It wouldn’t be the first time the Fed swore it would do one thing and then did the opposite. From Bill Bonner at bonnerprivate research.com:
(Source: Getty Images)
Bill Bonner, reckoning today from San Martin, Argentina…
What a week! Another exciting mix of the absurd, the ominous and the sublimely ridiculous.
The most important thing that happened was that the Fed revealed more of its ‘stealth pivot.’ It came out with a program to bail out the big depositors of failing banks. Already, the FDIC insures the deposits of small account holders (under $250,000). Now the new alphabet group – BFTB, or something like that – is going to look after large account holders. In other words, the whole banking system is being nationalized.
Well, not exactly. The losses are being nationalized. The profits will remain with the bankers.
What’s behind it? We recall our old friend Richard Russell:
‘The feds can control the banks to a large extent. They can control the bond market, to some extent. They can control the stock market, also to some extent. They can cause booms and trigger busts. But they can’t do those things and also control the value of the currency. The dollar is the pressure value. It suddenly pops open when the system needs a reset.’
When the slaves revolt, they will seek the blood of their masters.
In 2013, a century after the establishment of the Federal Reserve, I published The Golden Pinnacle. The novel’s hero is Daniel Durand, a Wall Street banker. Chapter 27, “Fools’ Gold,” features Daniel’s testimony in 1913 before a House of Representatives subcommittee against legislation under consideration that would establish the Federal Reserve. Eleanor is Daniel’s wife and Tom and Alexander are two of his four sons. As the current banking crisis unfolds, I won’t have much to say that will add in any meaningful way to what I said in “Fools’ Gold”. Why repeat myself? Perhaps I’ll just keep linking back to this post. Please share in whole or in part with attribution and a link back to this post.
From “Fools’ Gold”
Daniel sat at a table in a committee hearing room of the House of Representatives. The drafts crisscrossing the room carried the winter cold of February. There were few spectators in the gallery. Daniel glanced at Eleanor, who sat with Tom and Alexander, but she was staring in a different direction. Although she had wished him well, she had seemed preoccupied when they met briefly in the hall outside the hearing room.
Members of the subcommittee of the House Committee on Banking and Currency strolled to their seats, signs denoting the representative, at an elevated, semicircular panel at the front of the room. They chatted with each other. Nine representatives sat down. The chair for Representative Bulkley of Ohio remained empty. The chairman of the subcommittee, Representative Carter Glass, from Virginia, banged his gavel.
“The hearing in consideration of House Bill 7837, for the establishment of a federal reserve bank and the furnishing of an elastic currency, shall now come to order. The subcommittee will hear the testimony of Mr. Daniel Durand, from the firm of Durand & Woodbury, of New York.” Chairman Glass’s accent had an unmistakable Virginia lilt that reminded Daniel of Aldus Kincaid, his attorney for the court of inquiry. A dapper gentleman in his mid-fifties, Glass had prominent ears and a nose that filled a larger proportion of his face than the average nose filled of the average face.
“Thank you, Mr. Chairman, and thank you, members of the committee,” Daniel said. “This legislation is still in its early stages and the details of the reserve system are the subjects of dispute. However, before everyone is enmeshed in them, it’s time to consider not just the purported benefits but also the real dangers of central banking and government-created money, or an elastic currency, if you will, and to ask if this supposed innovation is in the best interests of our country.” He glanced at his notes.
“A persistent misnomer is the term ‘bank deposit,’ which is not a deposit at all. If I take an item to a warehouse and pay a fee to deposit it for safekeeping, when I exercise my contractual rights and claim it, the owner of the warehouse must give it back to me. The owner can’t lend it out, use it to secure a loan, or give it to another depositor to satisfy his claim. On the other hand, when I put my money in a bank, the banker can lend or invest it, use those loans and investments as collateral to borrow money, or use my funds to pay creditors or other depositors. I haven’t deposited my money in the same sense that I deposited the item at the warehouse.
