The fact that they publish this in the first place, is worrying, to say the least.
It's also quite true - the banking crisis won't be a repeat of 2008.
But, unlike 2008 which was fairly limited to (arguably huge) banking and residential mortgage sectors, this crisis will hit hard everywhere - valuations are still insane, the % of zombie companies is off the charts, inflation is everywhere, FED and governments have much less room to manoeuvre (contrary to what the article claims).
In the past 3 weeks, 3 fairly big US banks were seized by regulators, and a 166 year old Suisse bank was rescued.
My personal indicator for when the shit is really hitting the fan, is when Warren Buffett starts buying stuff.
Global oil prices have been steadily declining for months, electricity is much cheaper again in Europe and many supply chain bottlenecks have been resolved. This will put a strong break on inflation going forward
This isn't a banking crisis. This is an economic attack and the intent seems to be so the banking sector can consolidate further. Its being done with the tacit approval of the fed.
Every action taken in the last 50 years has been to slowly but surely move the banking sector to consolidate banking in the smallest number of hands to consolidate power.
2008 provided the perfect excuse for them to pass legislation that prevented new banks from being chartered. If you look at the requirements, the only way you can charter a bank is to accept personal liability for all outcomes of your board decisions and you are prohibited from receiving any compensation for it. If you can't find people for your board, you can't charter a bank, and you can't pay them for their time or risk. The only reasonable people that would charter banks are the people that lie, if they have no credibility why would you ever give them your money.
Worse, the stock market has a mechanic that allows any exposed company to be at the mercy of faceless entities even if they are in perfect financial health and follow good practices. Synthetic shares.
FRC was a most recent example of this. They had conveniently timed media packages and youtube videos posted in feeds that were edited showing bank runs on a Sunday, and the reflected window text was the wrong direction.
Worse, inflation is out of control, and the data and measures for it have been corrupted to show significantly lower percentages, and there are collusive options and shorted shares are being used to induce volatility halts when the price might exceed a resistance level, its very algorithmic.
The SEC is toothless, the currency will hyper-inflate, and we will be the next Argentina. Its what the Fed wants.
OK, I undestand what you read, but would like some more clarity.
Why is the Fed trying to move the banking sectors to consolidate banking for the last 50 years?
The President of the United States nominates the members of the board of directors. The US Senate confirms those choices.
No two governors may come from the same Fed District. They are 14 year terms and staggered. No board member can be re-appointed.
You would have to have the entire US presidents from Nixon to Biden in on it. All 100 Senators (or the majority) would have to be in on it. Every Fed governor would have to be in on it. All the people around those decisions - POTUS staff, Senators' staff, everyone working at the Fed - all working in unison and no one talking for 50 years - no books written that they want to put all small banks out of the way. It's easy to say "The Fed" but the current members are Jerome Powell, Michael Barr, Michelle Bowman, Lisa Cook, Philip Jefferson, and Christopher Waller. What can you tell me about each of them? Why would they be in lockstep? Have they all been told that they would be assassinated by the CIA if they didn't follow orders from some shadowy group? Who exactly is this shadowy group that will assassinate them. Please name names instead of saying "shadowy group." I only use this term because I don't know what their names are and if they have an actual group name.
And most importantly, who and why would someone want to have us be the next Argentina? Why does - not the fed - but Jerome Powell, Michael Barr, Michelle Bowman, Lisa Cook, Philip Jefferson, and Christopher Waller want to destroy the USA? Why does every single president and every single Senator every single Fed Member, and all of their staffs, for the last 50 years, want to destroy the USA? I'd love to know this. If you could list every single member of Senate and all the Fed Board members, by name (Senators and Fed board members and their staffs), and tell me why each and every single one of them want the destruction the USA, I'd love to hear it. I also assume since the USA is destroyed, it would also take out Western Europe and most countries around the world - like, almost all of them.
I am curious, but with all the national debt in western economies, will higher inflation help service that debt going forwards? I mean, prices rarely ever come back down... Combined with higher tax incomes, seems like a kinda win-win for the governments? Or is this a follow on from recent currency wars, if that is appropriate phrasing? I dont know much about world finance, at least not enough to have sold CS in time. I never imagined such a long standing institution, in such a conservative country could have fallen. That will teach me to avoid the news! (apart from this site of course!)
> I am curious, with all the national debt, will higher inflation help service that debt going forwards?
The simple answer is no it wont. The liabilities that matter the most have COLA so when inflation goes up so do payments.
The only thing it actually does is make worthless any existing bonds so anyone holding them is out the money with special corrupt deals for critical infrastructure that might have exposure (i.e. blackrock having 1% bonds being swapped for current interest rate bonds). That would primarily be China, and the Saudis. I'd imagine that is what prompted segmenting the bond market with TIPS vs non-TIPS bonds.
The burden of inflation is placed on the populace, and when people are unable to afford basic necessities, and have to work as slaves (because currency is no longer a store of value and the crown of shadow government in effect seized property), unrest inevitably occurs.
The Fed is a private institution, not an actual branch of government, but they are seizing money from every wage-earner through inflation, and government does the same since percentages increase the basis amount taxed.
Its unfortunate but all the historic factors are slowly lining up with many of the same conditions previously seen between 1767-1776.
Don't get me wrong, this is beyond stupid, but I've come to realize the people in the positions that could stop this simply have no interest in doing so. Its more profitable for them to allow this to progress because "what are you going to do about it".
10% inflation on government bonds that were trending at near-zero interest rates is definitely half a win. Even very long duration bonds had very low rates. It does require salaries and therefore the tax base to keep up with inflation.
> Or is this a follow on from recent currency wars
What currency wars? The "gas wars" are far more significant.
> with all the national debt in western economies, will higher inflation help service that debt going forwards?
To the extent that the debt is denominated in the national currency (for example, US debt is denominated in dollars), yes. Historically this has been the main way that the US has dealt with its debt--by inflating the currency to decrease the actual real value of past debts.
> unlike 2008 which was fairly limited to (arguably huge) banking...this crisis will hit hard everywhere
I think it's clear that it won't hit "everywhere" specifically because... it will not hit huge banking. After 2008 every huge bank was required to hold much more massive amounts of cash on hand specifically to fend off bank runs. And that's working.
But I very much agree with you -- and with Chase bank -- that this will not in any way be a repeat of 2008.
I wish people would simply call things by the commonly known words that describe them. QE is money printing, and the trap of money printing is that eventually you run into issues where you inevitably have either a deflation spiral, or a hyper-inflation spiral once the store of value is no longer accepted for trade.
Most of the value from the pandemic pump has already been dumped. Some valuations are already too low.
In terms of companies, term sheets have already been halved in many cases or withdrawn. As always the scrappy and research and development focused companies will win.
The slowdown will probably keep going for a while due to the bigger reason, geopolitical market and trade changes. The funding inflows and outflows have changed dramatically and companies that relied on sometimes foreign authoritarian money will be hurting the most, that was the risk and it is present. Though this is also increasing investment in markets and manufacturing in the West. Long term growth will be immense. The market is almost falsely being held down at this moment due to these influence/attack/change vectors.
In the same way that you should take a software engineer's take on why a a SQL query is slow. They're probably the most knowledgeable person in the room but that doesn't always mean that they're right.
"A software engineer's take on why an SQL query is slow." isn't the correct analogy, IMO. First, this isn't a banker, it's a bank. A banking crisis isn't the equivalent of a script either.
Should you trust meta about monopolism in the social media space, data ownership, child safety, the effects of new media on professional journalism, etc. etc. Big political questions intertwined with his companies' interests.
In any case, both in the hypothetical fb case and the real chase case: (1) you should listen, because they're in a position to have knowledge and insight. (2) You should also be extremely skeptical, and assume that they are making statements in pursuit of their interests.
That said, the content of this particular article is quite worth listening to. It's not really about the what. It's about the why.
I wonder how many HN conversations would be cut short if we simply accepted that analogies are imperfect yet useful. They provide a very limited amount of insight into any topic—so yes, let’s use them, and let’s stop arguing about whether an analogy is the “right analogy”. A analogy will have some element of truth that transfers from one situation to another, and in a good analogy, it will be easy for readers to discover that element of truth.
You’ll find ways in which the analogy is “wrong”, but that’s just noise.
Analogies are like children. If its your own they're a brilliant, cute, funny, unique individual. If they're other people's they're loud, annoying, stinky little pests and oh god they're swarming you.
IDK... I do see you point, but I'd like to think both I and the commenter I responded to were using analogies in an ok way.
Analogies are a pretty good rhetorical device, IMO because we kind of think in abstract analogies anyway. We could have both made our points without analogy, but I don't think much content is lost.
His point is that Bankers are the professionals. This is true. I "complicated" the analogy/comment to highlight the tension between "bankers are knowledgeable professionals" and "bankers are an interested party."
In any case, I feel that analogies are ok. The problem with my comment might have been an overly combative or nitpicky tone, especially given that we probably agree of most of it.
It's more like a manager's take on whether they need more headcount or an engineer's opinion on how long a project is going to take. They are the most informed person in the room - however, they also have an incentive to present a certain story.
Most software engineers are absolutely garbage at SQL though. Their expertise often ends at CRUD queries, if they can even achieve that without their precious ORMs.
One big issue is ignoring causality and hindsight. E.g. author contrasts “low quality” assets of 15 yrs ago with today’s “high quality” assets, ignoring the fact that asset quality was apparent only in hindsight.
Well, their selective take is like a description of a mass shooting that only describes where the bodies ended up, but no discussion of who caused it, or even that bullets might have been involved, let alone which people actually did it:
"Households had too much leverage in 2008 : Mortgage debt % potential GDP..." "The Global Financial Crisis was driven by price declines in low-quality assets with poor disclosure leading to a solvency crisis."
Drink one finger very time you find a bank mentioning the Glass-Steagall Act, and ten bottles every time you find them admitting they lobbied Congress hard to repeal it. [0]
"Why didn’t any Wall Street CEOs (or executives) go to jail after the financial crisis?" (also a list of criminal and civil charges, and which banks got fined) [1]
...and here's some shameless revisionism by Cato [2] ("It wasn't the banks [being allowed to issue the CDOs], it was the securities salesmen who spontaneously invented and sold CDOs"). I must remember that compelling excuse if I ever get busted running a casino in my own living-room.
> "In any case, the 2008 financial crisis had precious little to do with Glass‐Steagall, one way or the other. It was caused primarily by bad lending policies, which in turn led to the growth of the subprime market to an extent that neither the lawmakers nor regulatory authorities recognized at the time. The commercial banks and parent holding companies that failed — or had to be sold to other viable financial institutions — did so because underwriting standards were abandoned."
And zero acknowledgment that Credit Default Swaps were pioneered by Blythe Masters AT JP Morgan and used relentlessly to move risk off of balance sheets in a house of cards that led to millions losing their homes and life savings.
"In bypassing barriers between different classes, maturities, rating categories, debt seniority levels and so on, credit derivatives are creating enormous opportunities to exploit and profit from associated discontinuities in the pricing of credit risk."
Glass-Steagall’s repeal wasn’t proximate to any post-repeal banking crises. (Glass-Steagall wouldn’t have prevented mortgage CDOs.) It certainly wouldn’t have done anything for SVB or Signature.
That's debatable. Glass-Steagall wouldn't have prevented CDOs, but Glass-Steagall's repeal paved way for previously illegal mergers and acquisitions between commercial banks and investment banks. Had these mergers not had been allowed, it is debatable banks would have been "too big to fail", and the entire system wouldn't have been so susceptible to collapse.
> it is debatable banks would have been "too big to fail"
Pre-GLB’s LTCM is a potent counterfactual to this claim. Truth is, the topology of our banking system changed with computerisation. This enables tremendous opportunity. But it introduced novel fragility.
Not really. It's debatable the Fed's intervention was even necessary and the concerns they had about the effects of LTCM’s failure on global financial markets were mislead and greatly exaggerated. Buffet's offer alone could of settled the situation, and demonstrates that the Fed likely didn't need to intervene at all. Ergo, the global market relative to LTCM was probably big enough to absorb the financial shock.
The problem is akin to a boat. If you breach the hull which is one big container, the entire ship will surely sink. If you breach the hull of a ship which has many interior separate containers, only one container fills with water, and the ship continues afloat. The bigger banks and firms get relative to the market, the more susceptible the system is to a complete collapse, as they essentially become the market. There is simply no denying that Glass-Steagall prevented mergers of commercial and investment banks, and no denying that removing it made the system less robust in this very aspect. It's the same reason diversification reduces risk.
Does that mean that the system can't fail when there are no big players? No, absolutely not. But to say Glass-Steagall wasn't proximate to the 2008 crisis is highly dubious.
> debatable the Fed's intervention was even necessary and the concerns they had about the effects of LTCM’s failure on global financial markets were mislead and greatly exaggerated
As much as the Fed's involvement in 2008. If your claim is GS-GLB financial history was sanguine, I've got a bridge to sell you.
Pointedly: if you want to tank a financial regulation bill, bring up Glass-Steagall.
Glass-Stegall would have prevented JP Morgan Chase Washington Mutual etc from participating in collateralized debt swaps, or from taking depositors money to do so.
