Dollar Hike Sparks Crisis: US Investment Banks Face Collapse?
Around the time when Yellen concluded her visit to China, the Federal Reserve has been consistently signaling to the outside world that it may not opt for interest rate cuts this year. It's important to remember that at the end of last year, the Biden administration confidently set interest rate cuts as one of the government's policy goals for this year.
Why has Biden backtracked in just four months, hinting to the outside world that there will be no interest rate cuts? What kind of predicament is the U.S. economy currently facing? Now, another international investment bank is on the verge of a major crisis. Will this be another Lehman moment?
JPMorgan Chase in Deep Trouble
One of the world's banking giants, JPMorgan Chase, may be facing a significant crisis. According to its recently released financial report, the net profit for the first quarter was $13.419 billion, which seems slightly better than before, with increases both sequentially and year-over-year. However, the net interest income has seen a sequential decline.
This is the first time we've seen this situation since 2021, and following the release of the financial report, JPMorgan Chase's stock price has plummeted, marking the largest single-day drop since June 2020.
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As the saying goes, "the ducks know first when the spring river warms," these phenomena may be hinting that JPMorgan Chase is indeed encountering some thorny issues.
Firstly, the decline in net interest income indicates that the total number of loans held by JPMorgan Chase has decreased. Under normal circumstances, this wouldn't necessarily indicate a problem, as markets are fluid and it's normal for related data to fluctuate.
However, the current situation is different. The backdrop is the Federal Reserve's continuous interest rate hikes, which should theoretically attract more depositors. Yet, the market's response is indicative of an interest rate cut, and the number of depositors is decreasing. For a super-sized bank like this, this is by no means a minor issue.Moreover, this situation is not an isolated case unique to JPMorgan Chase; many American banks have also experienced a decline in net interest income, such as Wells Fargo, which saw an 8% year-over-year decrease in its net interest income in the first quarter.
This may suggest that capital in the United States is flowing outward, or that the non-performing loan ratio of banks is increasing. Many investors may be seeking higher returns, or they may be concerned about the prospects of the U.S. economy.
Secondly, JPMorgan Chase may also face a significant issue, which is the risk associated with its short positions in gold derivatives, having taken a substantial short position in gold. It has been revealed that JPMorgan Chase holds a massive amount of short gold contracts, but if the price of gold rises, they may suffer substantial losses. Industry insiders have even disclosed that the short gold positions held by JPMorgan Chase are likely to have exceeded its total assets.
This "naked short selling" behavior, against the backdrop of global de-dollarization trends, may bring greater risks.
As central banks of various countries are frantically buying physical gold, the price of gold is bound to continue to rise, which will put immense pressure on institutions like JPMorgan Chase that are shorting gold.
Overall, the problems faced by JPMorgan Chase may not be just a single bank's issue, but rather a reflection of the entire U.S. economy and financial market.
This may explain why, against the backdrop of the Federal Reserve's interest rate hikes, many American banks have seen a decline in net interest income. Perhaps these depositors have lost hope in the U.S. economic outlook and have turned to invest in gold.
The U.S. debt crisis is spreading.According to the latest statistics from the Federal Reserve Bank of New York, in the first quarter of last year, the credit card debt of the American people reached a new high, soaring to $986 billion, breaking the record since 1999.
In addition, as of the same period, including various types of student loans issued by the federal government and states, the student loan debt in the United States has accumulated to $1.78 trillion.
This issue has become increasingly serious, and recently, with the rise in interest rates, the risks related to commercial real estate (CRE) are gradually being exposed and are escalating, which may even affect more areas.
In the United States, there is approximately $6 trillion in CRE debt, about half of which are bank loans, and most of these loans flow to smaller banks, which seems to remind people of the crisis in 2008.
For these small banks, commercial real estate loans account for almost one-third of their total assets, and another phenomenon is that in the post-pandemic era, everyone prefers to work from home, so the demand for office leasing is difficult to return to the level of the fourth quarter of 2019.
