This cat has two white stripes and stinks

 

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 1^st time in their history, JPM had 100% more deposits than loans, the ratio of loans to deposits dropped below 50% for the 3^rd quarter in a row after plunging in the aftermath of the Covid-19 nasty pandemic:

v  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.

Ø  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.

Ø  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.”