Re Glass-Steagall and 2008 crisis, Robert Reich and Elizabeth Warren disagree with you [https://robertreich.org/post/124114229225]. According to you, which legislation prevented the conflict-of-interest in banks writing trillions in subprime mortgages decades prior to 1999? or securities firms selling CDOs backed by subprime MBS? IIUC, the issue in 2008 was never "preventing mortgage CDOs" outright, but preventing the inflated valuations on junk tranches of subprime, i.e. mortgage lenders allowing securities sellers to intentionally create and sell junk with their assets.
(and I clearly didn't say Glass-Steagall would have done anything for SVB or Signature; I was saying banks like Chase's selective edit of the chain of events around 2008 was a whitewash because it omitted mention of key events.)
They argue that "nonbanks got their funding from the big banks in the form of lines of credit, mortgages, and repurchase agreements" and if "big banks hadn’t provided them the money, the nonbanks wouldn’t have got into trouble." But nonbank funding channels were already alive, well, and causing chaos in the 1990s (LTCM) and before (S&Ls). Sure, banks juiced the problem. But it didn't start the fire, it didn't bring the fire home and it didn't meaningfully alter the fire's trajectory. And there is no evidence that their large depositors would have sat there if nonbanks offered competitive rates fueled by their nonsense.
As we've seen this cycle, banks and nonbanks will chase yield when rates are low and credit is cheap. To argue that e.g. SoftBank wouldn't have SoftBanked if JPMorgan and JPMorgan Securities were separate misses the forest for the trees.
> securities firms selling CDOs backed by subprime MBS
Bank originates mortgage. Bank sells mortgage to securities firm. Securities firm issues as CDO. Nothing about this requires the lending arm and securities arm be under the same roof. Mortgage CDOs became a thing because of computers, not Glass-Steagall.
Proponents of reinstating Glass-Steagall are broadly well intentioned. But there are real financial regulations that have real impact that this discussion crowds out.
Robert Reich and Elizabeth Warren have massive partisan and ideological axes to grind, and their careers basically rely on convincing people that it's all the fault of big businesses convincing the government to lift regulations and that they could fix all of this if voters only gave them and their side the power.
What specifically is the most incorrect claim/belief Reich and Warren have? And why is it that banks don't fail in Canada?
"it's all the fault of [hyperbole] big businesses convincing the government to lift regulations". Well who else was lobbying govt to roll back banking regulations, in the 1990s?
Which lobbyists paid former Sen. Phil Gramm? Gramm's wife Wendy as CFTC chairwoman till 1993 issued regulations that legalized the type of electricity trading that helped Enron make millions in illegal profits. In 1993 joined Enron and ended up on its audit committee, where she approved all the shenanigans. She made $ out of Enron, while her husband was passing legislation to help it, and Enron lobbyists contributing to his campaign.
Phil Gramm ended up on the board of UBS, and a McCain adviser on the economy. Insanity.
"...if voters only gave them and their side the power." Start by ending the revolving door. That's not "giving their side the power".
Once you acknowledge their bias, they do know an awful lot about banking
Sure, but I really don't. And a lot of other folks are the same. I know they are both biased and have financial incentives to lie or mislead me. As much as I might try, I know I might not be able to parse out the bullshit from the facts. Those facts are gonna stink of the bullshit even if I can verify it.
At least with something like a plumber, I can get a second opinion and so on, and I might just be able to take care of the issue myself instead. This just isn't the case with a bank.
History never repeats itself, but it does often rhyme.
We cannot have a decade of 0% interest rates and expect no consequences. Peter Schiff predicted this from the moment the fed bailouted the banks in 2008.
There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade.
PS: My personal CPI (rent + food) is 23% so I'm already experiencing this. I would advise everyone to calculate their personal CPI because that's what affects your standard of living...The government numbers are rigged and everyone's reality differs...
If we go by another Peter, Peter Lynch in this case he would say no one can predict inflation or interest rates long term. Secondly his words is there is always something to worry about when investing - like when oil went to 40 and there would be a depression or when Japan was going to take over the world leading to Americas downfall - or when Japan was crashing and going to cause a depression. Or when oil went from 40 to 10 and would cause a depression. Or when in 82 the prime rate went to 20 and there was stagflation that no one predicted in 80 or 81. Now Schiff may be right and we are heading for this finally after years of slow growth from 2010-2018 when inflation was lower than the feds target of 2% something no one would have predicted in 2008. Schiff may be right after predicting multiple large depressions to finally get one right.
Over the years as my perspective has become more global I've come to realize what a privileged position the US is in, economically:
* Ports on both the Atlantic and Pacific
* A very effective transportation system in between
* In the big growth sector where points 1 and 2 don't matter, tech, it's still #1 in the world anyway
* A market of 350 million high income people (by global standards) under one regulatory framework
No other country can compare. No one else has this. These in-built advantages are incredibly hard to beat.
There will be crises but the key insight for me was that because of these advantages the US is almost always going to be better prepared to weather those crises than the rest of the world. That is why it enjoys such a huge inflow of capital and immigration (currently #1 recipient of FDI in the world, most immigrants of any country in the world).
It's just a big risk to bet your money against the success of the US, no matter how dumb its leaders get.
It probably also helps that Americans tend to flip out and go full doomsday mode when anything goes wrong inside of their borders, I mean it's stressful, it's not very well planned, but it does make problems hard to ignore.
No other country can compare. No one else has this. These in-built advantages are incredibly hard to beat.
It's why it's on our currency - "e pluribus unum".
It's also why Russia and China are constantly working to erode the unity of the American people, whether it's through false narratives that "we're more divided than ever", driving a wedge into political parties, fomenting rage-mode across social media, utilizing Twitter for propaganda or TikTok to keep American minds drained of their creative motivation while they ban the apps in their own countries... the list really goes on.
A cord of many stands is not easily broken, but others will do their damnedest to try.
Italy for example (second exporter in Europe, tenth by GDP in the world) has notorious issues with its legal system (for a variety of reasons) where trial may take many years to be concluded.
That export sounds like a suspicious claim, do you have sources? afaik DE, FR and NL are much bigger exporters, and a random Google result seems to back that, placing Italy 5th in EU absolutely and almost last by GDP [1] [2]
You're right, I don't know where I got that factoid. Perhaps it was an industrial goods only statistic? I can't find it anyway now, so I may have just misremembered it.
The other advantage is the total net worth as opposed to GDP. You hear a lot about GDP and the US has the biggest economy by far.
But the total net worth per person in the States is even further ahead of the rest of the world. Only Switzerland is ahead of the US in per-capita net worth (only by a hair though) and one suspects that’s partly due to so many Americans parking their money there.
Having had the biggest GDP for decades led to a amazing amount of wealth being concentrated in the USA.
Actually the U.S. in 3rd place behind Switzerland and Luxembourg in terms of mean wealth per adult and Hong Kong is not far behind. But you are right that the other countries on the upper ranks are mostly smaller nations with large banking sectors: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_pe...
While I agree that the U.S. has an enormous built-in advantage over other countries, I would really highlight one other piece of data: In terms of median wealth, the U.S. is eclipsed by half the E.U. and many Asian countries including diverse economies like France. This points to a terrifying concentration of wealth, which has also been highlighted by researchers like Picketty and this could (or arguably already does) put the social fabric of the U.S. under enormous strain.
While it is true that the US mean is much higher than the median, the median person still benefits greatly from that wealth. The rich invest their wealth in business, real estate for rent, and real estate for themselves, making all these things better.
I'm currently in the EU, in a country that outperforms the US in median wealth by about 20%. While it's clear that life here is good, I'm also struck by how much worse everything looks here, from the rental real estate where I'm staying, to the generally unprofessional standard of business.
So just looking at the slightly-higher median and ignoring the 2-3x higher mean also skews the picture.
> After accounting for all income, charity, and non-cash welfare benefits like subsidized housing and food stamps, the poorest 20 percent of Americans consume more goods and services than the national averages for all people in most affluent countries.
This "study" (not peer reviewed) is questionable in various ways and published by a "think tank" that has a strong libertarian agenda and an obvious axe to grind.
First of all, it compares figures from two different data sets. That is usually something that is quite hard to do correctly, because different data sets usually use different definitions for stuff like "household consumption" etc. Without a peer review it is really hard to tell if they've done it correctly and given the intricacies of economic statistics, my guess is they didn't.
But maybe even more importantly, the data concentrates on "private consumption" and thus leaves out all the goods and services that governments pay for – which is the entire point of public services like a public health care system. I.e. when a poor person in the U.S. visits a doctor, they pay for it out of pocket, the transaction will be registered as "private consumption". If I (in Germany) visit the doctor, no money ever changes hands. My contributions to the public health care system are deducted from my income before it ever reaches my account and about half don't come out of my own paycheck anyway, they are the responsibility of my employer.
So my guess would be that this "study" undercounts exactly what it professes to account for: Goods and services consumed (but not necessarily paid for) by the poor.
But how about we measure outcomes? For example in terms of life expectancy, the U.S. is much more "unequal" (if you are poorer, your are more likely to die younger) than other developed economies: https://ourworldindata.org/life-expectancy#inequality-of-lif...
And because the U.S. has worse life expectancy than other developed economies in general, poor people are likely to die younger in the U.S. than in, say, Germany in absolute terms as well. That is just one indicator but if you accept that "the number of years you live" is an important indicator for general quality of life, the U.S. seems to score quite badly on this.
True, but look at the rental markets for the majority of Americans that don't live in the rich coastal areas. And talk about unprofessional business - you have unprofessional legal professionals in parts of the US.
Where America is great, it is great. But for the rest of it, it can be a very differently life for most of the inhabitants.
Compare "poor" America with poor (insert geographic area here).
There's no comparison. It's hugely, vastly better in the States. The only other places that have large backwater areas that can compete are maybe Canada and Australia. This is due to investment by rich people in rental real estate and businesses such as Walmart, Costco, Amazon, etc.
When a family like the Waltons have a net worth in the 100's of $Bn's, this money isn't kept in gold bars in a safe. It's actively deployed in a variety of businesses. So the poor don't get a cut of the 100's of $Bn's, but they do benefit from the investment. And in very equal countries, the opposite is true. Everybody's OK, but there aren't really any systems that stand out as being amazing.
It's an empire. Empires are good at concentrating wealth by extracting it from their surroundings.
Personally I would absolutely not want to be a poor person in the US. High crime, police violence, abusive work conditions, random shooters, health care bankruptcy, Fentanyl being pushed by medical professionals, zero Covid protections - it's a dystopian horror show.
This may surprise you, but there are locations around the world with much lower GDP and much happier people.
I find this a weird take. In my country we're always amazed that there are places in most largish US cities where it simply isn't safe to be if you aren't a native, and lethal violence is a daily occurence.
I'm not sure the Waltons are a great example to be honest. They pay many of their employees so poorly that they're in receipt of state benefits. Society is effectively paying a portion of Walmart's labour cost. Until that's no longer the case I don't think the Waltons deserve a penny.
To address some of your other points:
A poor person in my country is allowed to take time off for illness without fear of being fired. That time isn't subtracted from their legally mandated minimum number of holiday days.
A poor person in the US will show up to work sick because they know their boss can let them go. Their colleagues might then get sick.
While I'm not sure how common it is, I've seen US news articles lauding co-workers for donating sick days to a colleague with a life threatening illness. While they're obviously doing a good thing, the necessity of the act honestly comes across as barbaric.
A poor person in the U.S. more likely as not does not have proper health insurance, no unemployment benefits to speak of, is highly unlikely to receive disability benefits even when diagnosed with a disability, is subject to a highly prejudiced and often violent police force, must rely on a famously expensive legal system to press civil claims, must content with a social environment that in many places is shaped by easy access to drugs, has no access to government housing, can be fired at will, etc. etc.
Yes, there are many countries where being poor is even worse. But among developed economies (so about a quarter of all countries), it is hard to come up with a worse place for being poor than the U.S.
The individual taxpayer was paying ~hundreds of millions per year into an $86 billion dollar budget. It's kind of wild that an individual would be paying a tenth of a percent (or so) of a state's income taxes, but it's maybe not a substantial fraction.
New Jersey certainly has had budget issues and pension issues. But the current leadership has done fairly well with a budget suppress and continuing to fund the pension system. So as of now the loss of the single taxpayer while a loss to the budget hasn’t put a huge hole in the system. Obviously fully funding the pension after years of under funding will take time so we will see how it turns out.
It's basically impossible to do any financial transactions in Switzerland as an American. Even something as mundane as opening a bank account to receive your salary is extremely complicated as most banks refuse to do business with Americans. A lot of Americans there renounced their citizenship because of this.
I'm not sure this is the best example. The reason America puts Swiss banks with American customers under extra scrutiny is specifically because Swiss banks are infamous for enabling tax evasion.
All that but most of all,
the fact USD is the world reserve currency is the biggest privilege. Every other countries have to stock up on USD/ have swaps in place and follow US when they raise fed interest rates instead of doing what’s best for the domestic economy.
For example, South Korea’s USD reserves has been sharply going down as they’ve been trying to resist following the recent rate hikes to soften the blow to the economy. This is happening all across the globe.
