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Two Fed options: save dollar or save financial system. "...two roads diverged...and sorry I could not travel both."

Posted by bubah1mau 1 year, 2 months ago to Business
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Robert Kessler (see my post here 2 weeks, 2 days ago) had it right: Fed will get a shot across its bow of rate-raising, a credit-crisis event, something along the lines of Lehman Bros failure, that will shock it into a hold on further rate increases; and, as the crisis begins to unfold, will be forced to lower rates rapidly to stave off a major sequence of bank runs and bank failures. We are going to see a sped-up version of the 2008 crisis, with Fed forced to abandon its ridiculous "2%" inflation-rate goal. Kessler also said that he didn't believe the Fed funds rate would make it to 5%. (And he said it back in late October (for the original, early November Consuelo Mack presentation) when the Fed funds rate was at 3.08%.

The problem is that large numbers of banks are holding billions in bond portfolios as assets that were accumulated when rates were near zero. As the Fed rapidly raises rates, those bond portfolios diminish substantially in value. Pressed to raise cash if a bank run starts, they face enormous losses unloading those depreciated bond portfolios.

This is Kessler's warning on Consuelo Mack's PBS show, brought back from several months ago: https://wealthtrack.com/the-financial...
SOURCE URL: https://www.breitbart.com/economy/2023/03/13/breitbart-business-digest-the-bidenflation-banking-crisis/


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  • Posted by CaptainKirk 1 year, 2 months ago
    Help me understand the problem here, since it is a LEVERAGE issue.

    1) Banks take in $1 billion in assets
    2) They lever it up 10x to early 1% x 10... per year. But have ZERO on reserves, effectively.
    3) Customers start taking money out
    4) There is no more Mark to Market, FASB 26?... It was never re-instated...
    5) Why not allow them one more lever (and they can cover withdraws)?
    6) and ignore the bond price dropping, since they can hold to maturity?

    Honestly, this is all the receiving bank is going to do.
    once you have "Mark to Fantasy", and you can borrow at the Fed Window.
    just borrow.

    Now, the problem could be... When you go to borrow, your position is under water,
    so they clamp down and won't give you the full $1 billion. And then you have to pay 5%/yr
    on that money, and that structurally eats HALF of your 20yr profits.

    But I struggle when I know that I NEVER get bailed out, but that Romney, and his friends ALWAYS do.
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    • Posted by freedomforall 1 year, 2 months ago
      Better yet, why should the fed raise interest rates when it can accomplish the stated goal
      of slowing inflation by restricting bank lending (by increasing the required reserves on new
      loans) without increasing debt service on government debt?
      A: The stated goal is not the actual goal.
      Restricting lending would cut big bank profits (and not crush small banks.)
      Increasing interest rates causes more volatility (which is what generates profits
      for Wall St.), increases profits for big banks, crushes competition for big banks,
      and causes market turmoil which leads to more government controls (e.g., digital currency.)
      Win-win-win for the Deep state, Wall St., and big banksters.
      Lose-lose-lose for Main St.
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      • Posted by CaptainKirk 1 year, 2 months ago
        Lets be clear. If the COUNTRY ran the Central Bank. They could easily pay off the debt.
        That's because the COUNTRY could borrow M1 at 5% (a reasonable rate).

        They could then CHARGE 1% on M2 (fed level creation, selling of money), and then charge 1% on M3 (fed creation from the bank lending window, which is literally levered up 10x or more).

        Meaning the 1% collected on M3 ECLIPSES the M1 5% the fed has to pay.

        This is how it should be, because the GOVT is ULTIMATELY the backstop anyways.

        We were sold into slavery with the current system, in which the profiteers are NEVER the losers.

        I ask... Where are the Clawbacks that take ALL of the ASSETS from the "Fed Owners" to repay, against the gains they have kept over the years?

        That's the root of the problem. These are quite solvable. But the only figure in politics with the Cajones to fix this, has been sidelined by the deep state who is funded through the current system... Quite nicely, at our expense, I will add...
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    • Posted by Lucky 1 year, 2 months ago
      Capt. yes but a simpler view is that SV Bank borrowed short but lent long.

      That is, they had excess money, they put it into long bonds of 1 to 5 years maturity. Good policy if their view was right of low interest rates being a long term feature. Banks usually mix maturities.

