How bad is the banking/economic situation?

In a long analysis in the London Review of Books, Brit John Lanchester says the international banking system is just about kaput:

I guarantee that at this very moment, somewhere in the world, somebody at one of the big banks is sitting with his head in his hands, looking at the company’s balance sheet and sweating over this very problem. If the global economic crisis can be reduced to one single phenomenon, it is this: the fact that nobody knows which banks are solvent. Because banks are crucial to the creation and operation of credit, a bank crisis leads directly to a credit crunch. It’s also the reason the huge amounts of money being pumped into the banking sector by governments are tending not to do the thing they are supposed to do, i.e. restart lending to businesses and consumers. That’s because – and here we can have that very rare thing, a brief moment of sympathy for the banksters – the banks are being given two totally incompatible goals. One is to rebuild their balance sheet and recapitalise themselves so they’re no longer at risk of going broke. The second is to keep lending money. They’re being told to save and to keep spending at the same time. It’s not possible, and in the circumstances it’s no mystery why banks are using every penny they can get, and calling in every loan they can: they’re doing it in order to ‘deleverage’ and rebuild their capital as fast as possible.

Lanchester's focus is the global banking system. His next book is amusingly titled Woops!

Similarly, Michael Hudson, professor of economics and president of the Institute of Long-Term Economic Trends, has a devastating assessment of the dollar's future as Russia, China, and other nations -- but not the United States -- in Yekaterinburg, Russia, last week:

Even without capital controls, the nations meeting at Yekaterinburg are taking steps to avoid being the unwilling recipients of yet more dollars. Seeing that US global hegemony cannot continue without spending power that they themselves supply, governments are attempting to hasten what Chalmers Johnson has called “the sorrows of empire” in his book by that name – the bankruptcy of the US financial-military world order. If China, Russia and their non-aligned allies have their way, the United States will no longer live off the savings of others (in the form of its own recycled dollars) nor have the money for unlimited military expenditures and adventures.

US officials wanted to attend the Yekaterinburg meeting as observers. They were told No. It is a word that Americans will hear much more in the future.

Just a matter of time, and not much time, at that. When the U.S. dollar falls from its position as the world's reserve currency, we'll be in even bigger trouble. But maybe that's what it will take to end the American empire and renew our nation as a democratic republic.