However, US can do (and seems to be doing) whatever they want.
within reason of course. it's a position of privilege, but that position used to below to the UK. they lost that position over/after the world wars, and we got it. it is possible that doing whatever we want could push people to the euro as the reserve or the pound. it seems far fetched, but I could see a world where the euro the the world's reserve currency
The privilege is maintained by having the biggest military force in the world - which is why the UK used to be in that position, and the US is in that position now.
It's not inconceivable China could take over. Russia won't (lol...) and the EU doesn't have much interest in becoming militarised.
Does anyone seriously believe the US military is forcing the world to use dollars? What’s the leverage? Does France get invaded if the Euro becomes too important?
The yuan may be the competition we should fear. Since we disconnected Russia from our financial systems, Russia is willing to do business with our biggest rival, China, in their currency.
The yuan has capital controls. You can't move money freely in and out of China even (especially) if you're a Chinese national. Absolute non-starter for any kind of reserve currency idea.
Well, what do you expect? The US over the past several decades has effectively crippled economies for its own interests by cutting off USD access. When you do this to a non-trivial number of countries they get around it by trading among themselves and dumping the USD for their own currencies. There are many countries including India, Japan, Korea, China, Russia, etc who are opening up bilateral or trilateral agreements to trade in their own currencies bypassing the USD. The US has pissed off a significant portion of the world that its days as reserve currency are certainly numbered. However, unbelievable it might sound today but the world is inching closer to non-USD centric future.
In a kinetic war with a hypersonic wielding power, those 11 carriers will be at the bottom of the sea in the first week. Any threatening surface ship, really.
I’d argue the real power are the US underwater assets.
That only works when the US has to fight military super-powers that rely on sea-transport in order to feed their people and their military, like Japan had to do in WW2.
The moment another super-power stops depending on sea routes in order to provide basic needs for its people and its military then things start getting more complicated. Case in point, the current Russia + China alliance. They could basically sustain a conventional war against the West while avoiding sea routes basically forever, thanks to Russia's fertile lands and minerals and with the help of China's human capital. There's no US aircraft carrier that would be able to stop the logistic links going through Central Asia.
You forgot the most important thing, especially for war. Oil.
China imports a fuckton of it. But not from Russia, but the Middle East (by sea) because it’s cheaper and easier.
It’s actually very difficult to move that much oil over land. The best way is by pipeline but that takes many years and is fairly easy to disrupt. And it still leaves you with the problem of having to distribute it at the other end.
I personally do not think it is that difficult. It is indeed more expensive compared to sea transport, definitely (I said the same thing regarding the transport of grains in another comment), but it's certainly doable.
In case of a war starting I do think China won't look at the money getting spent anymore, so at that point importing oil from Iran via train [1] or from Russia (again, via train) won't be a problem for them in terms of money.
I also do think they'll switch to "war economy" mode pretty soon after the war starting, so no more private cars on the roads and such, which will greatly alleviate China's oil-related needs.
Later edit: And there's also the Northern route. I don't think any US aircraft career will be brave/stupid enough (depending on how you look at it) to position itself close to the Sakhalin Island or close to Kamchatka, that's prime hunting ground for the Russian subs. Never mind going into the Arctic Sea itself.
The real purpose of the carriers is not to fight a war, but to assert control of sea lanes. In a globalized economy your country needs access to maritime shipping lanes to survive. The carriers basically act as an area denial threat, preserving the ability of the US and its allies to trade and prosper, denying that to anyone who messes with them.
If Russia and China decide they're going to get together and be super trade buddies but the US denies them the trade lanes with everyone else, that's fine, they can share food and oil which are certainly important, but they'll still be broke and their economies will still collapse, especially China's which is super export dependent and seemingly approaching collapse right now anyway. China needs huge exports to survive in its current state and Russia doesn't have that much purchasing capacity.
I don't know the exact number but almost all of China's oil is imported, and almost all of that comes through Sea. That is not something Russia can fix on a short timeline. It's one reason why Pacific naval power remains an important advantage of the US and why they're so aggresive in the South Chinese Sea territorial "disputes".
I would argue the perceived haphazardness is an advantage. The more centrally planned the economy, the more likely an incompetent government takes power and mucks it up. Part of America’s genius is the (fairly) restricted powers and decentralized nature of responsibility.
That may be. But whatever those blowups are they tend to be a lot less damaging than at other places.
I lived through two growing up, and both times almost everyone lost almost all money. I will take the risk on my US bank account over those any time. My 2c.
The US is not a petrostate. Petrostates are defined not just by the large amounts of oil and gas they extract but the relative absence of other economic activity and the dependence of the state on that money.
42% of Saudi GDP is petroleum.
35% of Kazakh GDP is petroleum.
8% of US GDP is petroleum.
> It probably also helps that Americans tend to flip out and go full doomsday mode when anything goes wrong inside of their borders
Indeed. American doomerists are just ridiculously parochial. Panicking about the dollar when it's the currency that everyone else runs to as a safe haven. The biggest risk to America is its debt ceiling mechanism; the opportunity to completely destroy America's credit and economy to own the libs is very tempting to some people.
Except canada. The coasts. The transportation system, the tech industry... and canada has a far better-regulated banking sector, one that surfed past 2008 almost without incident. And for every natural resource, from water to uranium, Canada has more than it will ever need. I would far rather ride out the comming climate/economic crisis in calgary/vancouver than LA/SF.
Well tech and banking are clearly eclipsed by the US. And much of Canada has no transportation infrastructure. Are you sure you’re not comparing select Canadian cities to select American cities?
Nope. Canadian populations live closer to their transport infrastructure than American populations. Canadian people actually live closer together than Americans, mostly in relatively tight cities. The big empty parts of the US are in reality inhabited by thousands of small towns. Drive any highway in the US and there is a town every dozen miles. The big empty parts of Canada are actually empty. Highways can go for hundreds of miles in some areas between towns. This is largely a result of historic land laws, crown ownership and mining in Canada v. frontier land grabs and farming in the US.
> A market of 350 million high income people (by global standards) under one regulatory framework
China almost has the same number of millionaires. Per capita it’s not as good, but in terms of volume. And I’d say they’re closer to a single regulatory framework than the US which has all sorts of conflicting state laws which get in the way of interstate commerce (despite the commerce clause). Sure there are a lot of advantages as you say. But they’re not indefinitely insurmountable.
Guess where many, many Chinese millionaires have been moving the last 10 years or so?
Anywhere but China. It is a failing state with a plummeting economy and subject to even more arbitrary control over the money, its citizens own than the USA.
For sure China has a ton of people and a huge economy. Fair point that the regulatory framework there may be more homogenous, but it's also weaker.
And it lacks all the other inbuilt advantages I mentioned.
Remember, the USA can ship goods back and forth between itself and what... 90% of the ex-US global economy? With very little geopolitical interference.
This is largely a function of geography, plop a cargo ship in the water, sail it, boom you arrive in Western Europe, or East Asia, without getting anywhere near some other country's sphere of influence.
China can't say the same. To ship cargo to America they have to sail near multiple political rivals (and they seem to enjoy antagonizing America itself as well). To ship cargo to Europe they need to do the same. So there are all these countries and political forces that could disrupt Chinese trade at any time. In the long run they have inbuilt geographic risk, the US has inbuilt geographic immunity.
I think this is a skewed perspective. In case of a war the Chinese leaders won't care about the fact that they won't be able to sell their plasticky stuff to Europe or the US, they'll only care to have enough food for their population and enough raw materials for their Army (it takes lots of iron and access to cheap energy to make lots of artillery shells). Lack of enough food for their population was what brought the Germans down in WW1, partial lack of raw materials helped bring down the same Germans in WW2.
By itself China won't be able to feed its people in case of a US naval blockade, but that's where the alliance with Russia comes into place. Transporting grains by rail instead of by sea is not as cost effective but will do the trick, and Russia has lots of grains. The same Russia has also lots of raw minerals.
That's why throwing Russia into China's open arms is such a geo-strategic stupid thing to do from the West's point of view, really, really stupid.
The alternative of allowing Russia to conquer another state and openly threaten further states would be far worse. The West has disengaged with Russia (and Russian money and gas) only very reluctantly.
China has been a clear threat since the 1990s. The US utterly failed to recognise it as a strategic danger.
Russia could have been Westernised with a little more effort, and turned into an ally and partner. (Which is not to say it would have been easy, but it would have been possible.)
Instead Russia was neoliberalised, turned into a mafia economy with huge concentrations of wealth on top of raging poverty, and its imperial pretensions were tolerated for two decades.
Ukraine and Russia are both direct US foreign policy failures.
Sadly I think that's why nothing better happened to Russia; everybody was comfortable with having a strongman to deal with and oligarchs to take money from. Even to the extent of overlooking crimes like the Salisbury poisonings and the airliner shootdown. It's a common pattern in US partner states.
Most of the former USSR and Yugoslavian states have sought freedom, although there are questions about Serbia, Hungary and to a lesser extent Poland.
I'm not convinced this analysis holds up to the numbers. China imports around $135B of food per year. Before the war Russia was exporting around $35B. Admittedly a lot of the Chinese imports are luxury foodstuffs but that's still a big big gap. China can't feed itself, even with Russia's help. This is a recurring problem throughout China's history.
I think you underestimate the importance of "plasticky trinkets." Exports are the backbone of the Chinese economy. Without them it can't afford to import food, and millions of Chinese starve. If China declares war and isolates itself so that Russia is its primary remaining trade partner, millions of Chinese starve.
The biggest importers of food to China today are the US, Brazil, Australia, and a handful of Southeast Asian countries - basically that's all gone if China goes to war or isolates itself in some other way.
Now I mean sure anything can happen in a war and the CCP might very well choose to let millions of Chinese starve, they've done it before. My point here was that isolation would inflict terrible and permanent damage to China. A war is unlikely to happen in the first place because not only is this damage so great, but China would probably lose any battle that wasn't very close to their home theatre.
By the way, Chinese food security is a great topic for illustrating how dysfunctional they are as a country. Here's an article on the topic - https://www.cfr.org/article/china-increasingly-relies-import... - basically they don't have food security, achieving it is one of their top priorities, and they are failing to achieve that priority. The cost to grow soybeans in China is 30% higher than in the US, and the yield is 60% lower!
Yeah but there’s all sorts of weird business dynamics w china. For the most part, government exists to enforce business/personal rights in the us versus the reversed in china. Like I’d say the single regulatory framework is actually a bad thing there
Every country has a single regulatory framework. Unfortunately for China 1 person can completely rewrite it.
China has a larger domestic market. The downside is the domestic market is still relatively poor and its state controlled by a uniparty government. When tough decisions need to be made, the CCP will protect the CCP over China.
Very interesting figures. Crazy that the US increased by 10% and China by 20% in a year (and during covid) - but there is still a large gap between the figures. In a decade they may converge, but not yet.
China is not, of course, turning back to proper communism. It is a wildly corrupt dictatorship, and will be for the foreseeable future. It was an oligarchy for many generations (traditionally, their central committee was allowed to preserve opposing opinions among factions, a practice Xi extinguished), but Xi has definitely removed the vast majority of his competent opponents.
Peter Schiff predicted this from the moment the fed bailouted the banks in 2008.
He predicted dollar collapse, hyperinflation for 11 years, and a bunch of other stuff the didn't come true. Major broken clock syndrome on his part. Inflation finally spiked, but after being wrong since 2008. Gold still has not done much in a decade. The inflation was from the post-covid recovery, which was so strong that supply chain could not keep up, not as a consequence of 2008.
It's very easy to predict something will eventually happen. Anyone can do that. Way harder to predict when,
It's better to be wrong until you're right than right until you're wrong...because you will get the last laugh.
The fundamental problem is that price controls never work and the interest rate is the price of money. If you understand this, then it's easy to predict the endgame, whether it takes 10 or 20 yrs to fail, you will still be right once you position yourself for the windfall.
>It's better to be wrong until you're right than right until you're wrong...because you will get the last laugh.
Peter Schiff gets to laugh despite being wrong for 9 out of the last 10 years because he's not the one deciding monetary policy. For all we know, if he had his way, the US would be in a perma-recession and made into a vassal state of China by now.
Also, the business cycle is something acknowledged by literally every economist. The fact that we have mild economic turmoil after a global pandemic shouldn't be a prediction that Peter Schiff is proud of.
Let's say Alice will be wrong several times and then right once, and Bob will be right several times and wrong once. Both of them start with $10k.
To give Alice every advantage, let's say her bets pay out 10x or nothing, and Bob's bets pay out 4x or nothing. We'll also say Alice magically knows which time she'll be right, but Bob won't know which time he'll be wrong.
Alice will obviously bet all her money on the time she's right, and come out with $100k.
Bob can invest 2/3 of his money each time, repeating every time he's right. Let's say he happens to be right 8 times, then is wrong. After those 8 right bets, he'll have $6.6M. After he makes his wrong bet, his fortune will drop to $2.2M. Then he'll retire.
Your math is correct, of course, but these aren't the two strategies to choose between and there is a set of behaviors for which your parent is correct.
The issue (using your analogy) is that Bob is exposed to profound, unseen risks that are deeply discounted in the marketplace - he is "picking up nickels in front of a steamroller" as Taleb puts it.
