Tag Archives: Federal Reserve

The Fed Backtracks on Future Rate Hikes as Bank Failures Loom Large, by Ryan McMaken

Posted on March 24, 2023 | Leave a comment

The Fed can continue tightening or it can protect banks, but it can’t do both. From Ryan McMaken at mises.org:

The Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday raised the target policy interest rate (the federal funds rate) to 5.00 percent, an increase of 25 basis points. With this latest increase, the target has increased 4.75 percent since February 2022.

However, with an increase of only 25 basis points, the March meeting is the second month in a row during which the Fed has pulled back from its more substantial rate hikes of 2022. After four 75-basis-point increases in 2022, the committee approved a 50-point increase in December, followed by a 25-point increase in February, and another on Wednesday. 

ffr

Although CPI inflation remains at or above six percent, the FOMC has slowed down in its monetary tightening over the past two months. At Wednesday’s press conference, Fed chairman Jerome Powell moved further into dovish territory.

We should expect more of this as the year wears on. Although CPI inflation remains well above the Fed’s two-percent target, recent bank failures will put the Fed under pressure to force interest rates back down so as to give banks better access to cheap liquidity. In other words, the Fed will have to choose between helping bankers on the one hand and reducing inflation—both monetary and CPI—for regular people on the other. Experience suggests the Fed will side with bankers and will thus move back in the direction of easy money even as price inflation continues to drive up the cost of living. 

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FDIC Insurance, Credit Suisse and the Day the Fed Killed Europe, by Tom Luongo

Posted on March 24, 2023 | Leave a comment

A contrary prediction from Tom Luongo: the Fed will keep raising rates. From Luongo at tomluongo.me:

So, Credit Suisse is no more. Good riddance? I think this is an open question given the very complicated landscape of the global banking system today. By the time I’m done here I think you’ll have an answer that no one, including me, was expecting.

There’s a lot to cover, so let’s start at the beginning.

In the wake of the “three-fer” take out of Silvergate, Silicon Valley and Signature banks by the ‘market’ I think we have a pretty clear picture of what’s really going on.

This wasn’t a ‘market’ operation. It was a Fed/NY Boys operation and a very successful one.

The Fed (and only the Fed through its proxies) had the motive, means and opportunity to perform the hit job. I wrote a big post for my patrons on March 11th (now made public) going over this.

These Three S’s were all operating as offshore Shadow banks. As Phil Gibson pointed out on his most recent Substack article:

SVB ultimately runs its funding the way Startup funding does:  

  • A person with $1b comes in and puts $1b into SVB. They go out to a startup and sign a term sheet. This sheet says that the startup will deposit its money in SVB.
  • Then SVB goes out and loans that $1b out to another VC. Who ‘invests’ it in another startup, who’s term sheet says they will keep their deposits in SVB.
  • So now SVB has take $1b dollars and made it $2b dollars. Without any fed regulation or intervention.

To which I would add the deposits coming back in were then invested in long-dated US Treasuries and marked as ‘hold to maturity.’ This meant they couldn’t be sold. This was a good deal as long as the short-end of the yield curve stayed at the zero-bound, or at least below that of the long-end.

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Heaven and Hell, by Bill Bonner

Posted on March 15, 2023 | Leave a comment

Bill Bonner’s grandson got the right grandpa. From Bill Bonner at bonnerprivateresearch.com:

From banking crises to our chapel on the ranch, a look at solid foundations

(Source: Getty Images)

Bill Bonner, reckoning today from San Martin, Argentina…

As predicted…when the fight gets tough, the Fed takes a dive.  

That is what we are watching now…in slow motion.

After the crisis of ’08, the feds insisted that the banks hold more reserves. They were told to buy safe, government debt – T-bonds. The Treasuries were supposed to be financial ballast, designed to keep them safe in a market squall.  

Oh, if only Mother Nature, in all her guises and disguises, would cooperate!  

