Friday, June 9, 2023

Economist Nouriel Roubini has recently released an opinion article where he talks about how a lot of banks in the United States are in trouble. He explained that most banks here don’t have enough money and some are already bankrupt.

75 Trillion Dollar Crisis

Nouriel Roubini, sometimes called “Dr. Doom”, wrote an article published in MarketWatch on April 1. In the article he talks about how banks in the United States have massive losses estimated at $620 billion. What that means is that these banks don’t have enough money to cover their expenses which reduces their value even more. And it doesn’t help that interest rates from the U.S. Federal Reserve are going up either as this also affects how much money they can get and therefore also makes their situation worse.

Nouriel Roubini thinks the American banks have a big problem. He estimates that the real losses that bank’s face are $1.75 trillion – which is about 80% of their total money (capital). The reason why these losses aren’t “realized” yet is because of how regulations work – with current rules, banks can value loans and securities at their original price, not what it would cost to buy them today in the market. Nouriel finishes by saying that there’s something wrong with the banking system within America.

“Most banks in the USA don’t have enough money to pay their bills, and it is estimated that hundreds of them do not even have the money needed to cover all expenses.”

“Facing the Trilemma

Every day, people need to make decisions. From the mundane, like what to eat for breakfast; to the complex, like whether or not to get a job. All these choices that we make shape both the present and future, as they can lead us on down different paths. Making more informed decisions can help us stay on the right path and reach our goals easily. Therefore, it is important to think before making any decision!

In his opinion article, Roubini talks about something called the “deposit-franchise.” He thinks that people can tell when savings in banks are not secure, which makes them lose trust and pull their money out. Consequently, this would cause a huge loss of money and lead to bankruptcy. He also believes that the U.S economy might get worse because of some banking problems, which he calls “a house of cards.”

According to Roubini, central banks are facing what he calls a “trilemma.” In particular, local banks that help people and businesses get money are having some trouble. This trilemma is when the rising interest rates meant to prevent prices from getting too expensive could lead to problems like more unemployment or financial instability.

The “Dr. Doom”, which is a nickname for a famous economist, thinks that there are three main problems we need to worry about. Those three problems become worse because of the Covid-19 virus and the conflict in Ukraine. This information comes from an article written by Roubini.

“When prices and wages increase too much, the only thing that can help is a big drop in spending called a recession. But sadly that makes it worse than before because of more debt problems. So even if people try to keep businesses afloat, it’s not enough. Everyone should get ready for rising prices with no extra money – that’s what we call stagflationary debt crisis.”

What do you think should be done to solve the possible banking crisis and the difficult choice that central banks have? Do you agree with what Roubini said in his opinion piece? Please share your views on this topic in the comments section underneath.


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