Deutsche Bank is the most connected bank in the world. As such, it poses the greatest risk to a banking crisis. And right now, in the midst of good trading revenue being reported by banks this season, Deutsche Bank’s problem makes it difficult for banks to keep fueling the economy and reduce the impact of risk weighted assets.
And despite what people say about low unemployment rate, let’s remember that we have the lowest labor participation rate. Nearly 1 in 10 working age men are on disability. Women, less. The current gap between the working and the working population is more than twice what it used to be.
Plus, we have been spending the past 8 years replacing higher paying jobs with lower paying jobs. Not only that, we have been replacing a lot of higher productivity jobs with lower productivity jobs. Another way to look at it, we have been taking a road construction worker from building roads and placing him at the fact food cash register, or nothing at all. Nothing is wrong with working as a cash register person, but feeding a few people simply isn’t as productive as creating a path for food to travel to that fast food restaurant and thousands of other ones.
The saving grace on this is that corporations have more cash than ever, which has reduced the need to borrow. The US policy of letting corporations to pile up cash when we have a year’sworth of GDP in debt, $1.3 Trillion of which is student loans, seems ridiculous. At least that means there is more money to lend to smaller businesses.
Now, back to the issue of risk: smaller businesses are riskier. This makes it difficult to manage risk. The result is back to where we started. That is part is the nasty cycle Deutsche Bank may worsen.