“My deposit is actually a loan and I’m an unsecured creditor of the bank. Much of the instability of the present system stems from a fiction. The respectable bank is housed in a neoclassical fortress and prominently displays a sturdy vault, to convince the depositor his money is safe. In fact, almost all his money leaves the bank in search of a return higher than the interest the bank pays him. Only a small portion is held in reserve to meet depositor withdrawals, although all depositors are told they can withdraw their money on demand.
“The bank has made a promise that it can’t always keep. Business and financial cycles are as immutable as human nature. When famine follows feast and fear replaces greed, the demand for money inevitably increases. The banker faces his worst nightmare—a run on the bank. Banks with sufficient reserves or borrowing power survive. Those without them go bankrupt.”
Daniel looked up at the representatives. Only a couple appeared interested.
Current policy will put us back to a past when only the rich had cars. From Eric Peters at ericpetersautos.com:
If you were to go back in time 120 years, to the dawn of the Age of the Automobile, what you would see is that the automobiles of that age were few and expensive. Most were hand-built, to order (you may recall GM’s “Body by Fisher” badges; these were remnants of the coach-built era).
Anyhow, we’re almost there again.
While not coach-built, new vehicles are becoming so expensive again that – inevitably – only a few will be able to afford them, soon.
You may have heard that last year, the average price paid (the so-called “transaction price”) for a new vehicle was about $45,000 – an all-time high. It does not mean that one could not buy a new car for much less; it means that lots of people didn’t – chiefly because they could finance more car – which they could because of low interest rates. But interest rates are no longer low and headed higher; this will result in fewer people being able to finance – ending the fiction of affordability.
At the same time, there are fewer and fewer vehicles left that do not cost $45,000 – or a lot more.
Almost all of this is due to “electrification,” which is inherently expensive. The typical EV costs about $10,000-$15,000 more than an otherwise similar non-electric vehicle. Ford’s F-150 Lightning, for instance, stickers for $55,794 vs. $41,530 for the non-electric F-150 SuperCrew. It costs thousands more this year than it did last year.
Some EVs – like the Tesla Model 3 – sticker for twice what an otherwise similar compact-sized hatchback sedan such as the Honda Civic stickers for.
This will get worse, not better, as more high-cost EVs are force-fed into the mix – and fewer low-cost non-EVs are left, as alternatives to them.
Most of the chickens that have been killed were not sick. From Joel Salatin at rwmalonemd.substack.com:
Numbers change each day, but at the last count about 60 million chickens (mainly laying hens) and turkeys died in the last year. A bit more than a decade ago it was 50 million. Are these cycles inevitable? Are the experts funneling information to the public more trustworthy than those who controlled press releases during 2020’s covid outbreak?
If thinking people learned only one thing from the covid pandemic, it was that official government narratives are politically slanted and often untrue. In this latest HPAI outbreak, perhaps the most egregious departure from truth is the notion that the birds have died as a result of the disease and that euthanasia for survivors is the best and only option.
First, of the nearly 60 million claimed deaths, perhaps no more than a couple million have actually died from HPAI. The rest have been killed in a draconian sterilization protocol. Using the word euthanized rather than the more proper word exterminated clouds the actual story. Euthanizing refers to putting an animal out of its misery. In other words, it’s going to die and is in pain or an incurable condition.
Ellen Brown’s analysis of derivatives is one of the most intelligent articles we’ve read about the financial system since banks started blowing up. She’s nailed the biggest risk. From Brown at unz.com:
On Friday, March 10, Silicon Valley Bank (SVB) collapsed and was taken over by federal regulators. SVB was the 16th largest bank in the country and its bankruptcy was the second largest in U.S. history, following Washington Mutual in 2008. Despite its size, SVB was not a “systemically important financial institution” (SIFI) as defined in the Dodd-Frank Act, which requires insolvent SIFIs to “bail in” the money of their creditors to recapitalize themselves.
