Banks Need Your Trust Because They Don’t Have Your Money, by Peter Reagan

Fractional reserve banking is a confidence game. From Peter Reagan at birchgold.com:

The latest inflation report contained bad news for banks. They’re deeply underwater, and still sinking – in such bad shape that even the head of the SEC doesn’t want anyone looking too closely…

Image CC BY-SA 3.0 via Wikimedia Commons

The first inflation report since the Fed’s September interest rate cut begged some questions…

Since I sincerely hope most of you don’t follow these stories as closely as I do, we’ll start with a quick recap:

In August, the Fed lowered its primary interest rate by 1/2% (50 basis points) to 5%. That was the first reduction in interest rates since the Fed began raising rates from zero way back in 2022 – in an effort to tame the worst inflationary episode in over 50 years.

(Okay, 2022 wasn’t really “way back” but so much has happened since then, it feels like a decade ago.)

Official September inflation numbers showed a slight, but definitely upward, trend. This is unwelcome news, however we slice it. Just like in Canada, reducing interest rates before the inflation target is met means inflation trends back up. 

It’s particularly unwelcome for banks – who are still struggling with massive unrealized losses on their reserves. 

How are the banks doing? 

That depends on who you ask…

According to FDIC Chairman Martin Gruenberg in his September 5 update, “The banking industry continued to show resilience in the second quarter.” 

He also noted, “This is the tenth straight quarter that the industry has reported unusually high unrealized losses since the Federal Reserve began to raise interest rates in first quarter 2022.”

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