March Madness: The United States And The Real Estate Bubble Ready To Explode Globally

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Written by Piero Messina

Financial analysts are already calling it March Madness. On Monday 11 March we will discover the great economic bluff of the American banking system. All eyes are on Wall Street, where the big short bet against the securities of US regional banks is highlighted among the big news of the last few hours. The crisis, as always, is good for someone: the protagonists of short sales have grossed almost 1 billion dollars since the beginning of 2024.

What is scary is the new real estate bubble. There is fear of a replay, but with even more devastating effects, of the 2008 crisis. A real estate bubble would have consequences on a global scale. In the silence of the media, the American real estate crisis 2.0 has already begun to claim victims also in the Old Continent (Signa in Austria), after having claimed its first in Japan with the collapse of Aozora Bank.

Furthermore, the comment by Robert Riva, partner of the real estate market division of the Cole Schotz law firm, is not auspicious:

“I believe that exposure to the commercial real estate (CRE) market will affect many more banks.”

For Riva, in fact, “this is not something that is limited to someone who is perhaps making the same mistakes as Lehman Brothers, 15 years later. This is a problem that affects the entire sector.”

But what is happening on Wall Street right now? The regional banks, exposed to the real estate market, have ended up in the sights of speculation. The short attack began in the wake of the troubles that hit the US regional bank New York Community Bancorp (NYCB), a victim of its exposure to the problems of the American commercial real estate market. The sales can also be explained by the arrival of a key date for the United States banking system: that of next Monday 11 March 2024, which corresponds to the expiry date of a scheme launched by the Fed precisely in order to secure the banks USA. The problem that is unleashing the fury of short sellers against the securities of US regional banks is summarized in the acronym BTFP, which stands for Bank Term Funding Program: it is a plan that was churned out by the Federal Reserve, the American central bank led by President Jerome Powell. The program was activated by the Fed in response to the US banking crisis that exploded in March 2023 with the collapse of three regional banks: Signature, Silvergate and Silicon Valley Bank (SVB).

That crash occurred in the midst of the interest rate increases that Jerome Powell’s Fed continued to launch to bring excessively high inflation in the United States to its knees. It wasn’t a coincidence. Precisely those repeatedly announced monetary tightening had eroded the value of the US Treasuries that the banks had hoarded and which had been stagnating on their balance sheets for some time.

It was the collapse of SVB on 10 March 2023 that triggered the phenomenon of the bank run, i.e. the bank run by several American account holders who, gripped by the anxiety of not being able to see their savings returned, triggered the phenomenon of escape of deposits.

Having said this, the stop of the BTFP, expected for next Monday 11 March, will obviously deprive credit institutions of the possibility of obtaining low-cost financing from the Fed, thus increasing the costs of access to financing, to the detriment of profit margins. This means that American banks, to protect themselves, could decide to impose higher interest rates on the loans they provide to their customers or to tighten the credit taps, to the detriment of the economy. Regional banks use the BTFP scheme to the tune of nearly $180 billion per week. An avalanche of money coming from nowhere, in a country on the brink of default: US public debt has broken through the 34 trillion ceiling and is growing by a trillion every 100 days, net of currency issues operated with mimeograph machines.

Thus, while on Wall Street technology stocks are raking in the gains and continue to get bigger thanks to continuous buybacks, there are those who are raising the alarm about the current and future sustainability of the US financial economic system.

Here is what Martin Armstrong, the economist famous for having traced time series and economic cycles with his predictive models, writes: “A new billboard launched in New York City’s Times Square is sounding the alarm on America’s growing national debt crisis. “Scared of the national debt? You should be.” US national debt spiked past $34 trillion at the top of the year and continues to rise due to massive spending packages. Now that America is committed to funding two large scale wars and 7.2+ million new migrants, America will continue sinking deeper into a hole.”

Armstrong points out the clear contradiction in the US government’s way of acting. While the real economy goes awry, the State Department continues to hand out billion-dollar bonuses to support proxy wars:

“The average person does not realize that these “free” aid packages to Ukraine, Israel, Taiwan, the migrants, climate change , etc., as at the expense of the US taxpayers. You are paying for all of these measures. Government has and will raise taxes in order to fund these fiscal measures but they will never collect enough revenue from the people to cover their spending”.

Of course, some might argue that Armstrong is a biased observer. So, let’s turn to those who govern the US financial establishment, the governor of the Fed, Jerome Powell: “In the long run, the US is on an unsustainable fiscal path. The US federal government is on an unsustainable fiscal path and that just means that the debt is growing faster than the economy”. Powell finally warned, later adding, “effectively, we are borrowing from future generations.”.

As much as neo-conservative/Zionist ideologues like Robert Kagan write about the unique inevitability of the American world order, there is a clear feeling among the US population that this country has no future. This is demonstrated by the situation of large American cities, incapable of meeting their costs and primary social assistance services.

A study by Truth in Accounting (TIA) revealed that 70% of America’s largest cities fell into a deficit in fiscal year 2022. Out of the 75 cities studied, 53 simply did not have the funds to pay their bills. The study found that the total debt among the 75 cities had reached $288 billion, and despite the $307.4 billion of assets shared among them, the cities held $595.3 billion in unfunded pension plans.

Pensions and health care were the major issues burdening American cities long before Washington required taxpayers to bankroll the 7+ million new illegal residents. As the report notes: “The most common accounting trick cities use to understate government costs is not including true compensation costs. Cities provide employees with salaries and employee benefits, such as healthcare, life insurance, and pensions. While pension and other post-employment costs, such as health care, will not be paid until the employees retire, they still represent current compensation costs earned and incurred throughout their tenure.”

The electoral campaign which will end in the first week of November remains in the background. Trump and Biden are two sides of the same coin. The crisis in the United States is much more layered and profound than it might appear from the surreal competition between the two elderly contenders.

The risk is very high that Europe will always pay the costs of these last remnants of American imperialism. Because Washington’s military posture on the hot fronts of geopolitics, from Central Europe to the Red Sea, has a very specific connotation: to push forward the EU ally, to try to definitively sever the ties between the two peripheries of the Eurasian Heartland. It may just be a coincidence, but this is how world conflicts break out.

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