Technically, the cutoff for SIFIs is $250 billion in assets. However, the reason they are called “systemically important” is not their asset size but the fact that their failure could bring down the whole financial system. That designation comes chiefly from their exposure to derivatives, the global casino that is so highly interconnected that it is a “house of cards.” Pull out one card and the whole house collapses. SVB held $27.7 billion in derivatives, no small sum, but it is only .05% of the $55,387 billion ($55.387 trillion) held by JPMorgan, the largest U.S. derivatives bank.
SVB could be the canary in the coal mine foreshadowing the fate of other over-extended banks, but its collapse is not the sort of “systemic risk” predicted to trigger “contagion.” As reported by CNN:
Despite initial panic on Wall Street, analysts said SVB’s collapse is unlikely to set off the kind of domino effect that gripped the banking industry during the financial crisis.
“The system is as well-capitalized and liquid as it has ever been,” Moody’s chief economist Mark Zandi said. “The banks that are now in trouble are much too small to be a meaningful threat to the broader system.”
No later than Monday morning, all insured depositors will have full access to their insured deposits, according to the FDIC. It will pay uninsured depositors an “advance dividend within the next week.”
The more things change, the more they stay the same. From Jim Quinn at theburningplatform.com:
“We’ve got strong financial institutions…Our markets are the envy of the world. They’re resilient, they’re…innovative, they’re flexible. I think we move very quickly to address situations in this country, and, as I said, our financial institutions are strong.” – Henry Paulson – 3/16/08
“I have full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event. Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again.” – Janet Yellen – 3/12/23
With the recent implosion of Silicon Valley Bank and Signature Bank, the largest bank failures since 2008, I had an overwhelming feeling of deja vu. I wrote the article Is the U.S. Banking System Safeon August 3, 2008 for the Seeking Alpha website, one month before the collapse of the global financial system. It was this article, among others, that caught the attention of documentary filmmaker Steve Bannon and convinced him he needed my perspective on the financial crisis for his film Generation Zero. Of course he was pretty unknown in 2009 (not so much anymore) , and I continue to be unknown in 2023.
Actually, American capitalism broke down long ago. However, the days are numbered for what’s left of it. From Tyler Durden at zerohedge.com:
In contrast to billionaire Bill Ackman’s praise for the federal government’s bailout of SVB depositors, Citadel founder Bill Griffin is not impressed, telling The FT that this action by US regulators shows American capitalism is “breaking down before our eyes”.
As a reminder, the FDIC’s Deposit Insurance Fund normally guarantees up to $250,000 in deposits, which protects small retail customers including mom-and-pop businesses. Banks pay for this guarantee with insurance premiums, but the insurance fund isn’t intended to backstop deposits of bigger customers with more capacity to weather losses if a bank goes under.
Yet, as The Wall Street Journal’s Editorial Board remarks, after venture capitalists (Democratic donors) and Silicon Valley politicians howled, the FDIC on Sunday announced it would cover uninsured deposits at SVB and Signature Bank under its “systemic risk” exception.
Apparently, Silicon Valley investors and startups are too big to lose money when they take risks. They benefited enormously from the Fed’s pandemic liquidity hose, which caused SVB’s deposits to double between 2020 and 2021. SVB paid interest of up to 5.28% on large deposits, which it used to fund loans to startups.
But now the FDIC is guaranteeing a risk-free return for startups and their investors.
Uninsured deposits normally take a 10% to 15% hair cut during a bank failure. Some 85% to 90% of SVB’s $173 billion in deposits are uninsured. The cost of this guarantee could be $15 billion.
The White House says special assessments will be levied on banks to recoup these losses.
That means bank customers with less than $250,000 in deposits will indirectly pay for this through higher bank fees. In other words, this is an income transfer from average Americans to deep-pocketed investors.
Remdesivir is a drug, not a vaccine, so its manufacturer, Gilead, can be sued. Some of the medical personnel who administered the drug reportedly nicknamed it “run, death is near.” From Dr. Joseph Mercola at childrenshealthdefense.org:
Story at a glance:
The antiviral drug remdesivir, brand name Veklury, is approved for use against COVID-19 despite research showing it lacks effectiveness and can cause high rates of organ failure.
