Tag Archives: economic issues

Deutsche Bank: Should We Be Worried?

It’s well known by now that Deutsche Bank is in trouble. From its rising legal costs, to its eroding returns in a low growth environment, there’s a real possibility that the bank could fail. This should be worrisome for all of us. Deutsche Bank, which has operations in over 70 countries and more than 100,000 worldwide, has a high-risk culture and deep connection with other institutions. If it were to fail, it would have a more profound effect than Lehman Brothers, according to financial analyst Dawn J. Bennett.  The bank’s assets are an estimated $1.7 trillion, which equates to about half of Germany’s GDP from a balance sheet perspective.

A key indicator of the bank’s distress is its stocks are now trading at about $14 a share— a significant low compared to its $29 peak in the past year and its all-time high of about $160 in 2007. As the worry increases, the bank will suffer a crisis of confidence. As a result, investors could start to pull their investments from the bank, with depositors pulling out their money.

If it gets to that point, would the German government or European Central Bank bail them out? German Chancellor Angela Merkel has said publically said she won’t bail out or bail in the bank.

“If she [Merkel] actually means that, despite the I.M.F.’s belief that, since Deutsche Bank is of ‘systemic importance,’ authorities will carefully monitor (and supposedly act upon) the situation, then the fallout could be huge,” says Dawn J. Bennett. “And she has every reason to mean it. Germany, which has insisted that Italy and other countries in the ECB accept tough conditions in dealing with their problems, can ill-afford being seen as soft on their own flagship bank.”

As things worsen, the bank is left with very little options.  According to Bennett, “One is to sell their equity in order to provide much-needed liquidity. Another is to approach the European Central Bank (ECB) for a liquidity bridge, an option that has been advocated against by Merkel and denied by the ECB in the case of Greek and Italian banks. A third is that they could eliminate billions in unsecured claims and deposits, which could lead to a full-blown, systemic bank run as depositors everywhere rush to withdraw their savings. No good options here.”

In addition to Bennett’s analysis, a recent study found that the stock market’s valuation of the bank is much less than the company’s valuation. The stock market gives the bank a valuation of around $15 billion, which was generated by multiplying the number of shares by the stock’s price. However, the company says its net worth is $68 billion— four times greater. This shows that Deutsche Bank may be too optimistic about its future revenue, losses and costs.

Is Another Global Depression on the Horizon?

Dawn J. Bennett, founder and CEO of Bennett Group Financial Services, recently interviewed Richard Duncan, an author and financial analyst, on her talk show Financial Myth Busting with Dawn J. Bennett. Duncan specializes in fiat currencies and macro policy and has written many books, including The Breakdown of the Paper Money Economy, The Corruption of Capitalism, and the Dollar Crisis: Causes, Consequences, Cures.

In his video newsletter “Macro Watch”, Duncan recently reported that the global economy is in $300 trillion in debt, after the global economy moved to a debt fueled-growth strategy over the last three decades. Duncan explains this statement further during his interview with Dawn J. Bennett.

According to Duncan, the economic system has changed in fundamental ways from 1968 and 1971, when dollars stopped being back by gold. The economic system changed from capitalism to what he calls “creditism”. How this economic system operated is businessmen would invest; some would make a profit, save the profit and accumulate capital, and repeat the process. The system was driven by investment and saving. Today, the system works in an entirely different, explained Duncan.

“Our system is driven by credit creation, and consumption, and more credit creation, and more consumption,” he said. “That has generated fabulous economic growth, at least up until 2008. It ushered in the age of globalization, and it created the prosperity that we’ve enjoyed all of our lives, really up until 2008. The problem with that is that in 2008 we reached the point where the private sector, the average Americans, just couldn’t continue taking on any more debt. At that point they started defaulting, and this global credit bubble that resulted from creditism started to implode.”

Duncan is predicting this will lead to economic collapse. According to Duncan, the U.S. government has been managing the U.S. economy at least since World War II, so for about 76 years now, and have not been doing a very good job.

“We’ve reached the point now where this creditism can’t continue to create economic growth because the private sector is too heavily in debt,” he said. “If the government sector doesn’t continue borrowing and spending to drive the economy then there is a very real danger that we will collapse into a catastrophic global great depression again.”

For Dawn Bennett’s complete interview with Richard Duncan, click here.

Social Volatility & the Increasingly Hollow Economy

Dawn J. Bennett, host of Financial Myth Busting with Dawn J. Bennett, recently wrote an article titled, “The Center Cannot Hold,” in which she discusses the connection between social unrest and the increasingly hollow economy we face.

In early July, the nation experienced a wave of senseless violence that left Americans in shock and disbelief. Two unarmed black men were fatally shot by police, which sparked protests across the country. The horror continued when a military veteran shot and killed five police officers and injured seven more during what began as a peaceful protest.

“I believe there is a connection between this societal volatility and our increasingly hollow economy,” said Dawn J. Bennett. “Wage stagnation, income inequality, economic insecurity… all of these play a part in creating the current combustible atmosphere.”

According to Bennett, the U.S. is already in a recession by so many measures. For instance, labor market conditions, the corporate bond market, and inventory accumulation are all recessionary. Not to mention, corporations are more leveraged now than they were in 2007, and though stock markets are hovering around record-highs, earnings have fallen to 2011/2012 levels. Meanwhile, “safe haven” investments increase, which shows the division in how the markets are being viewed.

“Zero or negative interest rates, combined with huge amounts of cash being pumped into the markets, led us into an extreme fantasy land, causing a speculative frenzy,” said Bennett. “However, the central bank tide that has raised all the boats of our markets feels not only like it’s about to recede, but even completely dry up and leave the boats sitting on sand.”

It’s human nature for Americans to turn to someone to place the blame on for this social and economic situation we’re in. But, who’s the real villain here?

“The first people we should point fingers at is… us,” said Bennett. “We claim to be victims, saying that we had no part in landing ourselves in this quagmire, but we need to accept personal responsibility, analyze our own role. If we made better choices in life and the voting booth, if we paid better attention, were more rational and wise and prudent and thoughtful, we wouldn’t be in this mess.”

She continued, “In the end, we cannot rely on Yellen, Obama, Clinton, Trump, or anyone else. Only we can make the changes in our lives and government that must be made if we are to once again look forward to a bright American future.”