At the same time, you have the Alice strategy wrong: Alice makes regular, extremely leveraged hedge purchases - perhaps even 500:1 or more - and just ignores the steady outflow of her premia.
Eventually, Bob gets hit by a black swan event and loses 80 or 90 percent of his principal and Alice has a 500:1 return on her hedge.
These are the two strategies that are interesting to compare.
It may interest you to know that Taleb performed this in real life with his own money at risk[1]:
"A tail-risk hedge fund advised by Nassim Taleb, author of “The Black Swan,” returned 3,612% in March, paying off massively for clients who invested in it as protection against a plunge in stock prices."
> Alice makes regular, extremely leveraged hedge purchases - perhaps even 100:1 or more - and just ignores the steady outflow of her premia.
If Alice wins after 10 bets, with 200:1 return, and she bets the same percent each time, the absolute best she can get is an 8x return on her initial bankroll.
> The issue (using your analogy) is that Bob is exposed to profound, unseen risks that are deeply discounted in the marketplace - he is "picking up nickels in front of a steamroller" as Taleb puts it.
For Bob to be "picking up nickels" that means Bob is getting ripped off on the things he's right about. If "right until you're wrong" involves tiny little rights and an enormous wrong, then sure it's not very appealing. But that needs to be stated explicitly. Without a qualifier, I expect "being right" to be at least coin flip odds. Because who cares if you can predict something that's 95% likely to happen?
How is Bob getting a 400% return on every bet he makes? Especially when his strategy is to make the same bet that everyone else is making?
Last I checked, Bob’s investments so closely tracked inflation, its indistinguishable. And it’s about 50-100 times less than you claim.
Oh and Bob did not save 1/3 of his gains. To be fair, he spent it, living high on the irrational market all these years.
Meanwhile, Alice scrimped and saved and warned and was mocked.
She turned out to be right all along, and now she’s the queen of Barter town. Which isn’t a great place to be.
But the little guy who controls the resources and his muscle don’t need Alice, and want her wealth.
> Especially when his strategy is to make the same bet that everyone else is making?
Who said that? I was just responding to "It's better to be wrong until you're right than right until you're wrong...because you will get the last laugh."
I assumed that "right" in the first half is at least somewhat similar to "right" in the second half. And that "wrong" in the first half is at least somewhat similar to "wrong" in the second half.
If they're supposed to have inverse odds, then that wording is very misleading.
> Last I checked, Bob’s investments so closely tracked inflation, its indistinguishable.
???
Please elaborate on who you think Bob is, because whatever you think it was not my intent.
Not too knowledgeable about macro -- is that tantamount to saying that monetary policy doesn't work? And what's the windfall in this case, given that the dollar is the reserve currency; RMB-denominated assets?
>There's nothing the fed can do to escape this one, it's either massive inflation or massive recession. The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade.
I love how confident people are with their predictions.
Since you're so confident about what's going to happen, why does CPI matter to you? You can invest in the market in such a way you're going to be rich anyway.
Anyway, I'll happily help make you richer: do you want to make a long term bet that there won't be double digit inflation for the next decade (let's say there won't be annualized inflation >= 10% over the period from March 25th, 2023 to March 24th, 2033)?
My understanding this time around is the depositors rightfully got bailed out (both to maintain peoples' trust in banking, and because losing your money to others' failures fucking sucks), but the banks themselves were left out to dry.
By "banks", I mean 90% of the other banks in the country that would've failed, absent the SVB depositor bailout.
If the FED didn't step in, every regional bank in the country would experience a bank run as people would withdraw everything and deposit in the "too big to fail" banks for safety.
Why I think the depositors should've suffered a haircut:
What the FED did, was implicitly guarantee the deposits, this incentivize banks to become even riskier with deposits as they get to keep the profits if their risky bets payoff and get bailed out if they fail. This is like a real life cheat code for bankers and unfair to the rest of us regular folks who has to suffer the consequences of our actions.
>banks to become even riskier with deposits as they get to keep the profits if their risky bets payoff and get bailed out if they fail
This isn't true, is it? While they do get to keep profits, if the bets don't pay off, the bankers - shareholders, bondholders, employees, executives - all get wiped out (as happened with SI, Signature and SVB). The depositors get bailed out.
They get to keep profits if they win, but lose everything if they don't. No moral hazard, right?
The bankers are closet creatives; they're probably going set up structures where the equity-holders are on paper running something that looks like a charity and there is a class of "depositors" who are making suspiciously high returns. They just need to figure out how to get the money into their sphere of control as a deposit rather than as equity.
Indeed, in the SVB case there is probably an interesting story around why all these startups were banking with this one bank. It suggests complex relationships between entities and it wouldn't be that weird if it turns out the people being bailed out and the equity holders going broke are the same physical people.
So they should be told not to do that and be put in prison if they persist. We (the people) make the rules, but the regulators are rather too cosy with the bankers.
I'd start by stopping any securitization and having the banks keep all their loan assets on their own balance sheets.
If sensible people made the rules the financial industry would be stable and boring, inequality would be far lower than it is, prosperity would be far wider, and life would generally be more pleasant and financially successful - not just for a small cadre of middle class programmers, but for everyone.
I think there's some sort of clipping effect distorting things. If your losses are limited at your assets, then the bet (heads: I gain 2X my assets, tails: I lose 2X my assets) has positive EV.
There's some interesting wheels-within-wheels of moral hazard here. In particular, it sucks to be a sedentary depositor that did not contribute to the bank run, to let those depositors cook is to make it much better to be twitchy and contribute to runs.
Do depositors have some sort of moral superiority to investors, or simply a legal priority?
Citibank equity holders (one of the the more egregious bailouts from the GFC) 15 years later are still down 90%. So it’s not like in the bad old days of 2008 investors were getting off scot free.
> Do depositors have some sort of moral superiority to investors, or simply a legal priority?
Depositors don't stand to benefit from a bank engaging in stupid risky bets with depositor money.
Investors do (on the upside of those bets).
This is why depositors should (and do) have moral priority for their money.
Investors also are able to directly control the degree of stupid risk-taking behaviour taken by the bank, by virtue of their control of the board. Depositors have no such leverage.
If you make depositors (or the public at large) pay for the sins of the bank's management, you get a classic conflict of interest problem. If you make investors pay, it goes a long way towards aligning their interests with keeping the bank running well.
While I largely agree, it could be argued that banks engaging in risky behaviour might attract depositors with higher interest rates than a more responsible bank.
If depositors know that their money is fully covered, you incentivise them to move their money from responsible banks to irresponsible ones. It's easy to imagine a knock-on effect where responsible banks are incentivised to behave less so in order to retain custom, with the whole system becoming more fragile as a result.
You can make that argument, but just like a spherical cow, it has no bearing on reality. SVB and it's ilk offered the same non-existent interest rates as any other non-distressed bank.
Of all the "evil" things one could do with gargantuan wads of cash, having it sit in a bank account is just about the most innocuous thing I can think of to do with it. It seems like a wise, cautious move actually, and it seems like it'd be bad to punish businesses for being cautious with their money
Their money is being used to make investments and they're getting paid interest for it. If their deposit was above the amount insured by the FDIC then they knew it could all be lost if the bank collapsed.
I wouldn't call lending more than 250k to a bank "cautious" (that's what you do when you "deposit" your money in a bank), they could have bought Treasury bonds instead.
But maybe they were smart and had guessed that in this third world financial system, if your bank is too big to fail, depositors get bailed out by the government anyway.
It kinda depends on scale doesn't it? For an individual 250k in cash seems like a lot (although can easily happen just before or just after a large purchase.)
For even a "small" business though it's quite small. We're small (<50 employees) but payroll is around 1.5m per month. We keep about 2m as "working capital". This is cash that is literally flowing all the time.
In this context 250k is tiny, and wouldn't cover our day to day balance.
I guess you'll have to wait for The Narrow Bank to become operational. In the meantime the best you can do is lend your money to an institution that is too big to fail.
"Predicted this in 2008" is a funny sentence. If I now predicted that what the Fed is doing will result in an amazing economy, would it really count if it happened in 15 years?
Peter Schiff is always predicting doom. It's not that he's talking complete nonsense, but objectively he is more wrong than right. His opinions corelate less to being correct and more to the fact that he invests a lot in gold, and his interest is that everyone else gets scared and does too.
If I recall correctly, the general consensus is that while there are people who do very well in predicting future events and developments (google "super forecasters"), nobody can do so reliably beyond a time horizon of five years or so.
Easy to laugh at him, I'd say it's more like the doctor who tells you to quit smoking or it's eventually going to kill you. The fact that you haven't died yet doesn't exactly prove the doctor is an idiot or wrong.
As for the first part - yes, it would count. Timing of things is impossible to predict of course. But being right in the first place, shouldn't be underestimated !
Let's take crypto as an example - one can predict it's going to 0, and one can say it will go to 1M$. Even though you don't know when, being right is the only chance you make something out of it.
If, as you your second sentence seems to suggest, nobody ever managed to get it right twice then we shouldn't listen to people how made a good prediction either.
he made many bad predictions, and continued to double down on them:
dollar collapse, $5k+ gold, emerging markets boom, bitcoin crash, hyperinflation, bear market, recession, etc. every year
He never deviated from his predictions or view even when shown to be wrong. He never stopped to consider maybe he was wrong, not that the economy is wrong.
> And the definition of a recession was rescinded last year by the White House.
It what? Also if you predict a recession every year you'll eventually get one right, but that doesn't make you right about recession predictions in general.
> Is inflation for you better now than it was in 2019?
Did he predict "higher than 2019"? If "higher than 2019" wasn't his prediction then I don't see why it matters that "higher than 2019" happened.
And that's not much of a prediction. 2019's inflation was below target.
Muddied the definition of a recession when the question came up.
> Also if you predict a recession every year you'll eventually get one right, but that doesn't make you right about recession predictions in general.
Yep. That's pretty much the game of predictions.
> 2019's inflation was below target.
Which target? The one the Fed determines? Consumer inflation at the moment (~7%) is rivalling rates witnessed back in the 80s. Add the new money the Fed has printed over time (since 2008) and now expected to continue (covid stimulus, bailouts for banks etc.), anyone can see where the trend for inflation is going. No predictions are even needed for that.
> Yep. That's pretty much the game of predictions.
So you agree the recession prediction is not evidence for Shiff's competence?
> Which target?
2%
> Consumer inflation at the moment (~7%) is rivalling rates witnessed back in the 80s. Add the new money the Fed has printed over time (since 2008) and now expected to continue (covid stimulus, bailouts for banks etc.), anyone can see where the trend for inflation is going. No predictions are even needed for that.
...have you looked at the trend, though? Inflation was climbing higher and higher until last June, and then it dropped by more than half. For the last 3-8 months the inflation rate has been about 4%.
> So you agree the recession prediction is not evidence for Shiff's competence?
Economists make wrong predictions all the time. Am saying Schiff is not exactly entirely wrong on some of the ones he's made in the past.
> ...have you looked at the trend, though? Inflation was climbing higher and higher until last June, and then it dropped by more than half. For the last 3-8 months the inflation rate has been about 4%.
Have you? The last time the inflation rate was even near 4% was in April 2021 [0].
The main inflation number that everyone talks about compares each month to one year previous.
When inflation changes rapidly, it gives you outdated information.
When you look at the underlying data for each month compared to the previous month, you can see that the spike was higher than 9% and we are currently lower than 6%.
It’s not trolling just because you aren’t understanding what’s being said. Recent MoM figures show inflation is way down, the annualized will follow down shortly.
Schiff didn't account for the economic ignorance of the masses in his prediction. He understood that runaway inflation would cause the gold price to spike, he didn't foresee the confidence that traders have in the FED to fight off inflation.
The FED cannot win the inflation fight (confirmed by their recent soft pivot back to QE) and gold will not go up until the traders realize this fact.
> Schiff didn’t account for the economic ignorance of the masses in his prediction.
Literally every economic misprediction can be blamed on not accounting for the way people actually behave in real-world economies, but…that’s not something that adds credibility for the next prediction by the same predictor.
I don’t know if it’s the newspapers or economists I dislike more but I am pretty sick of watching these people incorrectly predict everything for the last 15 years and then turn around and say they are right when ONE thing sort of looks like the thing they kind of predicted.
It’s a convenient symbiosis: Doomsday economists get cited by newspapers, which serves him/her in publicly and the newspaper in clicks.
Simple heuristic: if it’s easily digestible, it probably doesn’t serve true understanding. I think that especially true for newspaper articles related to economics.
We have gotten 1 and 2 but we haven't gotten to 3 because traders believe that the FED can win the inflation fight. The FED abandoned the inflation fight with a soft pivot yet traders are still not buying gold. This is what Peter couldn't foresee...traders' unwillingness to go against the FED.
This is not a misprediction because in any sane world, the prospects of very high inflation would result in a spike of the gold price.
> This is not a misprediction because in any sane world, the prospects of very high inflation would result in a spike of the gold price.
Keynes mentioned "animal spirits" and "the market can stay irrational longer than you can stay solvent" almost a hundred years ago. If your prediction doesn't account for reality and well know facts it's a bad prediction.
It would be like guessing that the next election will favor candidate X and when they don't win explaining it away with "well but people are dumb".
