: American Consumers

Most People Cannot Even Imagine That An Economic Collapse Is Coming

Off the keyboard of Michael Snyder

Follow us on Twitter @doomstead666
Friend us on Facebook

Published on The Economic Collapse on November 2, 2014

dole-street_2387656b

Discuss this article at the Economics Table inside the Diner

Thinking - Public DomainThe idea that the United States is on the brink of a horrifying economic crash is absolutely inconceivable to most Americans.  After all, the economy has been relatively stable for quite a few years and the stock market continues to surge to new heights.  On Friday, the Dow and the S&P 500 both closed at brand new all-time record highs.  For the year, the S&P 500 is now up 9 percent and the Nasdaq is now up close to 11 percent.  And American consumers are getting ready to spend more than 600 billion dollars this Christmas season.  That is an amount of money that is larger than the entire economy of Sweden.  So how in the world can anyone be talking about economic collapse?  Yes, many will concede, we had a few bumps in the road back in 2008 but things have pretty much gotten back to normal since then.  Why be concerned about economic collapse when there is so much stability all around us?

Unfortunately, this brief period of stability that we have been enjoying is just an illusion.

The fundamental problems that caused the financial crisis of 2008 have not been fixed.  In fact, most of our long-term economic problems have gotten even worse.

But most Americans have such short attention spans these days.  In a world where we are accustomed to getting everything instantly, news cycles only last for 48 hours and 2008 might as well be an eternity ago.

In the United States today, our entire economic system is based on debt.

Without debt, very little economic activity happens.  We need mortgages to buy our homes, we need auto loans to buy our vehicles and we need our credit cards to do our shopping during the holiday season.

So where does all of that debt come from?

It comes from the banks.

In particular, the “too big to fail banks” are the heart of this debt-based system.

Do you have a mortgage, an auto loan or a credit card from one of these “too big to fail” institutions?  A very large percentage of the people that will read this article do.

And a lot of people might not like to hear this, but without those banks we essentially do not have an economy.

When Lehman Brothers collapsed in 2008, it almost resulted in the meltdown of our entire system.  The stock market collapsed and we experienced an absolutely wicked credit crunch.

Unfortunately, that was just a small preview of what is coming.

Even though a few prominent “experts” such as New York Times columnist Paul Krugman have declared that the “too big to fail” problem is “over”, the truth is that it is now a bigger crisis than ever before.

Compared to five years ago, the four largest banks in the country are now almost 40 percent larger.  The following numbers come from a recent article in the Los Angeles Times

Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That’s up to $2.1 trillion.

And the assets of JPMorgan Chase & Co., the nation’s biggest bank, have ballooned to $2.4 trillion from $1.8 trillion.

At the same time that those banks have been getting bigger, 1,400 smaller banks have completely disappeared from the banking industry.

That means that we are now more dependent on these gigantic banks than ever.

At this point, the five largest banks account for 42 percent of all loans in the United States, and the six largest banks account for 67 percent of all assets in our financial system.

If someone came along and zapped those banks out of existence, our economy would totally collapse overnight.

So the health of this handful of immensely powerful banking institutions is absolutely critical to our economy.

Unfortunately, these banks have become deeply addicted to gambling.

Have you ever known people that allowed their lives to be destroyed by addictions that they could never shake?

Well, that is what is happening to these banks.  They have transformed Wall Street into the largest casino in the history of the world.  Most of the time, their bets pay off and they make lots of money.

But as we saw back in 2008, when they miscalculate things can fall apart very rapidly.

The bets that I am most concerned about are known as “derivatives“.  In essence, they are bets about what will or will not happen in the future.  The big banks use very sophisticated algorithms that are supposed to help them be on the winning side of these bets the vast majority of the time, but these algorithms are not perfect.  The reason these algorithms are not perfect is because they are based on assumptions, and those assumptions come from people.  They might be really smart people, but they are still just people.

If things stay fairly stable like they have the past few years, the algorithms tend to work very well.

But if there is a “black swan event” such as a major stock market crash, a collapse of European or Asian banks, a historic shift in interest rates, an Ebola pandemic, a horrific natural disaster or a massive EMP blast is unleashed by the sun, everything can be suddenly thrown out of balance.

Acrobat Nik Wallenda has been making headlines all over the world for crossing vast distances on a high-wire without a safety net.  Well, that is essentially what our “too big to fail” banks are doing every single day.  With each passing year, these banks have become even more reckless, and so far there have not been any serious consequences.

But without a doubt, someday there will be.

What would you say about a bookie that took $200,000 in bets but that only had $10,000 to cover those bets?

You would certainly call that bookie a fool.

But that is what our big banks are doing.