John Beaudoin is calling for a criminal investigation into remdesivir, citing data that it may have killed 100,000 people in the U.S.
Beaudoin received all the death certificates in Massachusetts from 2015 to 2022, finding 1,840 excess deaths from acute renal failure from Jan. 1, 2021, to Nov. 30, 2022, which he believes may be due to remdesivir.
A study published in The Lancet found “no clinical benefit” from the use of remdesivir in hospitalized patients.
The U.S. government pays hospitals a 20% upcharge on the entire hospital bill when remdesivir is used.
The U.S. Food and Drug Administration (FDA) authorized the experimental antiviral drug remdesivir, brand name Veklury, for emergency use against COVID-19 in May 2020.
By October 2020, it had received full approval. It remains a primary treatment for COVID-19 in hospitals, despite research showing it lacks effectiveness and can cause high rates of organ failure.
Inject enough liquidity into the financial system and you get inflation, which means rising interest rates, which means lower financial asset values. Eventually something’s got to give. From Michael Hudson at unz.com:
The collapses of Silvergate and Silicon Valley Bank are like icebergs calving off from the Antarctic glacier. The financial analogy to the global warming causing this collapse of supporting shelving is the rising temperature of interest rates, which spiked last Thursday and Friday to close at 4.60 percent for the U.S. Treasury’s two-year bonds. Bank depositors meanwhile were still being paid only 0.2 percent on their deposits. That has led to a steady withdrawal of funds from banks – and a corresponding decline in commercial bank balances with the Federal Reserve.
Most media reports reflect a prayer that the bank runs will be localized, as if there is no context or environmental cause. There is general embarrassment to explain how the breakup of banks that is now gaining momentum is the result of the way that the Obama Administration bailed out the banks in 2008 with fifteen years of Quantitative Easing to re-inflate prices for packaged bank mortgages – and with them, housing prices, along with stock and bond prices.
The Fed’s $9 trillion of QE (not counted as part of the budget deficit) fueled an asset-price inflation that made trillions of dollars for holders of financial assets – the One Percent with a generous spillover effect for the remaining members of the top Ten Percent. The cost of home ownership soared by capitalizing mortgages at falling interest rates into more highly debt-leveraged property. The U.S. economy experienced the largest bond-market boom in history as interest rates fell below 1 percent. The economy polarized between the creditor positive-net-worth class and the rest of the economy – whose analogy to environmental pollution and global warming was debt pollution.
But in serving the banks and the financial ownership class, the Fed painted itself into a corner: What would happen if and when interest rates finally rose?
Financial crises stem from too much debt and too much financial interconnection. From Simon Black at sovereignman.com:
On Sunday afternoon, September 14, 2008, hundreds of employees of the financial giant Lehman Brothers walked into the bank’s headquarters at 745 Seventh Avenue in New York City to clear out their offices and desks.
Lehman was hours away from declaring bankruptcy. And its collapse the next day triggered the worst economic and financial devastation since the Great Depression.
The S&P 500 fell by roughly 50%. Unemployment soared. And more than 100 other banks failed over the subsequent 12 months. It was a total disaster.
These bank, it turned out, had been using their depositors’ money to buy up special mortgage bonds. But these bonds were so risky that they eventually became known as “toxic securities” or “toxic assets”.
These toxic assets were bundles of risky, no-money-down mortgages given to sub-prime “NINJAs”, i.e. borrowers with No Income, No Job, no Assets who had a history of NOT paying their bills.
When the economy was doing well in 2006 and 2007, banks earned record profits from their toxic assets.
But when economic conditions started to worsen in 2008, those toxic assets plunged in value… and dozens of banks got wiped out.
Now here we go again.
Fifteen years later… after countless investigations, hearings, “stress test” rules, and new banking regulations to prevent another financial meltdown, we have just witnessed two large banks collapse in the United States of America– Signature Bank, and Silicon Valley Bank (SVB).