> This is not a misprediction because in any sane world, the prospects of very high inflation would result in a spike of the gold price.
Since it was a prediction of the behavior in the real world, and it doesn’t reflect what actually occurred, it is a misprediction.
The fact that the predictor (or you) believes that a world in which the prediction was accurate would be more sane doesn’t make the wrong prediction better, since it wasn’t offered as a prediction of what would occur in some hypothetical sane world.
So he basically predicted "high inflation". He's been predicting that since at least 2010, probably earlier. Over a long enough period there is bound to be some episode of "high inflation", so sooner or later the prediction of "high inflation" will become true. This doesn't mean that the individual who made the prediction is some kind of visionary.
The simple solution to this equation is that the assumption in number 3 isn’t correct.
Gold is not a store (or measure) of value. Nobody cares about gold. Sure, some people might like to have a gold ring or necklace, but that’s a tiny amount of material for a small number of people and it’s demand (like diamonds) is primarily marketing driven, and easily satisfied by a side effect of copper mining. Until the average Joe demands that his life savings be spent on a gold sarcophagus, it just won’t matter.
People tend to prefer fancy cars and houses and electronics and vacations and food and drink.
And you can see the cost of all those things has more than doubled in recent years, a clear indicator of inflation cause by (practically) zero percent interest rates.
Schiff didn't account for the economic ignorance of the masses in his prediction.
If he is as smart or knowledgeable as he claims or held up to be, then he should have factored that into his forecast and advice. IF the fed is going to do everything in its power to save the economy, why fight it?
>IF the fed is going to do everything in its power to save the economy, why fight it?
This is a popular sentiment among traders...why fight the FED? Because there is nothing they can do to bring inflation back to 2%. They all but admitted this with their return to QE. When the masses realize this...gold will surge.
Certainly those who bought gold as a cash-hedge are hoping it surges...
Alas if, for some inexplicable reason, those unwashed masses don't realize that the gold I bought cheap, isn't the only thing worth buying (at my inflated price) then I will be most disappointed.
I guess it doesn't help that gold-hawking is looking more and more scammy everyday, like when c-level political celebrities with large followings seem happy to flog their "sponsors gold" during political messaging.
> The fed has avoided the latter by bailing out the banks again so expect double digit inflation for the next decade.
How on Earth is providing short-term liquidity[1] until the long-term low-yield bonds owned by those banks mature translates into double-digit inflation?
And why should we listen to this [2] prediction of double-digit inflation?
[1] At least in the US. Switzerland is doing its own thing with the UBS/CS merger, good luck to those folks, that sounds like a fun garbage dump to dig through.
[2] Similar comments predicted 15 of the past ~1 years of double-digit inflation.
If the inflation does reach (although in EU it already is) double digits, could that be a big of a hit to destabilize the US dollar and pave the way to the next global reserve currency?
I'm asking because I've had these thoughts on my mind ever since Ray Dalio uploaded his video Principles for Dealing with the Changing World Order [0].
The USD is the least worst option. That could change some day. Maybe India becomes a much bigger economy or the US govt gets overtaken by socialists who print like crazy and create hyperinflation. But for now there is no better option.
Years ago The Economist had a front-page story saying that negligible interest rates are going to be around long-term. If an influential and bold assertion like that is not effectively refuted, some people are gonna take it as gospel truth. Caveat lector
I often hear the interest rates yielded this result of massive inflation or massive recession. But I'm not sure I believe that. I'm not convinced that the 0% interest rates lead to the massive inflation. So a non-mainstream economist Richard D. Wolff asked the elephant in the room question which no one seems to be asking which is to point out that we don't know how much of the price increases is simply due to companies just wanting to make more profit. And his point is how do you rule out that companies increased prices just for more profit irregardless of what the interest rates are?
That's a very good point. I don't have any data, but I feel like many industries have been consolidated into the hands of few companies since the crisis of 2008. Now they all can raise prices together using inflation as an excuse.
See the big oil and its record profits last year for an example.
Every time I see the fed adjusting these levers of debasing a money they print I shake my head and wonder why no one questions these levers as leading to a healthy economic society. Now my money is worth this much less tomorrow so now I must work this much extra for a raise to cover the loss. Doesn't this strike anyone as an absurdist parody play starring us its marionettes?
If crypto isn't the answer, what is? I think inflation and deflation are awful levers of monetary policy and should not be wielded by government institutions like the fed. They've proven themselves time and again bad stewards.
It's like asking why nurses think they know more about hospital processes when management is making bad decisions that doesn't solve real problems. I wish you are right though.
Unless all of those programmers work for financial institutions I don't see how that analogy follows
It's more like asking why patients think they know more about hospital processes when management is making (perceived) bad decisions that don't solve real problems
We are users of the service, not people who work within the financial system
Human behavior. When everything is going up, people expect it to keep going up, and their behavior tends to keep pushing it up - until some core limitation gets reached anyway and things get too broken somewhere.
When it keeps going down, same - until it becomes obvious to everyone there is no further down to go.
With lots of head fakes along the way of course.
Humans tend to be kind of terrible at being consistent over long periods of time.
For those wondering like I did, CPI is Consumer Price Index.
My understanding is that it’s a standardized basket of goods that supposedly represent the average household, and it calculates inflation on this basket on a regular basis.
This doesn’t reflect anyone’s reality however and I think a quick and dirty way to calculate your own CPI would be to check the difference year on year for all your rent and living expenses (including fuel if relevant etc) + your groceries (food toiletries etc), and figure out how has this changed year on year.
Yes, i.e. 'inflation', but there are different ways of measuring that. In the UK at least the main ways are CPI & RPI - Consumer & Retail.
Broadly speaking RPI is CPI + mortgages & rent prices, but actually there's a newer one that's exactly that which tracks lower. They're different 'baskets of goods', used in differnt cases, but generally CPI is what's meant. (RPI is used for student loan repayments for example.)
Capitalism is based around bad decisions being punished, which didn't happen in 2008 because of the bailouts. Nobody went to jail, nothing extreme enough was done to actually enforce cultural changes in the finance industry, so of course having the same problems occur was inevitable. Adding to the problem is that the economy is actually going to get less efficient on a fundamental level due to the geopolitical situation with Russia and China, plus the after effects of all the Covid restrictions and stimulus that distorted the economy in many ways.
Living standards are going to drop unless the AI hype is real and AI actually manages to improve productivity dramatically
also laughed at this line from the post
>While there is tremendous uncertainty, given that the banking sector drives credit creation and subsequent economic growth
bankers really think they are the drivers of growth, that's how you end up with all your manufacturing in China. These people are clowns
> Capitalism is based around bad decisions being punished
Where did you get that idea?
Capitalism is based on people who have more money/wealth (aka capital) making more money.
In our system as it exists today, the capital owners have managed to use their vastly disproportionate wealth to influence the government to prioritize their needs over all others. This is a nearly inevitable outcome of unfettered capitalism, combined with legalized bribery of elected officials (lobbying, PACs, etc).
Now, it's certainly true that no system is going to remain in balance long if people can make decisions that hurt the system and suffer no negative consequences themselves—all the moreso if those decisions actually benefit them. But that's not at all the same as saying that capitalism—or any economic system—is based around those kinds of feedback loops.
> Capitalism is based around bad decisions being punished
What constitutes a bad decision in your view?
My perspective is that Capitalism actively encourages and rewards the kind of behaviour most would consider to be morally and ethically bankrupt. The simplest example would be monopolising control of a limited but necessary resource, thereby granting you what is effectively absolute power over those who need it. Think oxygen supply on a moon base or fresh water on deserted island.
Take cigarette companies also. The "good" decision under capitalism was for them to knowingly deceive society on the health risks of their product. All so they could continue to profit.
>There's nothing the fed can do to escape this one, it's either massive inflation or massive recession.
The fed knows this. They should make it explicit to the common, ~100 IQ, joe six pack American. It's infuriating watching them act so carefully as to pretend to try and not spook anyone.
You’re making the weird assumption that the people at the Fed have greater than 99 IQ, or any desire at all to learn about the effects of their monetary decisions other than their own short term personal gains.
And there is no indication of either of these suppositions.
It aint fucking lost on me that financial papers spent the better part of 2022 arguing that we were headed for a recession. The q4 numbers came in showing the US economy was still expanding and now those same papers are telling me we're in a banking crisis on the basis of like two and a half banks, with SVB and CS both being fully rescued.
The fucking owners of capital seem bound and determined to destroy their own system.
>"The q4 numbers came in showing the US economy was still expanding and now those same papers are telling me we're in a banking crisis on the basis of like two and a half banks, with SVB and CS both being fully rescued."
Why would GDP(a lagging indicator) and a current event(a wave of banks over the last two week) be mutually exclusive?
You also seem to have overlooked some significant details and context. To date there have been four bank rescues not two - Signature Bank, First Republic, SVB and Credit Suisse.
The Credit Suisse collapse resulted in 17 billion in AT1 bonds being written down.[1].
SVB’s uninsured deposits(anything over 250k) accounted for 94% of its total deposits and the FDIC took the extraordinary step of insuring those deposit after the fact.
We witnessed the US Treasury Secretary this week suggest that the government would backstop all uninsured deposits at smaller banks.[2]. She then later had to walk that back.
The First Republic rescue saw three of the largest US banks depositing 30 billion dollars into it in order to prop it up.
> SVB’s uninsured deposits(anything over 250k) accounted for 94% of its total deposits and the FDIC took the extraordinary step of insuring those deposit after the fact.
Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders. All the bank's equity would have been wiped out sure (and it was anyways) but losses to depositors would likely be slim to none. If folks lost anything it would worst case have been like a 5-10% haircut, not 100% of un-insured deposits.
The FDIC was using this as an opportunity to say "we've got your back no matter what" to reassure the public.
It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits - insured or uninsured - in this day and age in the US regardless of the FDIC's 'new' position.
> The first republic rescue saw three of the largest US banks depositing 30 billion dollars to prop it up.
The only real issue at banks right now is that they're in long-term government debt which has significant mark to market losses - which are an issue if folks are trying to withdraw since they can't be liquidated for face value. However if they're held to maturity there's no loss. So the Fed provided a facility where banks can borrow against the maturity value of long-term debt instead of market value.
>"It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits - insured or uninsured - in this day and age in the US regardless of the FDIC's 'new' position."
When IndyMac Bank failed in the 2008 financial crisis, the FDIC paid uninsured depositors 50 cents of every dollar[1][2][3]. I would say that very much of "this day and age."
From the FDIC's IndyMac Resolution:
"If it is determined that you have uninsured funds, the FDIC will generate and mail to you a Receiver Certificate. This certificate entitles you to share proportionately in any funds recovered through the disposal of the assets of IndyMac Bank, F.S.B. This means that you will eventually recover some of your uninsured funds. The FDIC declared a 50% advance dividend for uninsured deposits."[2]
It's bizarre to argue that what was literally an exceptional decision(SRE) by the FDIC could not have been otherwise.
> When IndyMac Bank failed in the 2008 financial crisis, the FDIC paid uninsured depositors 50 cents of every dollar[1][2][3]. I would say that very much of "this day and age."
And after that banking rules became a lot stricter to reduce the risk of this happening again.
That's kind of the point, 2008 isn't "this day and age."
>"And after that banking rules became a lot stricter to reduce the risk of this happening again."
Except that Dodd-Frank legislation was continuously chipped away at, ultimately resulting in the 2018 "Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018."[1].
This 2018 bit of legislation is notable in that it completely loosened the regulatory regime and oversight of small and midsize banks - the exact profile of institutions being discussed here!
Specifically this new legislation reduced the number of banks that were subject to stronger federal oversight. Under the Dodd-Frank legislation, banks with assets of more than $50 billion were subject to stress tests and higher capital requirements.
The newer 2018 legislation contained a section that basically eliminated that stronger regulation for banks with assets between $50 billion and $100 billion and moved the goal posts of "discretionary oversight" out to financial institutions with assets between $100 billion and $250 billion instead.
It's fascinating that you are arguing points without seeming to have an understanding of all that has changed since Dodd/Frank 13 year ago. You seem to be completely unaware of the developments since 2018 i.e the exact things that enabled the developments of the last two weeks.
>"Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders."
Do you realize how many tech companies used SVB as their primary banking facility? There were plenty of companies who would not have made pay role. So yes real regular people would have been affected.
>"It's extremely unlikely anyone, anywhere, would be at risk of losing any deposits - insured or uninsured - in this day and age in the US regardless of the FDIC's 'new' position."
The FDIC invoked a "systemic risk exception" in order to make SVB and Signature Bank depositors whole.
Federal law requires the FDIC to resolve failed banks by choosing the method the least costly to the Deposit
Insurance Fund. Here "resolved" means making only insured depositors whole. The only exception to this is the systemic risk exception. This is law not just some shit you can make up.
>"The only real issue at banks right now is that they're in long-term government debt which has significant mark to market losses "
Uh no, the issue that is that there's a lot of uncertainty. I don't think nobody really knows the extent of it at this point because a lot of midsize banks haven't really been under strong regulatory scrutiny until very recently. A crisis of confidence is still a crisis. A crisis of confidence is precisely what causes a run on banks.
