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Banks and the Avalanche of Deflation

Let's examine how we arrived at asset deflation, the impacts of deleveraging, future banking trends, and the impact of massive stimulus.

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Although we've previously provided an in-depth diagnosis of the root causes behind the slide, in this article we elaborate on our previous diagnosis, discuss the impact of delevering thus far, outline the evolving banking and regulatory landscape, peer at the mess from the corporate banking suite, and finally lay out likely scenarios that might result from the massive twin stimulus currently being applied to the economy.

Diagnosis of the Setup for the Slide
As anyone who has seen an avalanche in person or on the big screen knows, it seems to come out of nowhere, gain downhill momentum in a flash, and inevitably run its course. Just as in the Rocky Mountain high country, many of the agents in our global economy--financial intermediaries as well as overleveraged individuals and institutions--had come to resemble a thick unstable slab of new snow resting atop an eroded base, ready to sheer off with the slightest adverse rumble.

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Matthew Warren does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.