Thursday, March 23, 2023

The Federal Deposit Insurance Corporation - Can It Really Protect American Savers?

With the American banking sector under stresses that have not been seen since 2008 and the response by the Biden Administration to the crisis, it is important to better understand the ability of the Federal Deposit Insurance Corporation (FDIC) to respond to this ongoing crisis.


First, let's look at the total funds on deposit with American commercial banks from Table 2 of the Federal Reserve's H.8 weekly report dated March 17, 2023:



There is currently $17.5947 trillion on deposit at American commercial banks, down from $18.0164 in February 2022.  Note that this amount includes all deposits not just those that are covered by the FDIC.


Now, let's go to the 2022 Annual Report for the Federal Deposit Insurance Corporation.  Here is a graphic showing the estimated Deposit Insurance Fund's (DIF) insured deposits going back to March 31, 2012:



As of September 30, 2022, there were an estimated $9.9 trillion of FDIC insured deposits in approxamtedly 865 million accounts at 4,755 institutions, keeping in mind that the maximum coverage is $250,000 per depositor per FDIC-insured bank, per ownership category.


Here is a graphic showing the deposit insurance fund (DIF) reserve ratios going back to March 31, 2012 with the aforementioned statutory minima reserve ratio being highlighted with a dashed horizon line:



The current DIF reserve ratio of 1.26 percent is well below the legally mandated 1.35 percent minimum.  FDIC's management claimed that "extraordinary growth in insured deposits during the first and second quarters of 2020 caused the DIF reserve ratio to decline below the statutory minimum of 1.35 percent".  As such, the FDIC board of directors adopted a "Restoration Plan" to restore the reserve ratio to at least 1.35 percent within eight years as required by the Federal Deposit Insurance Act.  Notably, the FDIC's board notes that this will only happen if there are no "extraordinary circumstances".  In June 2022, the FDIC projected that the statutory minimum of 1.35 percent would not be reached by September 30, 2029, and, as such, approved an Amended Restoration Plan which increased the initial base deposit insurance assessment rate of 2 basis points.


Here is a table which summarizes the financial situation of the FDIC:



To cover $9.9 trillion worth of protected deposits, the FDIC's insurance fund balance is only $128.218 billion.  This is where the problem lies given that there were already $163.809 in insured deposits at 42 "problem institutions".


The Federal Deposit Insurance Corporation's deposit insurance scheme is clearly not designed to protect depositors from the collapse of either large banking institutions or a multiple of small banking institutions at one time (as is happening now).  In the cases of the Silicon Valley Bank and Signature Bank, depositors were granted coverage for all of their deposits because Treasury Secretary Janet Yellen and two-thirds of the FDIC and Federal Reserve boards agreed that there was a "systemic risk" to the American financial system as quoted here:



...and here:


The only problem is that the implementation of the systemic risk exception creates an imbalance in the banking sector as exemplified in this exchange between Senator Lankford and Janet Yellen at the Senate Committee on Finance Committee Hearing on the President's Fiscal Year 2024 Budget held on March 16, 2023:



Imagine that, the government and the Federal Reserve not being able to see the unintended consequences of their policies.  Given her responses, how on earth did Janet Yellen ever become the head of the Federal Reserve let alone the Secretary of the Treasury?


If you wish to watch the entire exchange, please go to the 1 hour and 50 minute mark of the video of the Committee on Finance Hearing at this link.


The banking sector in the United States (and given the global nature of the banking system) is under stresses that have not been seen since the Great Recession.  The Federal Deposit Insurance Corporation is not capable of ensuring that depositors are covered and, given the nearly $10 trillion in savings in commercial banks, even Washington will not have the funding to protect the savings of millions of Americans should there be a catastrophic failure of one or two of the major players in the banking system.

Tuesday, March 21, 2023

Air Travel in a Carbon-Free Future

I don't know if it's just me but I've been hearing a great number of stories from friends and acquaintances about the misery of air travel since pandemic travel restrictions were modified.  It almost seems as though someone doesn't want the organ donor class to use air travel, isn't it?  While it may just be that my tinfoil hat is a bit tight today, the information in this posting will show just how that possibility could become a reality in the not-too-distant future.