All depositors had $250k guaranteed at the bat. But sure maybe that’s short for 2 weeks of payroll for many companies.
Well FDIC was already cash payout warrants against the size of of their deposit assets (something like 50% would be available). If you need more than 50% of available cash to make payroll, you were already a dead firm walking.
With liquid assets like long term treasuries, they could have been liquidated quickly, and at worst most companies would have seen a 10-15% haircut.
A haircut hurts. But running a business includes all sorts of risks. You could have a lawsuit. You could have a fire. Your cloud provider could shutdown. They knew about the risk of being uninsured (since many companies have corporate treasurers who manage multiple banks and portfolio of treasury bills to manage bank risk), and this was just the one risk their company faced that came to fruition.
I'm not sure how you reconcile acknowledging the reality of companies not being able to make payroll for two weeks and also calling it a "canard" in back to back sentences. A "fake canard" would be a double negative by the way ;)
If you reread the thread and the context of what I was responding to it was the OP stating "It's not clear anyone would have lost anything at all ..."
Perhaps you are well-off but losing a pay check for couple of weeks has real consequences for lots of people.
If your payroll plus all other outgoing expenses was greater than $250K then no you would not be able to "make payroll just fine." This is simple math. Arguing against basic math is absurd.
<< Did they need to? It's not clear anyone would have lost anything at all because depositors are senior to equity and bond holders.
That is a very interesting question. I agree it is not clear, but it is not in ' not clear' status due to some legalistic formality. It is unclear, because it would appear treasuries around the world[1] are basically making up rules as they go. It does not inspire confidence.
The question is definitely open and I honestly do not know the answer.
This strategy only makes sense if the Fed believes this to be a short term problem for which it is worth buying time for. If it was genuinely hopeless and in the next decade will see 5% interest, making all those 10 year bonds worthless then there is no rhyme or reason to bail anyone out. The return on selling bonds today or waiting until maturity would be identical.
They’re treasuries, when they mature you get the full face value plus interest. They cannot be worthless at maturity without the entire American state imploding. That's why they're able to offer this facility at all.
> Why would GDP(a lagging indicator) and a current event(a wave of banks over the last two week) be mutually exclusive?
Exactly. Jeff Snyder pointed out that folks were puzzled over this exact thing in the 08-09 timeframe. And in fact, Janet Yellen talked about why it wasn’t a contradiction. She seems to have forgotten her own analysis, though.
Indeed - Credit Suisse isn't a retail bank (outside Switzerland), they're an investment bank so they're completely different and shouldn't be lumped in with the other 3. Two small crypto institutions and SVB. [edit] Not to mention Credit Suisse was holding $5B dollars of losses from Bill Hwang's Archegos shenanigans.
None of SVB, First Republic or Signature were retail banks either they were commercial banks. Regardless nowhere have I seen it reported that the current sequence of events is somehow a "retail banking crisis". It's amusing that you feel an investment bank somehow shouldn't be included in a discussion about a potential banking crisis. You might want to read up on the 2008 financial crisis and shadow banking. Bear Stearns and AIG weren't banks at all.
I provided numerous points that show how the events of the last two weeks are of significance but it seems you want to cherry pick just one. At any rate, all four of those banks were rescued. The FDIC arranging for a healthy bank to take over an unhealthy bank is a form of rescue. This type of rescue has roots in the 2008 crisis. It's interesting how confident you seem to be in your assertion that all of this is non-issue yet your comments indicate you might not understand very much about banking or the banking system.
> The fucking owners of capital seem bound and determined to destroy their own system.
Nah. These disruptions are a means to an ends. That is, shifting still more wealth to the top. Follow that graph. Everything else is a means to that ends or a distraction.
Specifically the recession talk seemed to be an attempt to destroy what little gains labor had made in the past couple years. A banking crisis is not exactly the same but would lead to the same public justifications.
As a personal anecdote:
In the wake of 2008 massive layoffs flooded the market driving down costs for... not necessarily skilled but educated labor. Target for instance suddenly decided that being an ETL required a college degree, a requirement that they relaxed in 2021.
I'm aware creating a public justification for creating a mass of unemployed skilled (read: otherwise expensive) laborers is in their benefit. It's just that the public face of this is destroying their own systems then claiming literally any and everything other than their own actions are at fault while simultaneously positioning themselves to benefit from any attempt at preventing economic disaster.
> Specifically the recession talk seemed to be an attempt to destroy what little gains labor had made in the past couple years
"Remember the great resignation? Good! You shouldn't! Now damn you proles, don't you forget that you can't remember it."
As for your last paragraph, it's about control. Regardless of what's being "destroyed", they are creating more wealth and power, and the majority of that goes to the top. Again, this isn't opinion. It's the data.
The Public's fault is believing what they hear instead of watching what is happening. Actions speak louder than words. Or they should.
I hate all these conspiracy theories. And you know why?
It's because they imply hubris, arrogance, control.
Let's just realize that we all have a lot less control over our environment than we think we do, and some things are just forces beyond anyone's control.
I think it's more likely that every person at every link in the chain is following some incentive: financial experts within banks are saying whatever they think will get governments to stop putting up interest rates (we're in a banking crisis), journalists are repeating interesting and dramatic news from their sources (that we're in a banking crisis), their editors are careful not to block an important message (that we're in a banking crisis), and so on.
The net effect is possibly going to be moving wealth to the top, but if you take a conspiratorial view, the solution seems like it's "find the shadowy council working behind the scenes and force them to stop". If it's just distributed rational decision-making you have to take a systems-level view of what the incentives are and work to change the overall behaviour of everyone, which is a much more complicated problem.
People seem to have a hard time believing that organizations and people with large amounts of concentrated wealth would take coordinated actions to protect their wealth and ensure they gain more of it. They believe this counterintuitively, even when discussing organizations that are literally set up for the purpose of maintaining and gaining new wealth. None of this is a conspiracy, it’s just systems following incentives.
Coordination within a bank is expected, yeah: a banker will say whatever is financially advantageous for them, and this is exactly what we all expect. Conspiracies like "rig the LIBOR index in exchange for day-old sushi" exist and don't surprise anyone too much when they're found out.
Close willing coordination between a whole bank or a whole newspaper is less believable. Small-scale coordination is possible, yeah: PR firms pitching articles, revolving-door hiring, conflicts of interest, bias upstream in academia, or even an editor meeting a banker for golf and squashing a story; these things are all believable. These are not the same as a statement like "the news media is helping shift wealth to the top", or at least they have many caveats.
The rhetorical problem is that it's a sort of inverse of Yossarian's "they're trying to kill me", coordination is often not usefully distinct from a system which incentivizes the same actions that would be achieved through coordination. Some things are very hard to describe without sounding like a conspiracy no matter how little communication happens between actors, precisely because those incentives are a form of communication.
It's called a local maximum or prisoners dilemma. Ironically, the way out of a prisoners dilemma is coommunication and cooperation which implies that we are sitting in some mental prison rather than a physical one.
I mean the right-wing political parties are pretty open about their desire to keep the status quo economic system which causes wealth the move to the top (and in many cases increase the extent to which it does by doing things like privatising public industries, deregulating industries, etc). And they're obviously a coordinated entity by nature of being a political party.
To be fair, the left isn't much better. Sure their rhetoric might sound a bit different but they're still part of the boarder system. A system that as consistently failed the people they've been elected to represent.
It's a distraction to point fingers at left or right.
Your comment is not helping the conspiracy angle I was debunking up top so I assume we agree overall? There is no conspiracy, just random nature doing it thing and people trying to nudge it in their direction but frequently overshooting or undershooting.
What is a conspiracy here:
The idea of an invisible hand which is beyond anyone’s control, or the analysis of historical information which shows a pattern?
I choose to believe the data, not the fairytale you are proposing.
> What is a conspiracy here: The idea of an invisible hand which is beyond anyone’s control, or the analysis of historical information which shows a pattern? I choose to believe the data, not the fairytale you are proposing.
I have bad news for you... that's how it's worked from the beginning of time. People with power have... more power. It's not a conspiracy, it's a side effect of the need to centralize for efficiency.
Read something like Anarchy - the East India Company. Sheer luck got them to where they ended up, despite them being a) a literal "conspiracy" (a corporation) and b) bumbling fools on repeated occasions.
This might be true for most people, but those with billions have the means to control policy, technological advancement, incentives, and how that technology gets used. Small picture, sure, random walk, but zoom out and there is definitely a path most people are following without knowing.
I'm a history buff and I read avidly. 2008 and Covid don't really impress me after reading about the East India Companies (British, Dutch), colonialism in general, power structures in places like Rome, etc.
The data points to wealth redistribution but the causes are larger than some dark cabals. Globalization is the biggest one and globalization is such a huge topic not even 1000 CEO out together could begin to understand it.
The central bank has very little power over the economy actually. It basically only has one lever and it is akin to a wrecking ball. It's job is to clean up the mess, not control the economy.
>The central bank has very little power over the economy actually.
I disagree. Any organization that can unilaterally set interest rates and add infinite assets to its balance sheet (two actions capable of moving the largest markets significantly) has tremendous amounts of control over the economy.
The vast majority of people are just unaware how much of an impact monetary policy has on their behavior.
The business cycle is a well-documented fact of the economy, caused by basic microeconomics. The busts have as good a reason to be there as do the booms.
Plus the business cycle has booms which are on average much longer than the busts, an angle which conspiracy theorists frequently choose to ignore.
The business cycle is not a conspiracy theory, thinking the business cycle is somehow "made" or "artificial" or "controlled" is a conspiracy theory.
Okay did anyone else get tricked by that websites dark pattern?
We've all been trained to not even look at the "do you accept cookies" thing anymore and just blindly press it. On this website, it's actually an ad link to their paid services that looks just like one of those accept cookies buttons.
My money still seems to work great. Those are some serious fiscal and social (but not monetary) issues that should be taken up with Congress not the Fed, and not the FDIC. Who handled this all very well I might add.
> Median savings is $4500.
The average American family has a $748,000 net worth, according to Federal Reserve data, median $121,000. Savings isn't just what's in your 'savings' account. Mine definitely isn't.
Money is a medium of exchange and unit of account. It's not a tool for building wealth, and it's not a long-term store of value. It never was. They shouldn't have money in the bank, they should have it productively invested.
average!= trimmed average and the real number to use is median. the upper and lower percentiles skew the data sooooooooo much. in statistics, one of the first things you learn is to not make decisions based average, but used trimmed averages and median.
121k net worth is NOT a good number to be sitting at when you are 45, let alone at 65. that is. savings rate faaaaaaar below what you need to provide for yourself in old age one you can no longer earn income. we do not want to generate a class of people reliant on aid for basic subsistence. also note that net worth is not liquid for most people. people can't live without shelter, or without transportation to their jobs, and so they cannot liquidate their car to tap into their net worth for food costs. 121k median means peoples net worth doesn't even come close to covering their shelter requirements.
for most people money isn't even working to get them by day to day, let alone working two functions of today, and saving for tomorrow.
By your numbers, the median American family could put their entire net worth towards a cramped condo and still be making payments. That is not the image of stability that you're pretending it is.
Problem being that total assets does not measure liquidity. That people only have $4500 of cash is a significant problem if they have a relatively minor emergency. Especially in the US, where a $4500 hospital bill is pretty cheap.
Sure, but you can't mark 100% of non-cash net worth as completely illiquid. You can borrow against the value of your home, borrow against the value of your 401(k), sell your stock. If you need a few days to move money around, there's credit cards. Personal loans. It really depends on what you're trying to measure.
> Americans don’t even have money in the bank. Median savings is $4500.
But M1 is about three times M0; the difference, about $12T, comes to about $400K per American, so some Americans do have significant money in the bank.
On the other hand, $4500 is nearly 3 months of income for quite a few people, pre-tax. ($10/hour, 40 hours a week for 3 months is $4800). And it isn't like you are going to be able to save much at those wages.
In other words, a significant amount of Americans have little-to-no money saved.
Correction, about $40K per American (or about $37K if we subtract cash on hand for businesses, per another post downthread). Still about 9 (or 8) times the median.
AFAIK yes, it includes all demand deposits regardless of who the depositor is.
As far as how that affects the calculation I made, from what I can find online, total cash on hand for US businesses is about $1T, so that would have to be subtracted from the difference between M1 and M0 to find average cash deposits per person for individual accounts.
Ah but we have a solution to that: its called going into a crippling amount of debt which one will never be able to pay off, which will guarantee a revolving door leading right into the bank's pocket book!
I find it more interesting few seem able to recall what happened the year prior in 2007.
Recall the elevated marketing hype from those trimming portfolios knowing full well what was happening. What I see is a short term 30% sales bump in real-estate (ratio of debts in negative amortization) as the amateur tries to find inflationary shelters after getting disappointed by laggard bond markets.
Kind of reminds one of giving sugar-cubes to raccoons... knowing they wash their food in water as habit.
Rule #9: if people start answering odd questions you didn't ask, than one probably should be extra cautious.
Where's the "occupy movement"? Where's the "CHAZ/CHOP" of 2023? What about "hope"? Are netizens signing up for exorbitantly expensive new services on a widespread basis?
If individuals aren't being "excessively enriched" by conditions it's unlikely to become another spectacular market wide blow-up.
