer term. So far the
trajectory for bank lending shows more similarities than differences to the
post Lehman crisis period.”