A storm blew up last week. Now loaded up with Treasury debt, banks are much more solid – on paper – than they were in 2008. But what happened? The ballast sank. And two banks sank with it.

Foxes in the Henhouse

The California bank, Silicon Valley Bank, has a CEO, Greg Becker, who was also a director of the San Francisco Fed. The New York bank, Signature, has none other than Barney Frank, who, along with Elizabeth Warren, actually wrote key parts of the 2010 bank regulations.

But neither regulators nor regulations saved them. As interest rates rose, fixed-return assets, notably bonds, were not as valuable as they had been before. Two years ago, you could get only a 1.5% yield from your 10-year Treasury. Today, the yield is 3.7%. The income stream from the old bond is now worth only half as much as it was. Which means, the value of the banks’ reserves – their balance sheets – fell. As this continues, more banks can be expected to get into trouble. And the Fed will have to bail them out. Or give up its interest rate hikes altogether.

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Silicon Valley Bank Crisis: The Liquidity Crunch We Predicted Has Now Begun, by Brandon Smith

Posted on March 14, 2023 | Leave a comment

Liquidity crises have a way of soon turning into solvency crises. From Brandon Smith at alt-market.com:

By Brandon Smith

There has been an avalanche of information and numerous theories circulating the past few days about the fate of a bank in California know as SVB (Silicon Valley Bank). SVB was the 16th largest bank in the US until it abruptly failed and went into insolvency on March 10th. The impetus for the collapse of the bank is tied to a $2 billion liquidity loss on bond sales which caused the institution’s stock value to plummet over 60%, triggering a bank run by customers fearful of losing some or most of their deposits.

There are many fine articles out there covering the details of the SVB situation, but what I want to talk about more is the root of it all. The bank’s shortfalls are not really the cause of the crisis, they are a symptom of a wider liquidity drought that I predicted here at Alt-Market months ago, including the timing of the event.

First, though, let’s discuss the core issue, which is fiscal tightening and the Federal Reserve. In my article ‘The Fed’s Catch-22 Taper Is A Weapon, Not A Policy Error’, published in December of 2021, I noted that the Fed was on a clear path towards tightening into economic weakness, very similar to what they did in the early 1980s during the stagflation era and also somewhat similar to what they did at the onset of the Great Depression. Former Fed Chairman Ben Bernanke even openly admitted that the Fed caused the depression to spiral out of control due to their tightening policies.

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The War for the Dollar is Already Over Part I, by Tom Luongo

Posted on March 6, 2023 | Leave a comment

In it’s own weird way, is the Federal Reserve and Jerome Powell fighting the globalists? Tom Luongo thinks so. From Luongo at tomluongo.me:

And the Fed has won. In the words of Ambassador Kosh from the classic television series Babylon 5, “The avalanche has started. It is too late for the pebbles to vote.”

For nearly the past two years I’ve been a nearly lone voice in the wilderness questioning the financial orthodoxy over the behavior of the Federal Reserve. It started with an innocent, if not openly naïve question back in June of 2021, “Could the Fed actually be getting off the globalist train?”

When I asked that question it was just days after musing to my Patrons on the eve of the June 16th, 2021 FOMC meeting that the Fed would have to step in and defend the US dollar. The dollar’s weakness during the Trump presidency couldn’t last forever. Even then I didn’t have a good answer as to how they would do it.

I just knew, intuitively, that they had to.

Back then there was no indication that the Fed was ready to begin raising rates. But by raising the Reverse Repo payout rate 0.05% above the Fed Funds Rate the Fed started the avalanche of US dollar strength that has persisted through to today.

And the pebbles screaming, “Pivot!” have been consistently overrun by the reversal of flow of US dollars from overseas back home, now getting extinguished at an unprecedented rate.

It was that extreme response by the market to the RRP rate that led to my asking that question. Nothing more, nothing less.

