The FDIC or Federal Deposit Insurance Corporation reports that problem banks fell further reaching just 147 in the second quarter as the banks continue to earn and cost cut their way to financial health. Dramatically increasing their loan loss reserves by 44.2% from a year ago to 8.15 billion, doesn’t sound like much in the grand scheme of things but a step in the right direction just the same. The FDIC loss reserve is also improving up to 1.15% of deposits as problem bank assets fell to just 29 billion.
Federal Reserve Vice-Chairman Stanley Fischer’s statements on negative interest rates earlier this week defy common sense and empirical experience, having more to do with wishful thinking as the Fed again demonstrates that it needs new ideas. To wit Mr. Fischer opined that he thought negative interest were quite successful with the exception of Japan who are rethinking the concept but pledged to make it work better. Aside from the glaring disconnect with respect to basic mathematics as evidenced by assumed pension fund rates of return the world over. The Japanese have pursued their current economic strategy for 25-years to combat their deflationary credit bust began in 1991. Aside from record official debt levels and now 50 plus billion in pension fund losses compliments of likely unsuitable stock market investments because ZERO and negative interest rate policies have made it nigh on impossible for pension funds and other actuarial based entities like insurance companies to meet their long-term obligations because they can’t come close to achieving their stated or assumed rates of investment return without taking excessive and probably unsuitable risk. These strategies work fantastically assuming that you can effectively time the economically destabilizing and financially ruinous boom and bust cycles they engender. We know how that worked out after the Dot-Com bust, the 2008-2009 financial and real estate crisis and now the Japanese demonstrate they can’t predict the future either. They’ll soon be followed by just about everyone else before long.
This is Caleb Lawrence Registered Investment Adviser Scotts Valley Drive and Willis Road in the Scotts Valley Plaza, Suite 202 or call me toll free at 888-RICH PIG / 888-742-4744.
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Advisory services offered through Caleb Lawrence Registered Investment Adviser Inc.