A major credit contraction would be a nightmare scenario for the economy, and as you will see below, there is evidence that this is already starting to happen.  Hopefully our leaders can find a way to calm things down, because we all remember what happened during the last financial crisis.  Banks decided to substantially tighten their lending standards and that really deepened the economic downturn.  So our leaders should be doing what they can to support the stability of the system, but in so many cases they end up doing just the opposite.

For example, on Wednesday U.S. Treasury Secretary Janet Yellen publicly admitted that blanket coverage of all uninsured deposits in U.S. banks is not even under consideration…

In response to a direct question about whether the Treasury would circumvent Congress to insure all deposits, Yellen replied, "I have not considered or discussed anything having to do with blanket insurance or guarantees of all deposits."

When she made this statement, she poured even more lighter fluid on small and mid-size banks all over the country.

Wealthy individuals and large companies have already been pulling billions of dollars out of such banks, and a lot more money will inevitably be pulled out in the days ahead.

Now that these banks are bleeding deposits at an unprecedented rate, what do you think their approach to lending will be?

Needless to say, they are going to be extremely averse to taking risks at this point.

And that means that lending standards are going to be getting a lot tighter.

In response to a tweet in which Joe Biden touted the accomplishments of his administration, Elon Musk warned that "the banks are melting".