The implications of that question were far reaching. It led to a whole series of questions as to the knock-on effects. I wrote about some of these in the days after the Geneva summit where President “Biden” and Vladimir Putin hashed out a ceasefire over Ukraine. In that article I didn’t get everything right, but the main point, that the Fed was no longer willing to go along with the destruction of the private formation of capital, has more than held true.

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Fine Financial Institutions for Political Discrimination, by Dr. Joseph Sansone

Posted on January 18, 2023 | Leave a comment

The major financial institutions are not private in any sense, they are creatures of government. As such, they must be subject to the same restrictions on political discrimination that the government is. From Dr. Joseph Sansone at josephsansone.substack.com:

First published in 1994, a perennial best seller, The Creature From Jekyll Island has changed the course of history. At first, only relevant among a small cadre on the political right in the 1990s and early 2000s, the ideas and information of this book have rippled out to the mainstream. This is largely due to Ron Paul’s 2008 and 2012 presidential campaigns. In these campaigns Dr. Paul broke a political taboo and spoke about monetary policy and the fraudulent system of The Federal Reserve. Most people never heard of the inflation tax before Paul’s presidential campaigns. (Note: Paul advocated for sound money since the early 70s)

This resulted in a gradual political censorship of Dr. Paul’s campaign and although he had a tremendous impact on thought in the Republican Party, his campaign was marginalized and cancelled to a great degree. This was done by an orchestrated media censorship, deliberate marginalization in allotted time in debates, and eventually exclusion from debates, and shadow banning on search engines. These tactics were used to cancel Patrick Buchanan’s 2000 presidential campaign to an even greater degree, because he left the GOP and ran as the Reform Party candidate. The cancellation was so bad that by the time the election came about most people didn’t know he was still in the campaign.

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Why the Fed Is Bankrupt and Why That Means More Inflation, by Ryan McMaken

Posted on January 18, 2023 | Leave a comment

How can an institution that manufacturers money go bankrupt? From Ryan McMaken at mises.org:

In 2011, the Federal Reserve invented new accounting methods for itself so that it could never legally go bankrupt. As explained by Robert Murphy, the Federal Reserve redefined its losses so as to ensure its balance sheet never shows insolvency. As Bank of America’s Priya Misra put it at the time:

As a result, any future losses the Fed may incur will now show up as a negative liability (negative interest due to Treasury) as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible.

That was twelve years ago, and it was all academic at the time. But in 2023, the Fed really is insolvent, although its fake post-2011 account doesn’t show this. Nevertheless, the reality is that the Fed’s assets are losing value at the same time that the Fed is paying out more in interest than it is making in interest income.

This became clear last week, when the Fed released a new report showing that its interest payments on bank reserves skyrocketed in 2022. The press release states:

Total interest expense of $102.4 billion increased $96.6 billion from 2021 total interest expense of $5.7 billion; of the increase in interest expense, $55.1 billion pertained to interest expense on Reserve Balances held by depository institutions and $41.5 billion related to interest on securities sold under agreements to repurchase.

As this graphic from the Fed shows, the cost of operations also exceeded earnings in 2022 because remittances have fallen from 2021:

remittances

For the year overall, the Fed still managed to achieve a positive net income, thanks to positive inflows in the first half of the year. But since September, as Reuters notes, the Fed began recording what’s called a deferred asset, which tallies up the Fed’s loss; the deferred asset stood at $18.8 billion at the end of the year.

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The Fed Is a Purely Political Institution, and It’s Definitely Not a Bank. By Ryan McMaken

Posted on January 17, 2023 | Leave a comment

The Fed is political and is not a bank. It is also the banking cartel’s agent and protector in Washington. From Ryan McMaken at mises.org:

Those who know Wall Street lore sometimes recall that Fed chairman William Miller—Paul Volcker’s immediate predecessor—joked that most Americans believed the Federal Reserve was either an Indian reservation, a wildlife preserve, or a brand of whiskey. The Fed, of course, is none of those things, but there’s also one other thing the Federal Reserve is not: an actual bank. It is simply a government agency that does bank-like things.

