Let's talk about US and European banks war-gaming a collapse.... - Belle of the Ranch

Well, howdy there Internet people. It's Belle again. So, today we're going to talk about US and European banks wargaming a collapse.

Central Bank and Treasury officials along with private sector bankers from the EU, UK, and US took part in a war game of sorts in Washington. The scenario being planned out and stress tested for is the collapse of a systemically important bank. The idea is to take a look at something similar to a Lehman Brothers collapse.

The FDIC, which is participating, said in a statement, "These exercises enhance understanding of each jurisdiction's resolution regime for global systemically important banks, strengthen coordination on cross border resolution, and promote confidence in and commitment to the orderly resolution of GSIBs.”

These little war games are known as a trilateral principal level exercise. Not only do they help plan for global economic system failures, it allows the people involved to see each other face to face and develop relationships and trust prior to a major economic crisis.

Internationally, a lot of the mitigation efforts are organized quickly over the phone and rely on quick agreements. The officials started their week in DC with a series of International Monetary Fund and World Bank meetings before staying over for the financial stress test exercise.

Now, before this turns to a total doom and gloom, it's worth knowing that these kinds of exercises have been taking place for years behind the scenes. This one is just catching a little more news coverage because there's a lot of risk factors at the moment. The current state of the economy, the amount of uncertainty introduced by, you know, who's constant chicken and waffles, the global energy shock, and so on is at the front of a lot of people's minds.

But beyond that, there are a bunch of other things that are reasons for concern. Of primary concern right now is high-risk private credit, a large downturn due to an overinflated stock market, and the unknown disruptions that AI could cause either through completely flopping, the bubble popping, or the tech actually succeeding and creating large numbers of unemployed people who in turn wouldn't be able to pay their bills triggering housing credit and investment crisis.

Given that a recent survey by YouGov found that 42% of Americans believe the country will experience a total economic collapse in the next 10 years. I do want to stress that these kinds of exercises are normal.

Total economic collapse in the US would probably look like the Great Depression. During that period, unemployment approached 25% and the stock market lost nearly 90% of its value, locking up investment and slowing growth.

I've made no secret of the fact that I'm not exactly optimistic about the future of the US economy, but I don't foresee anything Great Depression level on the horizon. It's an almost certainty that we're going to have a correction that sticks. It's pretty likely that we have a crash soon, but there's a huge difference between a 20 or 25% or even 40% crash and a 90% crash.

I would imagine that there will be a lot of sensational headlines about this in the coming days. Don't panic.

Anyway, it's just a thought. Y'all have a good day.