To almost no fanfare, back in 2019, a report commissioned by the United Kingdom government laid out a very clear and thorough plan to completely eliminate greenhouse gas emissions.  To put this report into its proper context, it is important to remember that former UK Prime Minister Theresa May changed the United Kingdom's Climate Change Act to commit to eliminating ALL greenhouse gas emissions in the United Kingdom by 2050.  This excludes the use of carbon offset credits which are currently being used by both individuals and businesses to offset their carbon emissions.  In this posting, we'll look at the overall plan by the authors of the Absolute Zero report, focussing on one key aspect, that of air travel.  When reading this posting, please keep in mind that there is a complete lack of original thinking among elected officials which suggests that the UK's plan could well be adopted in some form or another by other Western governments around the world.


UK FIRES, the organization that created the Absolute Zero strategy states the following about its vision for the future:


"With fewer than thirty years to attain zero emissions, UK FIRES is uncovering the lowest risk path to zero emissions prosperity in the UK by 2050 by:


1.) Optimizing current industrial techniques with new decision making tools

2.) Uncovering gaps in the business space to be filled in by entrepreneurship, finance and policy

3.) Extensive public engagement through innovative communication channels"

UK FIRES states that living with zero emissions by 2050 means electrifying everything and using only electricity that is generated by either renewable sources or nuclear power plants.  It is important to note that the concept of zero emissions is far different from the idea of zero net emissions which is the current mantra of most governments and industries.


Here are the academics behind UK FIRES:


The Absolute Zero report opens with the following:


"We can’t wait for breakthrough technologies to deliver net-zero emissions by 2050. Instead, we can plan to respond to climate change using today’s technologies with incremental change. This will reveal many opportunities for growth but requires a public discussion about future lifestyles.


We have to cut our greenhouse gas emissions to zero by 2050: that’s what climate scientists tell us, it’s what social protesters are asking for and it’s now the law in the UK. But we aren’t on track. For twenty years we’ve been trying to solve the problem with new or breakthrough technologies that supply energy and allow industry to keep growing, so we don’t have to change our lifestyles. But although some exciting new technology options are being developed, it will take a long time to deploy them, and they won’t be operating at scale within thirty years."


The authors claim that to achieve the goal of zero emissions by 2050, all sectors of the economy will have to adapt with some industries (i.e. the fossil fuel industry, marine shipping and air travel and shipping) will become extinct.  Here is a graphic which shows the changes that will be required to achieve the zero emissions goal by 2050 for key sectors of the economy:



Here is another graphic showing how the world will look after 2050:


As promised, let's look at one key aspect of the world today; the current widespread use of air transportation.  As you may have noticed on the two graphic which map the future, the authors clearly state that air travel will become "extinct".  The report notes the following:


1.) Between 2020 and 2029, all United Kingdom airports will close with the exception of Heathrow, Glasgow and Belfast.  Transportation between airports for transferring passengers will be by rail.


2.) Between 2030 and 2049, all three remaining airports in the United Kingdom will close. 


3.) Beyond 2050, the development of electric airplanes will occur with these aircraft using synthetic fuel because the fossil fuel industry will be extinct.


Here is a graphic showing the energy and emissions consequences of a person travelling a kilometre by various means showing the high impact of flying:


Here's a pertinent quote from the report:


"The (mode shift) figure shows both the energy and emissions consequences of a person travelling a kilometre by different modes: these two figures are closely correlated except for flight, where the emissions at high altitude cause additional warming effects. The figure underlines how important it is to stop flying - its’ the most emitting form of transport and we use planes to travel the longest distances. A typical international plane travels at around 900km/hour, so flying in economy class equates to 180kgCO2e per person per hour (double in business class, quadruple in first class, due to the floor area occupied.) Flying for ~30 hours per year is thus equal to a typical UK citizen’s annual emissions."

Please note that flying in business and first classes (i.e. the domain of the global ruling class) are responsible for far greater emissions than the much-beloved "cattle class", the domain of the organ donor class. 


Here's another quote with my bolds:


"The two big challenges we face with an all electric future are flying and shipping. Although there are lots of new ideas about electric planes, they won’t be operating at commercial scales within 30 years, so zero emissions means that for some period, we’ll all stop using aeroplanes...