Right now, JPMorgan Chase has more than 67 trillion dollars in exposure to derivatives but it only has 2.5 trillion dollars in assets.

Right now, Citibank has nearly 60 trillion dollars in exposure to derivatives but it only has 1.9 trillion dollars in assets.

Right now, Goldman Sachs has more than 54 trillion dollars in exposure to derivatives but it has less than a trillion dollars in assets.

Right now, Bank of America has more than 54 trillion dollars in exposure to derivatives but it only has 2.2 trillion dollars in assets.

Right now, Morgan Stanley has more than 44 trillion dollars in exposure to derivatives but it has less than a trillion dollars in assets.

Most people have absolutely no idea how incredibly vulnerable our financial system really is.

The truth is that these “too big to fail” banks could collapse at any time.

And when they fail, our economy will fail too.

So let us hope and pray that this brief period of false stability lasts for as long as possible.

Because when it ends, all hell is going to break loose.

Knarf plays the Doomer Blues

https://image.freepik.com/free-icon/musical-notes-symbols_318-29778.jpg

Support the Diner

Search the Diner

Surveys & Podcasts

NEW SURVEY

Renewable Energy

VISIT AND FOLLOW US ON DINER SOUNDCLOUD

" As a daily reader of all of the doomsday blogs, e.g. the Diner, Nature Bats Last, Zerohedge, Scribbler, etc… I must say that I most look forward to your “off the microphone” rants. Your analysis, insights, and conclusions are always logical, well supported, and clearly articulated – a trifecta not frequently achieved."- Joe D

Archives

Global Diners

View Full Diner Stats

Global Population Stats

Enter a Country Name for full Population & Demographic Statistics

Lake Mead Watch

http://si.wsj.net/public/resources/images/NA-BX686_LakeMe_G_20130816175615.jpg

loading

Inside the Diner

I'll start preparing after I get the first stimulus.  I'm not holding my breath.  REhttps://www.nbcnews.com/business/consu...

Quote from: Eddie on May 28, 2020, 03:03:26 PMFirst the op-ed. Spoiler...I don't agree.COMMENTARYWe Refuse To Call It Murder, But How Else Do You Explain The Killing Of George Floyd?May 28, 2020Steve...

Unlike my normal practice, since the beginning of May I have opened every last piece of Junk Mail  No Stimulus.  I did get a letter from the Treasury Dept signed in facsimile by Trumpovetsky saying I would get a Check or EBT Card.  Still nothing.  ...

Quote from: RE on May 28, 2020, 04:41:34 PMHere's my narrative.This was obvious Murder.  The Murderer should get the Death Penalty☠️.  Preferably by Asphyxiation.  The Guillotine will do though.  With Cops required t...

Here's my narrative.This was obvious Murder.  The Murderer should get the Death Penalty☠️.  Preferably by Asphyxiation.  The Guillotine will do though.  With Cops required to watch.[img]https://media1.tenor.com/images/e0feb5d9fdcf09af37435c795...

Recent Facebook Posts

No recent Facebook posts to show

Diner Twitter feed

Knarf’s Knewz

Diner Newz Feeds

  • Surly
  • Agelbert
  • Knarf
  • Golden Oxen
  • Frostbite Falls

I'm seeing what I think is the local county h [...]

Red States play three-card monte with the figures. [...]

Doomstead Diner Daily May 28The Diner Daily is ava [...]

That is right off the boat launch on the lake at t [...]

Quote from: UnhingedBecauseLucid on March 18, 2019 [...]

CleanTechnicaSupport CleanTechnica’s work via dona [...]

QuoteThe FACT that the current incredibly STUPID e [...]

Quote from: K-Dog on February 24, 2020, 06:23:52 P [...]

I wonder how much these coins have been debased? [...]

Precious tip of the day.....Buy silver NOW  She [...]

Scientists have unlocked the power of gold atoms b [...]

Quote from: azozeo on August 14, 2019, 10:41:33 AM [...]

Quote from: Eddie on May 16, 2020, 10:30:30 AMQuot [...]

Quote from: RE on May 16, 2020, 08:20:06 AMQuote f [...]

Quote from: RE on May 16, 2020, 08:20:06 AMQuote f [...]

Quote from: Surly1 on May 16, 2020, 08:10:27 AMAnd [...]

Quote from: RE on May 16, 2020, 05:20:48 AMWhat?  [...]

Alternate Perspectives

  • Two Ice Floes
  • Jumping Jack Flash
  • From Filmers to Farmers

Papers Please! By Cognitive Dissonance     For those who may not know, Mrs. Cog and I live in the mo [...]

Lies, Damn Lies and Coronavirus Statistics By Cognitive Dissonance     “Never believe anything in po [...]