Social causes are a proxy for froth. A short Friday memo probably isn't.
Exuberance is in the hands of price gougers right now, and even that's mostly confined to California,... and eggs.
Sure we're back to "grocery delivery" (which marked the height of the .com bubble) but it's the biggest players involved, the technology is practically free these days, and the immunocompromised benefit!
Crypto is diffuse and not very many people. Fewer than 2M bitcoin wallets contain $28K, a median family's worth of savings / 4 checking accounts.
That's not even a whole city's worth of people "demonstrating", and it's a global thing. It's a quarter of the speculative value of AAPL.
It's also concurrent and passive. Very few people have dropped everything to do the crypto influencer dance, and now influencer+crypto is seeing SEC crackdowns.
Crypto is at most slacktivism right now. Nothing like BLM, MAGA, which are no doubt viewed by powerful economic planners as wasteful.
The primary function of central banks isn’t managing
inflation and employment, it is acting as a lender of
last resort. In this way, central banks provide the
bedrock for the banking system. The Fed’s ability to
perform this role expanded during the Global Financial
Crisis. They created many different types of lending
facilities to provide liquidity to banks, and many
former broker-dealers (like Morgan Stanley and Goldman
Sachs) became bank holding companies so that they could
access them.
Am I crazy or was there an entire section that said "this isn't a crisis because the fed is happy to give banks that make poor investment decisions taxpayer money?"
Doesn't this say that when a bank makes a poor investment, they can borrow from the taxpayer so they don't have to realize their loss?
Honestly, it's a good thing. Given how dysfunctional the legislative branch is with fiscal policy I can't imagine a worse idea than putting it in charge of monetary policy as well.
It turns the fed into the only arm of the government able to levy a new tax.
Printing 20% more money doesn't seem materially different than taking 20% of everyone's money.
Either way an individual is able to buy 20% less stuff and the government is able to spend 20% of the value of the economy.
Except the fed has to answer less to the public than legislators do. We have a non-elected tax authority deceiving the country about the level of tax they are paying through the subterfuge of an overly complex system.
I would love to hear how this assessment is wrong (actually, not rhetorically).
It's not wrong, we have a wall street government. Did you notice at how those most responsible for the 2008 financial crisis, never went to jail... instead they were the advisory board for Obama on financial stuff?
If we want the workers to completely own the means of production, by all means put officials elected by the workers wholly in charge of fiscal and monetary policy. I'm not arguing against it. Just don't half-ass it, let's go all in on central planning.
The whole “devalues other money” thing is the ‘quantity theory of money’ which has never really been observable as true in normal economies - only at the very extremes (but other factors play in - all in all velocity of money is more important).
True. There's option to export a newly created inflation to other countries, at least partially. Thus, steal from other countries' citizens and taxpayers.
It amuses me when people sometimes blame capitalism for bank failures, considering that banks are essentially governmental institutions with extra-steps. They're literally encouraged to engage in practices, such as fractional-reserve banking, which would be considered fraudulent or a scam in any other context. And to add insult to injury, they get bailed out when they lose their risky bets.
I wonder about the end-game effect of the BTFP. Great, today banks got enough liquidity thanks to the Fed, but after 90 days they have to return borrowed funds together with a relatively high interest and get back semi-worthless paper (because selling it will result in realized losses). In 90 days credit conditions probably will be even tighter than today and a lot of people will flee to the too big to fail banks. How we expect small/mid banks to stay stable after that?
And I don't even want to touch the question of fiscal deficits, which not only do not show signs of moderation, but accelerate even further. It either ends in a real default, or persistent high inflation, with negative real rates, which in a sense is also a default.
The BTFP has a one year term compared to the 90 day discount window.
You’re completely right about still being stuck with the low yield paper at the end of the year and the relatively high (to the paper) interest rate in the meantime (my read is that the banks continue to hold the paper and get the yield over the year rather than handing it over to the Fed, partially offsetting the interest cost, but I’m uncertain if that’s correct).
For that reason my speculation is the BTFP will be rolled over to keep kicking the can down the road at least until the proportion of debt sitting in long-term low yield held to market assets decreases (basically via the bank version of dollar cost averaging as they buy new treasuries/MBSs over time) or interest rates drop sufficiently that the haircut on their current low yield assets meaningfully reduces.
The interest rate charge by the Fed right now is effectively making the bank realise the haircut on their paper over that year while keeping up the illusion that their assets are still worth par value. This gives the banks the liquidity they need without having to write down the value of all their HTM assets as they would have to do if they actually sold any. In reality this also means those balance sheets, assuming conditions continue rather than return to ultra low inflation (or deflationary) conditions, are overstated.
The FDIC suggests this is by around $620bn for US banks which is smallish compared to the total US banking assets of $23,245bn but sizeable when you consider the sector has “only” $2,175bn residual assets after liabilities and imagine the distribution of unrealised losses against net positions across different banks.
With that said, the interest payments of leveraging the BTFP will presumably add to liquidity pressure, while even banks not using the facility but holding low yield HTM assets will be feeling the squeeze of needing to pay depositors current interest rates backed by a portfolio weighted down by low yield paper. For that reason if things worsen it wouldn’t surprise me if the Fed dropped the interest rate fee for BTFP towards the average yield of the pledged paper, effectively turning low yield paper into current yield assets and pretending 2020-22 never happened while shoring up the profitability of banks that managed their way healthily through this saga.
What I find a little confusing is how commentators seem to think there’s no problem because banks can hold/could have held these assets to maturity and get back the par value then - that the problem is simply that people wanted their money back at the wrong time. I guess that’s true in the strict sense of “why now” but unless conditions change again the unrealised loss will be realised eventually - either in one hit by conversion to today dollars or over time by inflation. The only way I can see this not being a problem is if banks were going to keep paying depositor interest rates as if it were 2021 until these low yield assets came to maturity, but the challenge of doing that without bailing in depositor funds over that time window when someone down the street will otherwise pay something closer to the current Fed rate seems obvious. It seems like the only game once yields rose was spinning plates and wearing the loss slowly hoping their portfolio sufficiently turned over in the meantime.
As I see it in the simplest sense, a bunch of banks have traded 2021 dollars for Timeline A 2051 dollars, where Timeline A has 30 years of extremely low inflation. People have now asked for 2023 dollars back. But it turns out we now live in Timeline B where we’re looking at moderately low inflation over the next 30 years, and the value of a Timeline A 2051 dollar in 2023 dollars is around 80c.
Pretending they can sit on their low yield paper for 28 years while slowly wearing the loss against the current Fed rate, yet alone inflation, is somehow okay because they’ll have the same numeric dollars at the end seems a fallacy unless we’re assuming a hugely deflationary environment from peak population that is not current priced in by markets (i.e. speculating that we’re actually in Timeline C).
I assume given the consistency of commentators saying there would be no issue if the assets were held to maturity means I must be overlooking something.
It feels like all the content here is subtext... so I guess I get to do Philology. These are the given reasons:
| this probably isn’t 2008, for three key reasons:
(1)Policymakers have tools to solve banking crises, (1.5) and the bigger banks are much stronger
(2) The economy is in a much different place
(3) The magnitude of the problem is, so far, much smaller |
His take on reason #1 is that MMT has won. Monetarism is over now. Dollars in the bank are dollars in the Fed and these are infinite. They're still pretending in the rhetorical, political and legal sense... but the policies are not that anymore. The Fed can, if it wants, increase rates but as it does it will fully back banks.
Banks are no longer limited by the value of securities on their books. This is now known not to cause hyperinflation, and regular inflation is either tolerable or someone else's job.
reason #2 - For Non-banks like a company with a loan or a human with a mortgage, "Monetarism is dead" means nothing. They're affected by rate increases and can run out of money and get wiped out. Luckily, debt is not super high like it was in 2008.
He charts household debt, but I think the bigger "story" is company debt. Google, Amazon, even Tesla are all about equity. They're don't care about interest rates.
Reason # 3 needs no commentary: "The Global Financial Crisis was driven by price declines in low-quality assets with poor disclosure leading to a solvency crisis. This episode has been driven by price declines in high-quality assets with pristine disclosure leading to a liquidity issue."
Money started out fictional, we're just taking our sweet time mentally recovering from around a millennia of thinking metal and money are the same thing.
Turns out, the real nature of money is debt. And debt is just a relation between people, so there's no natural limit to it, other than confidence.
It’s so short-sighted to say that inflation is “tolerable”.
Since 2008, the real inflation has been in asset prices - housing, equities, startup valuations have been up massively across the board.
This has societal consequences. The divide between the asset owning class and the non-asset owning class has never been greater. Stretch that out and you get populists getting elected all over the world.
"Policymakers have tools to solve banking crises [...]"
With TARP/EESA still in place Fed/Treasury have more power
"The economy is in a much different place"
XLK has subsumed XLF since 2008
"The magnitude of the problem is, so far, much smaller"
Look forward to my upcoming essay "Casting doubt on the commercial real-estate economy"
In conclusion, "we still don't see it coming" avoiding the term, "subprime" or acknowledging that predatory lending ever occurred, and this weird typo:
"[...] the primary facility *though* which banks can borrow [...]"
Of course isn't a repeat, it's just another flavour with similar consequences: bailouts, money printing, rampant inflation, credit crunch, and so on. No matter the language acrobatics and fancy terms used to describe it.
This has social and political consequences. Populists haven’t started popping up across the western world for no reason. Half the country feels priced out of basic dignities like housing.
That is because housing is coupled to the stock market. Stock market and real economy are two different things by now, or should be treated as such conceptually.
Try telling that to someone in the bottom 50%ile. “Sorry that you’ll never own a house - our free money policies have decoupled the real economy and stock market. Now get back to work.”
Well, since it's the investment branch of the bank that's publishing, it would be strange if J.P. Morgan weren't writing about it. Additionally, I think it's definitely worth a read, as it provides detailed information in a cautious style.
Loans create more money; in other words, according to your proposal, private banks shouldn't lend out more money than what they have (as customers' deposits).
> private banks shouldn't lend out more money than what they have (as customers' deposits)
The proposal is to eliminate fractional-reserve banking, which usually requires public accounts at the central bank [1][2], though in practice, there is no reason each state couldn’t open an account at the Fed, to keep the Fed out of the business of retail banking.
I think that's what the commenter was getting at, but I think the fixation on banks as a way of "printing money" as a big problem is wildly overblown. "Money" is more of a fiction than that, and that's ok. Creating a successful company creates money. Crypto created money (while often pitched as ultimately being about the opposite).
> I think that's what the commenter was getting at, but I think the fixation on banks as a way of "printing money" as a big problem is wildly overblown.
Actually, most of this fixation is directed at grousing at the Fed for creating money, while ignoring the roles of retail banks issuing loans in creating money.
> Creating a successful company creates money.
No, it doesn't.
Creating a successful company creates value. Creating value often results in creating movement of money. The velocity of money in the economy is a loose proxy for the overall health of the economy.
> Crypto created money.
Yes, it did. One of the criticisms of it is that the amount of 'money' it created * the current value of that 'money' is significantly smaller than the amount of value it created.
There's a pretty common complaint about "traditional" finance and the banking system from the pro-crypto crowd that it lets "special" private parties "create money" in addition to central banks. The sort who will say things like "why do banks get to create money, why can't I??" That's the specific bit I thought was being hinted at.
> Creating a successful company creates value. Creating value often results in creating movement of money. The velocity of money in the economy is a loose proxy for the overall health of the economy.
It creates money in the same way a loan does. There are no new dollar bills printed, and yet people behave as if those dollars are in more places at once. People pull forward future (expected) company revenue to put a current value number on the company and then they exchange money for parts of that company, and adjust their spending habits based on that present value. Like how in a loan they pull forward a future value of the sum of their expected payments on the loan, in order to increase the velocity of those dollars that were loaned out vs them sitting in a mattress.
I suppose my quibble is that the concepts of "creating value" vs "creating money" distinction is largely meaningless in a world where we have so many mechanisms for exchanging money for the expectations of future money or value. Or even for the derivatives of those expectations!
Okay, that's a more interesting take on this. Let me try to unravel it.
Firstly, I don't think the 'shadow economy' of horse-trading on projected value/cashflows (Which is what investment is, if we reduce it to absurdity) is particularly relevant to the actual act of creating value. It can certainly accelerate/deccelerate it (Speculative investment, versus tightening investment), but it can also operate entirely disjointly from it (Most of the crypto ICO craze.)
> There are no new dollar bills printed, and yet people behave as if those dollars are in more places at once.
They are in more places! Not at once, but they change hands more frequently. You've then gone on to describe ownership of capital, but you've missed the most relevant part - consumer behaviour. Consumers don't exchange money for parts of the company, they don't look at the firm's financials, they exchange money for what the company produces! And the company behaves in the same way towards its suppliers.
Consider a closed village of subsistence farmers who don't buy anything, and make everything they consume with their own hands.
How much value does a peasant create? As much as he consumes.
Now, consider that same closed village, where half the people are growing all the food, and half the people are making all the household goods, and they trade with eachother.
How much value does a peasant create? About as much as in case #1.
What's different about these cases is that money changes hands in the latter. That money can be taxed. That money creates opportunities for employment (Which is very relevant in a modern economy, because most people make their living by working for someone else, as opposed to themselves.)