The two critical forms of equipment that cannot be electrified with known technology are aeroplanes and ships. Although Solar-Impulse 2, a single-seater solar-powered electric aeroplane circumnavigated the Earth in 2016, it is difficult to scale up solar-powered aeroplanes due to the slow rates of improvement in of solar cell output put unit of area. Meanwhile battery-powered flight is inhibited by the high weight of batteries, bio-fuel substitutes for Kerosene face the same competition for land with food  and there are no other ready and appropriate technologies for energy storage. As a result, under the constraint of planning for zero emissions with known technologies, all flying must be phased out by 2050 until new forms of energy storage can be created."


When it comes to travelling and how an individual can reduce their personal carbon footprint, here are the recommendations of the authors:


1.) Stop using aeroplanes


2.) Take the train not the car when possible.


3.) Use all the seats in the car or get a smaller one


4.) Choose an electric car next time, if possible, which will become easier as prices fall and charging infrastructure expands.


5.) Lobby for more trains, no new roads, airport closure and more renewable electricity.


Let's summarize.  By 2030, the authors of the report recommend that only three airports in the United Kingdom remain open with all airports to close by 2049.  While this seems far-fetched on the surface, if we look at how governments negatively impacted air travel during the COVID-19 pandemic, it is clear that, given the generous use of fear porn, people will pretty much fall in line with government diktats no matter how extreme they are.  Governments have granted themselves unfettered powers which will allow them to do as they wish when it comes to putting an end to travel by air all in the name of a zero emissions future.  That said, one thing that we can assure ourselves of is that the ruling class is not about to give up their right to travel the globe by private jet, after all, it's all about "rules for thee but not for me" just like the useless eater class experienced over the past three years.  In other words, enjoy flying while you can.

In a future posting, I'll take a look at some of the other recommendations made in the Absolute Zero strategy handbook.

Monday, March 20, 2023

Global Systemically Important Banks and Credit Suisse - A House of Cards

With the recent turmoil in the American banking sector, the collapse of Credit Suisse and the global interconnectedness of the banking system, the potential impact of the collapse of four banks in the past few days is, to put it mildly, concerning.  This is particularly the case for the death of Credit Suisse, a bank that has been deemed "systemically important" as you will see in this posting.


The world's largest and most influential banks have received a classification as the Global Systemically Important Banks or G-SIBs.  The 2022 list of G-SIBs is the most recent iteration of the listing and is based on data to the end of 2021.  The 30 banks on the list receive their designation from the Basel Committee on Banking Supervision according to methodology that was revised in 2018 to reflect the importance of higher loss absorbency requirements.  Global Systemically Important Banks are institutions that are perceived as not being allowed to fail due several factors, most importantly, the concern that their failure would trigger a wider financial collapse and a threat to the global economy as was experienced in 2008 when the world's banking system nearly collapsed.


Global systemic importance is measured in terms of the impact that a bank’s failure can have on the global financial system and wider economy, rather than the likelihood that a failure could occur.


The methodology that assess the systemic importance of G-SIBs relies on several indicators which can be categorized as follows:


1.) size


2.) cross-jurisdictional activity


3.) interconnectedness


4.) substitutability/financial institution infrastructure


5.) complexity.   


Each of these categories is given an equal weighting of 20 percent and each category has multiple indicators as shown on this table:

The 2018 enhancements included the following:


1.) Amending the definition of cross-jurisdictional indicators consistent with the definition of BIS consolidated statistics;

2.) Introducing a trading volume indicator and modifying the weights in the substitutability category;

3.) Extending the scope of consolidation to insurance subsidiaries;

4.) Revising the disclosure requirements;

5.) Providing further guidance on bucket migration and associated higher loss absorbency (HLA) surcharge when a G-SIB moves to a lower bucket; and

6.) Adopting a transitional schedule for the implementation of these enhancements to the G-SIB framework.

Since G-SIB failures could pose a threat to the international financial system, the banks must hold more risk-based capital to enhance their resilience.  The capital add-on (surcharge) is shown on this table which also shows the "bucket" to which various levels of the capital add-on are assigned with the cut-off score being 130 basis points (bps) with CET1 being Common Equity Tier 1 which is the banks core capital including common shares, stock surpluses, retained earnings and accumulated other comprehensive income :



Here is a list of the G-SIBs and their buckets effective November 2022:


You'll note the presence of Credit Suisse in Bucket 1.


