Everyone Will be Made Whole
(Except the Bankers, for a change)
Okay, so you remember the chart I keep showing you about rate hike / tightening cycles?
If you don’t, here is it:
The FED tightens until those that weren’t ready suffer losses, but the government and the FED don’t care about people and institutions losing money, so in 2022, we saw $35tn in equity wealth (on paper) go to money heaven and we saw companies slowing down spending, freezing hiring or sending thousands of workers home, but what we didn’t see is SYSTEMIC FAILURE.
Silicon Valley Bank and Signature Bank have both sounded the alarm that the banking system is reaching its limits and you might be sitting there, thinking to yourself: “Hold on, I thought higher rates are great for banking making loans… they should be having a field day…”
During the insane bubble of 2020, deposits were going through the roof; cash was pouring in and banks used the deposits to make low interest rates loans, because that is their business model, but what did they do with the rest of the cash on hand?
You guessed it; they lent the U.S. Treasury funds… don’t you know? It’s the safest toilet paper a human being can get — 5-star toilet paper.
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When you give the Treasury department $1,000,000 and get 1% on a 10-yr bond, the interest on the coupon is $10,000 a year. Today, just two year later, the 10-yr bond yields 4%, so just $250,000 are enough to generate $10,000 in interest payments.
Do you realize the bank that lent $1,000,000 to the government, if it was forced to sell that bond before maturity (before 2030), would take a 75% loss?
When depositors are rushing to the bank, it must liquidate assets, even if it makes ZERO FINANCIAL SENSE and that is what happened to Silicon Valley Bank!
I mean, even the Federal Reserve is sitting on insane unrealized losses!
The government and the Federal Reserve are structuring a bailout, but not for the bank and its shareholders (like in 2008), but just for the depositors, who did nothing wrong, expect to expect the 16th largest bank in America to allocate funds responsibly.
As I write this, gold is SOARING and the markets are well in the green, because what just happened is the FED has been told by the free markets that more rate hikes and you might solve the inflation problem, but the cost will be a depression.
I hope you have popcorn, because this movie is going for an Oscar nomination.
Governments Have Amassed ungodly Debt Piles and Have Promised Retirees Unreasonable Amounts of Entitlements, Not In Line with Income Tax Collections. The House of Cards Is Set To Be Worse than 2008! Rising Interest Rates Can Topple The Fiat Monetary Structure, Leaving Investors with Less Than Half of Their Equity Intact!
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