It’s easy to see why many people might think it is a bank. “Bank” is right there in the name of the twelve regional banks that make up the system: for example, the Federal Reserve Bank of Kansas City. The Fed also enjoys many titles that make it sound like a bank. It’s sometimes called the “lender of last resort.” Or it is sometimes called “a banker’s bank.” Moreover, many people often call the Fed “the central bank.” That phrase is useful enough, but not quite true.

Moreover, even critics of the bank often repeat the myth that the Federal Reserve is “a private bank,” as if that were the main problem with the Federal Reserve. And then there are the economists who like to spread fairy tales about how the Fed is “independent” from the political system and makes decisions based primarily on economic theory as interpreted by wise economists.

The de facto reality of the Federal Reserve is that it is a government agency, run by government technocrats, that enjoys the benefits of being subject to very little oversight from Congress. It is no more “private” than the Environmental Protection Agency, and it is no more a “bank” than the US Department of the Treasury.

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U.S. Double-Speak Will Not Stop Gold’s Imminent Surge, by Egon von Greyerz

Posted on December 19, 2022 | 1 comment

You can’t fool all the markets all of the time. From Egon von Greyerz at goldswitzerland.com:

Propaganda, lies and censorship are all part of desperate governments actions as the economy disintegrates.

We are today seeing both news and history being rewritten to suit the woke trends that permeate society at every level, be it covid, the number of genders, the Ukraine war or government finances.

I have in many articles covered the explosion of money printing and debt which is an obvious sign that the global financial system is approaching collapse and default . The consequences will be  far reaching to every corner of the globe and all parts of society.

See my recent article “In The End The Dollar Goes To  Zero And The US Defaults” which outlines the probable course of events in 2023 and afterwards.

Later on in this article, I will look at the consequences in relation to markets and what ordinary people (investors?) can do to prepare themselves.

ORWELL PREDICTED THE FALSIFICATION OF HISTORY 73 YEARS AGO

“Every record has been destroyed or falsified, every book rewritten, every picture has been repainted, every statue and street building has been renamed, every date has been altered. And the process is continuing day by day and minute by minute. History has stopped. Nothing exists except an endless present in which the Party is always right.”― George Orwell, 1984

Let’s just look at government finances. As we are entering the end of an era with deficits and debts running out of control, the truth becomes an inconvenience to governments and must therefore be suppressed or rewritten.

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Posted in Banking, Business, Collapse, Currencies, Debt, Economics, Economy, Financial markets, Governments, Horseshit, Politics, Propaganda

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Digital Currency: The Fed Moves toward Monetary Totalitarianism, by André Marques

Posted on December 11, 2022 | Leave a comment

Like the Covid response, digital currencies have nothing to do with their ostensibly cited justifications and everything to do with power and totalitarian control. From André Marques at mises.org:

The Federal Reserve is sowing the seeds for its central bank digital currency (CBDC). It may seem that the purpose of a CBDC is to facilitate transactions and enhance economic activity, but CBDCs are mainly about more government control over individuals. If a CBDC were implemented, the central bank would have access to all transactions in addition to being capable of freezing accounts.

It may seem dystopian—something that only totalitarian governments would do—but there have been recent cases of asset freezing in Canada and Brazil. Moreover, a CBDC would give the government the power to determine how much a person can spend, establish expiration dates for deposits, and even penalize people who saved money.

The war on cash is also a reason why governments want to implement CBDCs. The end of cash would mean less privacy for individuals and would allow central banks to maintain a monetary policy of negative interest rates with greater ease (since individuals would be unable to withdraw money commercial banks to avoid losses).

Once the CBDC arrives, instead of a deposit being a commercial bank’s liability, a deposit would be the central bank’s liability.

In 2020, China launched a digital yuan pilot program. As mentioned by Seeking Alpha, China wants to implement a CBDC because “this would give [the government] a remarkable amount of information about what consumers are spending their money on.”

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