      SV Bank guessed wrong, interest rates shot up. Depositors now had better uses for their money than sitting in SV Bank. SV Bank ran out of cash, they tried to sell the long bonds - a 1 yr $1m bond at 1% was in the books at $1m. But at general int rates of 5%, that bond will only get about $1m less $40,000 if sold. They needed to sell so much it was a panic, they would have got even less than $960,000 per million.
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      • Posted by CaptainKirk 1 year, 2 months ago
        Right. It's the FORCED sale situation.
        Whereas, just upping the LEVERAGE ratio helps.
        The problem is that the bank run creates an INFINITE Leverage ratio as EVERYONE takes their money out. Pretty soon, it's only Federal Reserve Money at risk :-) [Which means BAILOUT, of course]
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  • Posted by freedomforall 1 year, 2 months ago
    The banking de-regulation that should be reversed is from 1913
    and every law passed since then that was related to having a federal reserve act.
    The income tax is one such law that must also be reversed.
    Both are unconstitutional.
    Impale the traitors.
    DC. NIFO.
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    • Posted by term2 1 year, 2 months ago
      Regulations are getting more and more complex and inter-related. Government control of an economy just doesnt work. It didnt work for Soviet Russia, Communist china, and its not working here (except for the elite who control it and profit from it)
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    • Posted by mccannon01 1 year, 2 months ago
      The problem we have with the income tax is it was made Constitutional by the 16th amendment.

      I have seen arguments that the 16th amendment was not lawfully ratified and, therefore, does not apply. With that aside, the 16th amendment is only a few lines long, but the 80,000+ pages of tax code are not in the Constitution, so I say NIFO.
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  • Posted by tutor-turtle 1 year, 2 months ago
    This wreaks of psy-op. All I heard was "quick run to your bank and pull all your money out"
    Almost no one took the bait.
    And you know why that was a good thing?
    It would have been all excuse the FED (foreign-owned private banksters) needed to have the reason to take ALL your money and create CBDC's overnight.

    We all know how and why 'our Cadillac has one wheel in the ditch and the other on the track'
    TraitorJoe cut our fuel production and drained the Strategic Petroleum Reserves to bone dry. This created massive the fuel price increases, thereby causing the ripple effect on the supply chain. Causing massive price increases and shortages on everything. The inflation triggered the totally corrupt FED to jack up interest rates which then forced banks into an upside-down position. They have to earn more than they pay depositors. Then Old Demented Jackwagon (ODJ) lowed the 10% banking reserves to ZERO! Now banks legally don't have hold ANY of your deposits. The icing on the cake was starting nuclear war with Russia, pushing the Russians into the waiting arms of the Chinese. India, Brazil and Iran will soon follow putting the final nail in the coffin of Bretton Woods.
    It's all but a done deal. TraitorJoe Buy-Done has totally screwed our pooch.
    Either he is too stupid to know what he is doing (25th Amendment
    Or he is totally compromised by the CCP.
    (Treason and/or Sedition: firing squad)

    None of what I just covered should come as a surprise to anyone who was paying even a little bit of attention.

    This is a slow motion train wreck. And just like
    East Palestine train wreck, TraitorJoe BuyDone doesn't give a rats backside about you, me or the country. His ill-gotten money is in Chinese and more to the point: Ukrainian banks.
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  • Posted by term2 1 year, 2 months ago
    The basic problem is that the government is trying to control an economy essentially by printing money and kicking the can down the road. Its eventually going to crash, although we dont know what will start the process. You cant keep borrowing forever, period.
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  • Posted by 1 year, 2 months ago
    One point I may differ with Kessler on is the duration of the period of time he expects the Fed to remain "on hold." (Of course he was speaking back in October and didn't have reference to the past several months of finance history.)

    The difference between his extensive past experience and now is the increased speed and availability of digital banking coupled with the prevalence and volume of online securities trading worldwide--now often offered commission free and available to the public via smartphones.

    It's difficult to find a chart showing increase in the number of online securities traders worldwide, both professional and amateur over the past two decades, but I would bet that it's exponential--made that way largely by commission-free trading and access provided by smartphone usage. Global Covid19 lockdowns also stimulated interest in online trading and put stimulus cash in the hands of would-be traders.

    Another factor prompting increased interest in online trading is the availability of investment/trade products such as ETFs and options that reference prices rather than the actual possession of commodities and securities (bonds and corporate stocks).

    All these factors put together mean that financial panics can happen much, much faster than they did in the past, even faster than the 2008 sub-prime mortgage crash.

    Instead of Kessler's prediction that the Fed would remain on hold for nearly one year, it's far more likely that the Fed will abandon its current ultra-high rate within a matter of weeks as this crisis intensifies.

    Regarding the speed of today's panics (as compared with those of yesteryear), consider this CNBC comment regarding SVB events of this past Thursday:
    "Reassurances from the bank’s executives were not enough to stop a run, and depositors withdrew more than $42 billion by the end of the day Thursday, setting up the second-largest bank failure in U.S. history." (Entire article: https://www.cnbc.com/2023/03/11/silic... )

    What used to take weeks to develop is now accomplished in several hours of panic.
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