President Obama has spelled out what neither Bush nor Paulson nor Bernanke nor anyone from the executive branch dared to tell the American people during this financial crisis.
In an interview airing Monday on NBC’s TODAY show, Obama said the nation’s banks were in “very vulnerable positions” because of the reckless risk-taking that led to the meltdown of the financial services sector late last year. The situation he inherited 13 days ago is so bad that “it is likely that the banks have not fully acknowledged all the losses that they’re going to experience,” Obama said in the interview, which was conducted Sunday at the White House.
Stressing that ordinary Americans’ deposits, which are insured by the federal government, would be safeguarded, the president said banks were “going to have to wring out some of these bad assets.”
Hello?? Did anyone hear this? This bit seems to have gone relatively unnoticed with most people. Among all the stimulus nonsense and bailout mania, President Obama, in a relaxed manner, spelled out precisely what is needed for the US economy to get back on its feet. This is exciting news for anyone who, like me, has been waiting to hear anything like it for the past year and was instead consistently disappointed by repetitive and never ending Bush/Bernanke/Paulson lies and nonsense.
Obama then went on to utter the following 5 words:
…some banks won’t make it.
If he is serious about this, it marks a substantial change in the administration’s banking policy. This is bad news for most of the US’ national banks whose shareholders are still under the illusion that their assets are worth something, it is good news for the economy and for the people. If followed through upon, it significantly improves the outlook for economic recovery over the next years, that is of course after the government lets the sharp recession and the bank failures run their course in an unhampered manner.
As explained in the business cycle, the malinvestments need to be liquidated as fast as possible in order for phase 9, the correction, to be able to run its course. Marking bad loans to market is exactly what this is.
Dollar bulls, who are looking for a reason as to why the current short term Dollar rally might turn into a rather substantiated mid-term rally: This is it.
It will be interesting to watch the development of the money supply over the next few months. It is conceivable that the recent reflation attempts will prove completely futile and that the money supply growth will once again drop back to deflationary levels. In fact, if this administration encourages the destruction and consolidation of bad debts, I don’t see any other possible development than that.
Watch the video here: