BREAKING NEWS: Banks Are Prepping For The WORSE Financial Meltdown in 100 Years

That 0.25% Fed increase made me pause like Mitch Mcconnell at the podium yesterday.

I hope ole Mitch is doing well. Health is wealth.

Welcome back to the Healthy Investor Club!

Subscribe, like, and leave a comment. Click the link to get up to 12 free stocks with the WeBull brokerage app.

Tier 1, Too-Big-To-Fail Banks Are Setting Aside $8 Billion In Loan/Lost Reserves

Why are these big banks putting this money aside? Should you do the same?

These banks are starting to get scared and worried, that's why. These big banks are concerned that the economy will continue to weaken and that consumers, businesses, and real estate investors will be unable to repay their loans.

There are three major concerns for these big banks:

Consumer Spending

• Consumers saved a record amount during the pandemic due to fear and stimulus checks.
• The strong labor market resulted in wage increases and easy employment.
• Record savings for consumers between 2020 and 2021.

However, as the economy reopened, people started spending again.

As the economy added new jobs, consumers started spending their savings, and people began returning to eating out, shopping, and taking vacations.

But as the spending went up, the Federal Reserve raised interest rates to combat the spending. 

Yesterday, the Fed increased interest rates by 0.25%, reaching the highest level in 22 years!

Some folks will tighten their financial belts even more, while others will say, "YOLO, but maybe just a little less than before."

Either way, this move by the Fed will have a ripple effect on the economy and leave a lot of consumers feeling uncertain.

Businesses Taking a Hit During The Pandemic

• Businesses faced challenges during the pandemic due to the country shutting down.
• As the country opened back up, companies had access to cheap money they could borrow from banks.
• Stimulus programs for businesses, such as EDL and PPP loans, were available to companies.

All the different avenues for government money were available to these businesses. Allowing these businesses to open back up and resume their business activities.

However, interest rates were being increased by the Federal Reserve to help fight inflation.

Commercial Real Estate

• Banks are worried about consumers, businesses, and commercial real estate.
• Investors default on their loans, leading to losses for the banks.
• Banks are setting aside money to cover those losses.

Commercial real estate poses real concerns for big banks due to shorter fixed-rate mortgages. Most businesses use these 3, 5, and 7-year fixed rates.

These are the three significant factors that big banks are concerned about; consumers, businesses, and commercial real estate. They are scared that lenders will default on their loans, which will cause a loss for the banks.

Suppose the big banks don't set aside this money in their loan/lost reserves and suddenly experience significant losses. In that case, those losses come out of their profits.

These big publicly traded banks do not want their profits affected in any way. Because if their earnings are involved, so is their stock price.

Shareholders would be upset with that.

The big banks are starting to be proactive and set aside this money. But this should raise a red flag for citizens like you and me.

Consumers Are Facing Concerns About Rising Debt And a Cooling Labor Market

Remember earlier when we discussed those consumers with high savings rates during the pandemic in 2020 and 2021?

Guess what?

In 2023, those savings are coming down. Consumers are getting to the point where they are at their lowest savings level in many years.

Consumers have been doing what consumers do: spending money like crazy.

One reason for the extra spending is inflation. The costs of our goods are going up, making us spend more. 

So savings for consumers are going down in 2023.

That's a problem.

• Consumers are experiencing increased spending and decreased savings.
• The labor market is cooling down, resulting in fewer job opportunities.
• The Federal Reserve's rising interest rates are tightening the job market.
• The average credit card debt in the USA is nearly one trillion dollars. The average consumer has $6,200 in credit card debt.
• High-interest rates on credit cards raise concerns. The average interest rate is 16.99%.
• Banks anticipate defaults on credit card and auto loan payments.

And don't forget the cherry on the top, which is student loan debt repayment will begin in October 2023

What's Happening Now

The banks know that all these different consumer situations don't look good.

• The FED has increased interest rates.
• Consumers with fewer savings will reduce spending, leading to declining business revenue.
• Businesses may need help repaying loans, impacting banks.
• Adjustable-rate commercial real estate mortgages are set to increase, causing financial challenges for owners.

There will be some defaults on these high-interest credit cards and auto loans that people have taken out over the past year and a half.

Some defaults in home equity lines of credit will be tied to the prime rates, which have increased by 4–5% over the last year and a half. This is due to interest rates being raised by the FEDS.

Businesses make loans to operate and grow. So if consumers have less savings and less opportunity to get jobs, they will stop spending.

This hurts businesses. When businesses suffer, they don't generate revenue or profits. Therefore, they can't pay back their loans to the banks.

The banks know that, and they are concerned.

What should you do now?

Prepare For The Worse

With all that being said, you have to start preparing now.

By the end of 2023, we will either enter a new bull market or a recession. You want to be over-prepared, not under-prepared, in case something catastrophic happens.

• Focus on getting your financial house in order.
• Stop unnecessary spending and live according to a plan.
• Set an investment strategy and dollar cost average into your favorite ETFs and stocks.
• Live on a plan and stay out of consumer debt.
• Save, and invest.

If you do those things, you'll be ready to ride any financial wave that comes your way. You'll be able to get through any economic storm.

Start building wealth! 

You have to prepare for the worse and expect the best.

Get that money!

Remember to subscribe, like, and leave a comment. Click the link to get up to 12 free stocks with the WeBull brokerage app.

With a focused eye for detail, Ivin likes to offer readers a fresh perspective on the latest developments.

He enjoys traveling when away from work.

If you received helpful advice here, show me some love with a like and share. Leave me a comment and let me know what you think.