The Decline and Fall of Civil Society Chapter One By Cognitive Dissonance     From my perspective at [...]

Missing In Action By Cognitive Dissonance     As a very young pup, whenever I was overdue and not ho [...]

Politicians’ Privilege By Cognitive Dissonance     Imagine for a moment you work for a small or medi [...]

Event Update For 2020-05-26http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2020-05-25http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2020-05-24http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2020-05-23http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

Event Update For 2020-05-22http://jumpingjackflashhypothesis.blogspot.com/2012/02/jumping-jack-flash-hypothesis-its-gas.htmlThe [...]

With fusion energy perpetually 20 years away we now also perpetually have [fill in the blank] years [...]

My mea culpa for having inadvertently neglected FF2F for so long, and an update on the upcoming post [...]

NYC plans to undertake the swindle of the civilisation by suing the companies that have enabled it t [...]

Daily Doom Photo

man-watching-tv

Sustainability

  • Peak Surfer
  • SUN
  • Transition Voice

The Great Pause Week 9: México's Seppuku"The survival of life on earth depends on México’s dark fossil sunlight never seeing the light [...]

"We are one large solar flare, one errant asteroid, one mutant gene, or one nuclear winter away [...]

The Great Pause Week 7: Coping with a Nuclear Infection"Emergency preparedness plans are already inadequate, but the prospect of a mandatory mass evac [...]

The Great Pause Week 6: The Green Child"There passed long stretches of beautiful waterfront acreage with hanging Spanish moss, decayin [...]

The Great Pause Week 5 : Is it Over Yet?"The pandemic, as lethal as it has been, is not yet nearly bad enough."Área de Protección [...]

The folks at Windward have been doing great work at living sustainably for many years now.  Part of [...]

 The Daily SUN☼ Building a Better Tomorrow by Sustaining Universal Needs April 3, 2017 Powering Down [...]

Off the keyboard of Bob Montgomery Follow us on Twitter @doomstead666 Friend us on Facebook Publishe [...]

Visit SUN on Facebook Here [...]

What extinction crisis? Believe it or not, there are still climate science deniers out there. And th [...]

My new book, Abolish Oil Now, will talk about why the climate movement has failed and what we can do [...]

A new climate protest movement out of the UK has taken Europe by storm and made governments sit down [...]

The success of Apollo 11 flipped the American public from skeptics to fans. The climate movement nee [...]

Today's movement to abolish fossil fuels can learn from two different paths that the British an [...]

Top Commentariats

  • Our Finite World
  • Economic Undertow

In reply to Lidia17. More: clothing. Once people dressed in fairly sturdy clothing, of as good a qua [...]

In reply to Marco Bruciati. An attack on any of those countries, especially of an existential kind, [...]

In reply to JMS. "What horror for our realm and race invent?" Love that phrase.. wish I ha [...]

In reply to Lidia17. Just got our landline phone bill, listing an ill-placed call to my husband [...]

Same here! Greetings to all, and thank you Steve. [...]

Really glad to hear from you. Can't wait for the post. [...]

In reply to ellenanderson. Sorry I haven't been writing lately, there is a lot/nothing going on [...]

Hi sp gp Sorry didn't mean to be harsh. I myself go through waves of bitterness and anger (I lo [...]

RE Economics

Going Cashless

Off the keyboard of RE Follow us on Twitter @doomstead666...

Simplifying the Final Countdown

Off the keyboard of RE Follow us on Twitter @doomstead666...

Bond Market Collapse and the Banning of Cash

Off the microphone of RE Follow us on Twitter @doomstead666...

Do Central Bankers Recognize there is NO GROWTH?

Discuss this article @ the ECONOMICS TABLE inside the...

Singularity of the Dollar

Off the Keyboard of RE Follow us on Twitter @doomstead666...

Kurrency Kollapse: To Print or Not To Print?

Off the microphone of RE Follow us on Twitter @doomstead666...

SWISSIE CAPITULATION!

Off the microphone of RE Follow us on Twitter @doomstead666...

Of Heat Sinks & Debt Sinks: A Thermodynamic View of Money

Off the keyboard of RE Follow us on Twitter @doomstead666...

Merry Doomy Christmas

Off the keyboard of RE Follow us on Twitter @doomstead666...

Peak Customers: The Final Liquidation Sale

Off the keyboard of RE Follow us on Twitter @doomstead666...

Collapse Fiction

Useful Links

Technical Journals

Resilience, adaptation and mitigation are unique but complimentary actions in the fight against clim [...]

This study investigated the spatiotemporal changes of land use land cover (LULC) and its impact on l [...]

Frequently, agriculture and ecosystems (AE) are seen as separate entities, causing entity specific s [...]