How US banks and the Fed are preparing.

How US banks and the Fed are preparing for the default and financial collapse that could follow.

A severe and prolonged global recession is almost certain…

And the reputation of the US and the dollar as a model of stability and security will be further damaged.

“You hope it doesn’t happen, but hope is not a strategy, so be prepared for it,”

said Brian Moynihan, chief executive of Bank of America.

Banks have not revealed many of the details of how they are responding.

But we can get some clues from how they have reacted to past crises, such as the 2008 financial crisis or the debt ceiling confrontations of 2011 and 2013.

One important way banks can prepare is by reducing exposure to Treasury securities.

Some or all of which could be considered in default once the US exhausts its ability to pay its bills in full.

All US debts are called Treasury bills or bonds.

Preparing for the financial collapse ahead!

To mitigate that risk, the Fed said it would likely step in immediately as a buyer of last resort for U.S. Treasuries.

Quickly cutting interest rates and providing the financing needed to prevent contagion and financial collapse.

The Fed may be having the same conversation today and preparing to take similar action.

Ultimately, Congress will do what it has done with all previous concerns about the debt ceiling: raise the ceiling.

These contentious debates have become all too common, even as lawmakers from both parties express concern about the growing federal debt and the need to control government spending.

That is why one of the most important ways banks can prepare for such an outcome is to talk about the serious damage that not raising the ceiling could do not only to their business but to everyone else.

That has increased the pressure on political leaders to reach an agreement.

We can already see how US banks and the Fed are preparing…

How do you prepare for a self-imposed financial collapse? The answer is that no one should have to.

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