Here is a graphic showing the breakdown of G-SIB scores from data at the end of 2021:



Here is data showing total assets under custody for the largest banks in several nations and how the value of these assets has changed since 2014:


1.) China:



2.) United States:


3.) Canada:



4.) United Kingdom:


5.) Japan:



6.) Switzerland:



It's very apparent that the collapse of even a single G-SIB in any nation could prove catastrophic to that nation's banking system and cause severe stress in the wider global banking ecosystem.

Given the global nature of the world's banking system means that it is only as strong as its weakest link.  While the recent collapse of smaller banks in the United States could prove to be contagious at some point, impacting the nation's G-SIBs, the implosion of Credit Suisse is of greater immediate concern given its importance to the global banking sector.  A house of cards indeed.

Thursday, March 16, 2023

Russia's Imports and Exports - The Impact of Economic Sanctions

With the idiots running Canada recently announcing that the nation would no longer import Russian steel and aluminum as shown here:

I wondered just how significant trade with Canada was to the Russian economy.  In this posting, we will look at Russia's most important trading partners and the goods traded with them and how trade with these partners has changed over the past decade since Ukraine's 2014 Maidan uprising. 


To better understand Canada's attitude toward Russia, it is important to put the nation's leadership into perspective.  Canada's unofficial Prime Minister, Justin Trudeau's puppeteer and World Economic Forum insider, Chrystia Freeland who made this comment:


"Ukraine can and must win this war. We continue to do everything we can to cut off or limit the revenue used to fund Putin’s illegal and barbaric invasion of Ukraine. Canada, and our partners, have already sanctioned the Russian Central Bank and capped the price of Russian oil and gas. And now, we are ensuring Putin cannot pay for his war by selling aluminum and steel in Canada, in coordination with action taken by the United States today.”


...just happens to be of Ukrainian descent and owns a studio apartment in Kyiv.  She has also been on a list of individuals sanctioned by Russia since 2014.


Let's start with some background data on Russian trade from the Observatory of Economic Complexity (OEC).  In 2020, Russia was the 11th largest economy in the world in terms of current US dollar GDP,  taking 13th place in total exports and 21st place in total imports.  


Now, let's look at the export side of the ledger.  In 2020, Russia's largest exports were as follows:


1.) Crude Petroleum - $74.4 billion


2.) Refined Petroleum - $48 billion


3.) Petroleum Gas - $19.7 billion


4.) Gold - $18.7 billion


5.) Coal Briquets - $14.5 billion


Russia was the world's largest exporter of wheat ($10.1 billion), semi-finished iron ($4.5 billion), non-filleted frozen fish ($2.58 billion), raw nickel ($2.26 billion) and pig iron ($1.34 billion).

Here is a graphic breaking down Russia's exports from the latest trade data available:


Here is a graphic showing the major trading partners importing goods from Russia from the latest trade data available:


If we look back to 2020, here is a graphic showing Russia's major trading partners:


Since the Trudeau government feels that Canada is so important on the world stage that it's actions against Russia will actually have an impact on whether Russia will win the military action in Ukraine, one should keep in mind that Russian exports to Canada totalled $617 million or 0.19 percent of Russia's total exports in 2020.


Here is a graphic showing the dollar value of exports from Russia by nation for Russia's major trading partners from January 2019 to December 2022:


As you can clearly see, Russia's exports to China, India and Turkey have risen substantially over the past three years and exports to the United States have fallen to less than $1 billion from a high of $3.5 billion in mid 2022.  Canada does not even appear on the listing of China's top trading partners.  Even the United States is not that important; it was the destination for 2.77 percent of Russian exports in 2013, growing to 3.59 percent in 2020, a relatively insignificant trading partner.


To show how Russia's trade picture has changed since 2014, here are the destinations for Russia's exports in 2013:



One thing that really stands out is the growing importance of China in Russia's trade reality with China's share of Russian exports growing from 8.25 percent in 2013 to 14.9 percent in 2020.  To put things into perspective for Canada, the nation was only importing $674 million worth of goods from Russia in 2013 which accounted for 0.15 percent of Russia's total exports in that year.


