Home / MARKETS / US Banking System Nursing Over $600,000,000,000 Worth of Unrealized Losses, Warns Macro Guru Lyn Alden

US Banking System Nursing Over $600,000,000,000 Worth of Unrealized Losses, Warns Macro Guru Lyn Alden

Lynn Alden, a popular macroeconomic investment analyst, warned investors that software in the US banking system was sitting on hundreds of billions of dollars worth of unfinished damage.

In the latest issue of the macroeconomic expert's newsletter, Alden describes the biggest difference between the current plight of commercial banks and the decline caused by the US real estate and financial system in 2008.


According to Alden, financial institutions focused on Treasuries or bonds between 2020 and 2021, when the US government launched the Treasury Bureau stimulus and the Fed kept interest rates low. Such fixed-income securities are generally thought to be much more reliable than subprime mortgages held by banks nearly 20 years ago.

Although Alden made it clear that bonds are "risk-free" if they are held to maturity, the macroeconomic expert believes that the huge increase in interest rates at the Fed meeting over the past year is the main reason for the plight of commercial banks at this stage.

The Fed raised interest rates at its fastest absolute pace in decades (4.49% in a year) and by the fastest percentage to date (from 0.08% to 4.57% in a year, or 57 times).

According to Alden, the historic surge in interest rates has significantly reduced the value of US Treasuries held by Bank of America.

When interest rates soar, the value of US Treasuries usually falls sharply. Older bonds bought at relatively low interest rates must now compete with a brand new national bond market that offers higher returns because of soaring interest rates. As a result, businesses can only suffer losses.

Alden said

After a year of rapid interest rate hikes, the price of such fixed-income securities is now lower than that of financial institutions after buying them.

In other words, if he bought 10-year Treasuries at a return of 1.5% and now returns 4%, all potential customers would buy the older bonds at a discount of about 15% and 20%.

Because so many securities have been bought at relatively low interest rates, now if such securities are sold, the securities discount will be very large, and financial institutions will have a lot of outstanding losses. In fact, there are also outstanding losses worth more than $600 billion.

According to Alden, if the banks hold the debt until maturity, they can enjoy the damage and get back all the investment in the project. However, the current bank run is driving financial companies to sell these instruments at a substantial discount to meet the needs of depositors.

Last week, Silicon Valley Bank was squeezed out and went bankrupt after it reported a loss of $1.8 billion after selling sharply reduced U. S. bonds.


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