In the first quarter of last year, the average vacancy rate of American offices was as high as 18.6%, which was 5.9 percentage points higher than the fourth quarter of 2019, and the default situation of commercial real estate loans is becoming more and more common, and the price of office buildings is also continuing to decline.
At the end of 2022, after Musk took over Twitter, he began a large-scale layoff action, with the layoff ratio exceeding 50%.
By the same period last year, the number of Twitter employees had decreased from 7,800 before Musk took over to 1,500. Although Musk admitted that layoffs were heartbreaking, at that time, Twitter's funds were only enough to last for four months.
So, 2023 is really a cold winter for employees in the high-tech industry, and for employers in other industries, recruitment is also a big problem.
Despite the non-agricultural unemployment rate dropping to 3.4% in April, which is the lowest since 1969, such a low unemployment rate actually implies the risk of inflation.In March of last year, the bankruptcy of Silicon Valley Bank (SVB) and the subsequent closure of several smaller banks caused a significant shock to the entire market. Silicon Valley Bank was the largest financial institution to go bankrupt in the United States since the collapse of Washington Mutual in 2008. The government urgently sought a buyer but failed to find a suitable one. It was not until more than half a month later that First Citizens Bank took over Silicon Valley Bank. The government was in such a hurry because such events had triggered a financial crisis in 2008.
However, the truth cannot be concealed forever. By this year, the crisis has intensified. The banks that may go bankrupt this year are not medium-sized banks like Silicon Valley Bank last year, but super banks with assets over a trillion dollars, like JPMorgan.
The Biden administration is powerless.
In March 2021, the Biden administration first launched a $1.9 trillion economic stimulus plan, making the total amount of pandemic-related stimulus 25% of the gross domestic product, the highest record among developed countries. However, excessive stimulus policies quickly brought negative effects. In March 2022, the consumer price index rose by 8.5% year-on-year, setting a new high since 1981.
To curb inflation, Biden had to release strategic petroleum reserves in May 2022 to lower oil prices and blamed wealthy capitalists and the war between Russia and Ukraine.
The Federal Reserve's interest rate hikes began in March 2022, but it seems a bit too late. Over the past year and more, the Federal Reserve has raised interest rates a total of 10 times, with the rate soaring from zero to 5.25%.Even so, the Federal Reserve still cannot effectively control inflation. Compared to the same period in 2022, the price of goods in the United States increased by 4% last May, and if we exclude the cost of food and energy, it increased by 3.5% year-on-year this year.
The United States prides itself on being a city on a hill, the only superpower in the world since the dissolution of the Soviet Union in the 1990s. The whole world is watching it sweep the world with its economic and military strength.
However, more than 30 years later, the United States seems to have encountered big trouble. The economic situation is getting worse and worse. U.S. debt is being sold off frantically, and Europe is also looking for a way out. Global investors' confidence in the U.S. economy is also getting lower and lower.
In recent years, the economic problems of the United States have been getting bigger and bigger like a snowball, just like a towering building that is about to collapse.
The debt of their country has reached an astonishing 34 trillion U.S. dollars, accounting for 122% of GDP. This number is really astonishing.
The shadow of inflation is shrouded over the entire economic system, and the global sell-off of U.S. debt is also becoming more and more fierce. These creditors led by our country are reducing their holdings of U.S. debt, which makes the United States' economic position in the world precarious.
This economic predicament not only affects the internal stability of the United States itself but also has a huge impact on their influence in the world. For example, today we can clearly feel that their maritime hegemony is gradually declining.
Once, the naval power of the United States was an important pillar of their global influence, but now, the economic predicament has greatly weakened the naval power of the United States. This not only affects the United States' voice in the world but may also lead to the collapse of global trade.
In addition, the situation in the Red Sea and the Middle East is getting worse and worse, bringing unprecedented challenges to global trade. This place is an important passage for global trade, and many merchant ships have to pass through here.
But with the tension of the situation, the safety issue of U.S. merchant ships is becoming more and more prominent. This not only threatens the economic interests of the United States but also becomes an external manifestation of their economic decline.
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