Now, let's switch to the import side of the ledger.  In 2020, the largest imports were:


1.) Cars - $7.75 billion


2.) Motor vehicle parts and accessories - $7.25 billion


3.) Broadcasting equipment - $7.15 billion


4.) Packaged Medicaments - $7.05 billion


5.) Computers - $4.1 billion


Here is a graphic breaking down Russia's imports from the latest trade data available:



Here is a graphic showing the major trading partners exporting goods to Russia from the latest trade data available:



Just in case you wondered, here is how Russia's GDP has performed since 1989:

While some nations (yes, that's you Chrystia Freeland) feel that their economic actions against Vladimir Putin will bring him and all Russians to their collective knees begging for forgiveness for their "transgressions", in fact, trade with many of these nations is insignificant in Russia's overall trade.  It is China that is and will continue to be, the beneficiary of growing trade with Russia on both the export and import side of the ledger.  As Europe has discovered, sometimes economic sanctions are worse than meaningless.

Monday, March 13, 2023

The Trudeau Liberals - Manipulating China

For my readers who are Canadian or who have been paying attention to news from Canada, recent mainstream media coverage regarding alleged Chinese interference in Canada's 2019 and 2021 have been non-stop since mid-February 2023 as shown here:


This is not the first time that such allegations have appeared in Canada's mainstream media which has been bought and paid for by the Trudeau government/Canadian taxpayers as shown here:



...and here:


Not surprisingly, Justin Trudeau and his jolly band of clapping Liberal seals have insisted that the Chinese government's interference campaign did not impact the overall integrity of the 2019 and 2021 elections.  Why would they lend any credence to the possibility of successful electoral interference given that it appears that Liberal candidates were the ones who benefited from China's largesse.


What the Canadian mainstream media seems to have forgotten is this story that appeared in the South China Morning Post (SCMP) back in July 2019:


Let's put the following comments from the SCMP article into context.  These comments by Canada's former Ambassador to China were made after Huawei Technologies Chief Financial Officer Megan Wenzhou was arrested in Vancouver, British Columbia on December 1, 2018 at the behest of the United States government and that, in response, China had detained two Canadians, Michael Spavor and Michael Kovrig, facing charges of spying on national secrets and providing state secrets to entities.  Both men were finally released on September 24, 2021 in response to the suspension of charges and withdrawal of the American extradition request against Meng Wenzhou after she agreed to enter into a deferred prosecution agreement.


Here are some compelling quotes from Canada's former Ambassador to China, John McCallum, a former Liberal MP who served in Liberal governments from November 2000 to January 2017 under Prime Minister's Jean Chretien, Paul Martin and Justin Trudeau as Minister of National Defense, Veterans' Affairs, National Revenue and Immigration Refugees and Citizenship:


"Canada’s former ambassador to China, sacked because of remarks he made in the wake of Huawei’s high-profile extradition case, said he has warned former contacts at China’s Ministry of Foreign Affairs that any further “punishments” imposed on Canada’s exports could lead to a change of government that is unfavourable to Beijing.


“Anything that is more negative against Canada will help the Conservatives, [who] are much less friendly to China than the Liberals,” John McCallum, a veteran Liberal Party member, told the South China Morning Post in an interview in Hong Kong on Monday.

“I hope and I don’t see any reason why things will get worse, it would be nice if things will get better between now and [Canada’s federal] election [in October].”"

Basically, Justin Trudeau's former Ambassador to China made it very, very clear to China that any moves that appeared to cause negative issues for Canada's Liberal government would essentially lend support to Canada's Conservatives who would not be as friendly to China's Communist government as the Trudeau Liberals had been.  By supporting Trudeau and his merry band of Liberal MPs, China could assure itself that Canada would remain a friendly partner.  While McCallum didn't come right out and say that financial support would be most welcome, as we all know, political parties thrive on financial donations.  It's all part of political pay for play ecosystem that exists in today's world.


Could you imagine if this had scenario had occurred during Stephen Harper's time as Canada's Prime Minister?  Or during Donald Trump's tenure as the President of the United States, in this case, substituting Russia for China?