Zaphod Beeblebrox schreef op 14 maart 2023 09:16:
4) The unraveling can happen in an instant.
A week ago, everything was still fine. Then, within a matter of days, SVB’s stock price plunged, depositors pulled their money, and the bank failed. Poof.
The same thing happened with Lehman Brothers in 2008. In fact over the past few years we’ve been subjected to example after example of our entire world changing in an instant.
We all remember that March 2020 was still fairly normal, at least in North America. Within a matter of days people were locked in their homes and life as we knew it had fundamentally changed.
5) This is going to keep happening.
Long-time readers won’t be surprised about this; I’ve been writing about these topics for years-- bank failures, looming instability in the financial system, etc.
Late last year I recorded a podcast explaining how the Fed was engineering a financial meltdown by raising interest rates so quickly, and they would have to choose between a rock and a hard place, i.e. higher inflation versus financial catastrophe.
This is the financial catastrophe, but it’s just getting started. Like Lehman Brothers in 2008, SVB is just the tip of the iceberg. There will be other casualties-- not just in banks, but money market funds, insurance companies, and even businesses.
Foreign banks and institutions are also suffering losses on their US government bonds… and that has negative implications on the US dollar’s reserve status.
Think about it: it’s bad enough that the US national debt is outrageously high, that the federal government appears to be a bunch of fools incapable of solving any problem, and that inflation is terrible.
Now on top of everything else, foreigners who bought US government bonds are suffering tough losses as well.
Why would anyone want to continue with this insanity? Foreigners have already lost so much confidence in the US and the dollar… and financial losses from their bond holdings could accelerate that trend.
This issue is particularly of mind now that China is flexing its international muscle, most recently in the Middle East making peace between Iran and Saudi Arabia. And the Chinese are starting to actively market their currency as an alternative to the dollar.
But no one in charge seems to understand any of this.
The guy who shakes hands with thin air insisted this morning that the banking system is safe. Nothing to see here, people.
The Federal Reserve-- which is the ringleader of this sad circus-- doesn’t seem to understand anything either.
In fact Fed leadership spent all of last week insisting that they were going to keep raising interest rates.
Even after last week’s banking crisis, the Fed probably still hasn’t figured it out. They appear totally out of touch with what’s really happening in the economy. And when they meet again next week, it’s possible they’ll raise rates even higher (and trigger even more unrealized losses).
So this drama is far from over.
To your freedom,
Simon Black, Founder
Sovereign Research & Advisory