Is all this a confidence trick? To an extent, yes, but it's a confidence trick that a 'jobs' based society requires to keep functioning.
> I suppose my quibble is that the concepts of "creating value" vs "creating money" distinction is largely meaningless in a world where we have so many mechanisms for exchanging money for the expectations of future money or value.
I largely agree with you in the sphere of 'investment', but strongly disagree with you in the sphere of 'consumption'.
I think the biggest difference in how we're approaching this is around the "value creation" aspect. I was being intentionally short-term-focused, but I don't think I made that clear.
I agree completely about the valuation of circulation, I think I was just getting at it differently when talking about creating a sucessful company "creating money." Thinking about consumer behavior of the founder, investors, and any other employees of that company. They're gonna spend their "actual dollars" much more freely because they have that new asset of ownership of the company in their back pocket. Which increases circulation, taxable receipts, etc etc.
Value is ultimately necessary, yeah, I think that's what you're getting about re: the consumption sphere. Because I believe that most companies produce more real value than crypto, say, I do think real companies are a much better long-term way to go since sooner or later people will notice that gap and start selling their stakes in things not actually bringing in real revenue in exchange for real value with corresponding bad effects on consumption. A company and a crypto token can both give a bunch of early parties a bunch of "new spending power" overnight - but for long-term health, you need something that will continue to reward the next several generations of investors, vs just a greater fool scam.
If money is a fiction, and if successful companies create money, then successful companies create fictional currency and assets. So crypto being successful and creating money is just as bad as a successful company like Facebook or Google. Because money is fictional and therefore useless. And it's okay to accumulate a useless asset like money? Strange. Is there another game we can play? One that exits from this bad capitalism? Because chasing after money, a fake and useless asset, is not good.
It's fiction in the sense of value set arbitrarily by people. In the end the value of most things is like that. People are ready to spend more money (meaning they value it higher) on houses bigger than they need, without getting any utility out of it for instance.
Money is debt. It is a relationship between people, not a thing made of matter. In that sense you could describe money as fictional, but certainly not useless.
The normal definition of money includes bank balances.
If you deposit $1000 of cash at a bank, and they loan it to someone else, you still have $1000 of money but now that other person also has $1000 of money.
But the abstract (and more accurate) version is even more interesting. Let's assume the person getting the loan deposits the money at the bank. Now we don't even need to touch cash. Giving out a loan is just adding 1000 to someone's account balance, in exchange for their contract to repay $1000+interest later.
A bank can do this over and over, and each time it creates $1000 of money. And when the loan is repaid, the money disappears.
Unsure. Clearly, Credit Suisse and Deutsche Bank aren't making a case for big banks right now. But in light of TBTF, and the sole benefit of public ownership being scale, the tradeoff just doesn't seem to make sense for mid-sized banks.
First Republic is sweating every down tick. You know who aren't? OneWest. FirstBank. MidFirst. Eastern. Nobody is writing stories about their stock price because it's not publicly traded.
Our equity markets have always been weird, but they’ve gotten weirder in recent years. For most businesses, that volatility is fine. Customers of e.g. Nike aren’t checking its stock price before buying sneakers, and it mostly has enough cash on hand to conduct business if creditors get spooked.
Banks are different. A random drop in their stock price will lead to a perceptions failure that trigger run conditions. This is how Signature and Credit Suisse were, at least proximately, done in. We’re practically seeing it play out again with Deutsche Bank.
Public ownership lets these banks access cheaper capital. But the operational effects of volatility make it seem a bad deal. For the largest banks, if closely supervised, I can see the risks balancing. But for mid-sized banks I don’t.
> Banks are different. A random drop in their stock price will lead to a perceptions failure that trigger run conditions. This is how Signature and Credit Suisse were, at least proximately, done in.
You have the cause & effect wrong, the stocks tanks because the bank is failing. Tons of banks that are not publicly traded fail too.
In this cycle, Signature and Credit Suisse's stock slides preceded their banking panics. The proximate causation flowed from equity prices, to CDS, to deposits. (The ultimate causation stemmed from a general insolvency. But that's not unique to Signature over its privately-held counterparts.)
Credit Suisse had a 14% CET1 ratio, higher than JPMorgan. The stock price was depressed because it wasn't turning a profit but it was nowhere near a level of losses where it would be a concern from a creditor point of view.
There were a series of news before investors started panicking, it’s not like people randomly decided to dump the stock without any reason.
> (March 9) Credit Suisse shares drop as annual report delayed following SEC call
> Postponement comes as regulator weighs in on 2019 cash flow statements
> (March 14) Credit Suisse finds ‘material weaknesses’ in financial reporting controls
> Swiss bank says it lacked effective processes to identify risk of misstatements
Yeah. No restatement to the numbers already published. Doesn't look good but should hardly move the stock price, let alone the credit worthyness (two distinct things).
I'd argue a big difference between 2008 and now is that in 2008 we mostly saw an institutional run on the bank after Lehman, i.e. money market funds and other banks not trusting banks and refusing to lend longer term than overnight.
What we are seeing now is a retail run on the bank, the electronic equivalent of people hearing rumours on the street and queuing in front of branches (except now with twitter and their banking app). In some cases for good reason, others not so good.
I think the difference is that retail depositors don't look at financial ratios (and shouldn't be expected to be able to understand them). So how do you convince them?
One thing that is certain is that contrary to what the article says, none of the regulations introduced in response of the financial crisis helped. Higher capital ratios? Credit Suisse had 14% CET1 ratio and there was still a run. Higher liquidity requirement? Credit Suisse had over 200% LCR and there was still a run. Bailin? The swiss regulator judged that doing a full bailin of a large financial institution would be too disruptive to financial markets so only bailed in a small tranche of the CS capital stack (AT1). So what tools exactly are available to regulators that weren't in 2008?
Nothing happened “after Lehman”. The Lehman collapse was a result of what came before it — the liquidity crisis, the bank runs, and the stock market crash.
Does anyone remember the sign boards outside every bank offering up to 10% interest on short term CDs in the fall of 2008?
When my mom called in February this year about opening a “savings account” for the grandkids at 5 1/2% interest, I knew something was up. Because the going rate the month before (and ever since 2009) was something like 1/10 of 1%
1. Because in putting all their money into MBS, SVB essentially invested it with merrill lynch pierce fenner and smith circa september 2007, and per temporal waste management rules, when you send toxic waste back in time to destroy it, you can't call it a 'repeat' when it is still a problem in the present
2. Because chase wasn't writing listicles in 2008
fwiw chase's actual argument is 'bank stocks are in the shitter'. This is not what I would write if Chase hired me to write a listicle about Chase being a safe and good place to store things.
Credit Suisse shareholders were paid in shares of UBS, in a major value writedown, quite comparable to the JPMChase deal for Bear. Certain select shareholders (Saudi Arabia and Qatar) seem to have been protected while others (AT1 bondholders) were not.
Patrick Boyle's YT channel is doing a great job on this, first became aware of it during the SBF spectacle, just as good now:
> "UBS was clear from the very start that they would only participate in the deal if it was cheaply priced and if UBS could be indemnified from any of the legal issues that Credit Suisse was potentially facing... 'This is no bailout', the Swiss finance minister said, 'This is a commercial solution'"
So the difference is what, it's more globalized this time around? Note that indemnity provision was likely informed by fallout from the JPMChase deal for Bear, see this 2013 Reuters Blurb:
> "New York state’s lawsuit against JPMorgan Chase & Co. alleging fraud in mortgage-backed securities sold by Bear Stearns may be one of the broadest cases to come out of the financial crisis..."
It seems quite familiar. Investment capitalism goes belly up once again due to short-sighted greed and a lack of regulation, and the government steps in to cover the losses for the fearless risk-taking entrepreneur class (who have bought most of the politicians) in what certainly looks like an 'entitlement program'... while libertarians everywhere remain curiously silent. Con artist much?
Social safety nets for the billionaire investors are needed to prevent societal collapse, it seems. But who cares about all the homeless encampments, they should have learned how to program... it's their own fault, and people need to take responsibility for their actions...
A good strategy to not get to a "crisis" would be to keep increasing interest rates in order to squeeze the middle class and at the same time print trillions to provide liquidity to the big players like banks. In this way not only will you push wages down through constant layoffs, remove all the advantages that employees had for negotiation during the coronoa boom. But you also squeeze the middle class with huge inflation thus eroding all their savings and hope.
In 2008, the Treasury and Federal Reserve had a ton of ammo to use to provide liquidity. Since then, they have tried to inflate their way out of it using creative accounting and quantitative easing.
The reason this could be worse than 2008 is that those methods will not work as well.
Part of the reason SVB failed so fast was because they held a lot of long term government debt, mortgages etc.
When they tried to sell it to provide liquidity for deposits they found there were not many buyers for it.
Since 2008, foreign purchases of long term debt have dropped from many of the main credit countries with no real replacement other than the federal reserve.
If the Fed moves from a buyer of last resort to the only buyer then that is game over. QE won't help because it will cause inflation. Inflation will move people, foreign countries and institutional investors away from long term debt.
Basically a hyperinflationary environment with systemic bank failures all caused by a sovereign debt crisis. Before long just funding the Govt will be impossible because the debt will no longer be seen as safe as it once was.
The difference is that the collapse won't be as immediate as 2008. It can be much more of a controlled demolition, until the methods they have used stop working.
It all just has to collapse at some point and reach an equilibrium again. It's only a matter of time...
> Part of the reason SVB failed so fast was because they held a lot of long term government debt, mortgages etc.
When they tried to sell it to provide liquidity for deposits they found there were not many buyers for it.
What? That’s nonsense. There is an extremely liquid market for the securities and selling them was no problem.
The problem is that they lost value when interest rates rose, were held in a “hold to maturity” portfolio to avoid having to mark down prices as interest rates rose, and the bank didn’t properly hedge its interest rate risk.
Yeah, there was a liquid market for it, but not for par value. No one wants to buy securities yielding ~1% when there's ample supply of safe securities yielding ~4%, so they had to discount them a fair bit to get them to sell. Which is how they lost value.
But it mainly happened fast because once word was out on social media that they were bleeding out, it had stoked depositors to withdraw their deposits.
SVB also did not have "worthless assets", but the extreme rate hikes by the Fed significantly reduced its value. Wait until tightness of credit conditions will cause chain of defaults and we will see how well banks will fare. We already see the first signs of it in the auto loans market.
The core tool the FED has used to fight a crisis has been money printing, disguised in various forms. It keeps finding newer and newer ways to disguise it, all of which essentially keep kicking the can down the road.
The results from this strategy will keep becoming worse and worse every year, however. Unlike 2008, America is too politically divided, there is too little distrust in USD after the confiscation of Russia’s reserves, and there are too many alternate currencies and power centres for the US to still print away.
Wait we have been through this before. The 2000 dot.com boom, 2008 subprime banking crisis where we bailed out the banks and the banking bonuses. 2023 silicon valley bank, credit suisse. Central bank zero interest policy caused this. Somehow it started in 1980-1990 Japan with their real eastate crisis and japanese bonds central banks going towards zero interest rates. Hopefully it will be better this time.
I guess now we will have a mix of startup bubble, real estate bubble, obligation bubble, stock proce inflation of p/e rates valuations.
> For now, the magnitude of this problem is smaller
I am not sure about that. In 2008, it was only a crisis in the US real estate lending market that became contagious. Now, it is a crisis of global inflation. All long-term loans were granted by the banks in recent years with the expectation of much lower interest rates. Their prices were ment to cover the risks. Sinces all such loans were too cheap, they actually do not cover the risks appropriately. This means that banks worldwide will face large deficits in the foreseeable future.
They want to convince investors not to withdraw their money based on pseudo-logics.
They want to gather money by leveraging on emotions and feelings.
They can do both only with dumb people.
Banking will only change when we keep the management fully responsible. The bank goes bankrupt, the management goes bankrupt, see how they will gamble with your money then.
AT1 bonds are specifically designed for this purpose though. They offer high returns but at a higher risk. How would one collateralize an asset that is designed to default catastrophically while hiding this fact from the lender?
The three reasons:
(1) Policymakers have tools to solve banking crises, and the bigger banks are much stronger
(2) The economy is in a much different place
(3) The magnitude of the problem is, so far, much smaller
here is my take: interest rates are already where they used to be in 2008, that would imply that people have a hard time paying back their mortgages. Trouble with housing would imply that real trouble is somewhere around the corner.
It helped greatly that the fed acted so fast. Had nothing been done it would have been way worse. Even Charles Schwab even was down 20% on Monday ,and this was after the bailout. Things were getting really scary.
It's also quite true - the banking crisis won't be a repeat of 2008.
But, unlike 2008 which was fairly limited to (arguably huge) banking and residential mortgage sectors, this crisis will hit hard everywhere - valuations are still insane, the % of zombie companies is off the charts, inflation is everywhere, FED and governments have much less room to manoeuvre (contrary to what the article claims).
In the past 3 weeks, 3 fairly big US banks were seized by regulators, and a 166 year old Suisse bank was rescued.
My personal indicator for when the shit is really hitting the fan, is when Warren Buffett starts buying stuff.