An enormously important new regime gets engraved into central-bank handbooks. The ECB and Bank of England are also on board.
By Wolf Richter for WOLF STREET.
It makes sense in this era of high inflation, QT, rising policy interest rates, and high financial fragility in the banking system, after years of money printing and interest rate repression.
The new regime was already tested successfully by the Bank of England last fall: Tightening through rate hikes and QT while simultaneously providing liquidity to the financial sector for a brief period to douse a crisis.
Today, the Fed confirmed the new regime: It hiked by 25 basis points, bringing the top of the range to 5.0%, and QT continues as before, while it is also providing liquidity support to the banks.
Some people call this principle stepping on the brake with one foot (QT and rate hikes) while stepping on the gas with the other foot (“QE”).
But liquidity support of this type is not QE, and doesn’t have the effect of QE, Fed Chair Powell explained today at the post-meeting press conference.
It’s more like stepping on the brake with one foot while putting an arm around the baby to keep her from hitting the dashboard – that’s how I’ve been explaining it, to stick with the foot-on-the-brake analogy.
Powell on the new regime:
“Recent liquidity provision increased the size of our balance sheet. The intent and effects of it are very different from when we expand our balance sheet through purchases of longer-term securities,” he said.
“Large-scale purchases of long-term securities [QE] are really meant to alter the stance of policy by pushing up the price and down longer-term rates, which supports demand through channels we understand fairly well,” he said.
“The [current] balance sheet expansion is really temporary lending to banks to meet those special liquidity demands created by the recent tensions. It’s not intended to directly alter the stance of monetary policy,” he said.
“We do believe it’s working. It’s having its intended effect of bolstering confidence in the banking system and thereby forestalling what might otherwise have been an abrupt and outsized tightening in financial conditions. So that’s working,” he said.
“We think that our program of allowing our balance sheet to run off predictably and passively is [also] working,” he said.
Fighting inflation while keeping banks from toppling.
Powell split the fight against inflation and the liquidity turmoil at the banks into two separate issues, to be dealt with by using two different sets of tools.
- Tools to fight inflation: Interest rate policy and QT.
- Tools to provide liquidity to the banks: The “Discount Window” (short-term loans against collateral at 5% from now on) and the new Bank Term Funding Program (loans for up to one year against collateral at a fixed rate near to 5%)
But banking sector turmoil may help the fight against inflation.
As a result of the turmoil in the banking sector, “financial conditions” have tightened and may tighten further. Tightening of financial conditions is precisely what the Fed wants to accomplish, how monetary policy is transmitted to the economy and ultimately inflation, by making loans harder to get and more expensive, and by making businesses and consumers more reluctant to borrow, and therefore putting downward pressure on credit-financed demand from businesses and consumers, which would theoretically take off pressure from inflation.
“We’re focused on this potential credit tightening and what that can produce in the way of tighter credit conditions,” Powell said.
“When we think about the situation at the banks, we’re focused on our financial stability tools, in particular, our lending facilities: The discount window and also the new facility,” he said.
The new regime at the Bank of England and ECB.
The BoE put this regime into action last fall when it bought long-dated government bonds for a few weeks to end a death spiral triggered by pension funds when they tried to deal with margin calls. But with inflation raging at 10%, the BoE has to also tighten monetary policy. As soon as the turmoil settled down, it ended the purchase program, sold those bonds, and continued with QT and rate hikes.
The ECB last week explained the new regime when it hiked by 50 basis points and continued with QT – after having already reduced its balance sheet by €1 trillion, despite the chaos at Credit Suisse and fears of contagion.
ECB president Christine Lagarde said at the press conference last week: “There is no trade-off between price stability and financial stability. And I think that if anything, with this decision [hiking by 50 basis points when markets were expecting no hike], we are demonstrating this.”
She added that ECB staff “have demonstrated in the past that they can also exercise creativity in very short order in case it is needed to respond to what would be a liquidity crisis if there was such a thing.”
Powell wasn’t done yet.
“I’ll tell you what I heard,” Powell said about the discussions at the FOMC meeting. “What I heard was significant number of people [participants] saying that they anticipated there would be some tightening of credit conditions. And that would really have the same effects as our policies do. And that, therefore, they were including that in their assessment” of future rate hikes, he said.
“And that if that turned out not to be the case [if financial conditions don’t tighten enough], in principle, you’d need more rate hikes,” he said.
And if inflation remains high, has the Fed tied its hands with these signals about rate hikes coming to an end after one more hike, he was asked.
“No, absolutely not. No. If we need to raise rates higher, we will,” Powell said. And he added, “Of course, we will eventually get to a tight enough of a policy to bring inflation down to 2%. We’ll find ourselves at that place,” he said.
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Glad I got out of US stocks. Looks like the FED will keep raising rates.
Hiking rates while increasing liquidity?
“QT while simultaneously providing liquidity”. It’s double-plus-good.
Just like taking money while giving it back. Its about billions of dollars given to mismanaged banks that invested money into crypto. How about student loan forgiveness for the poor students?
What a screwed up world we are living
Student loan forgiveness really bails out the parents.
Nahhh! Powell stated (according to the quote in the article) the Fed will provide short-term liquidity (i.e., the equivalent of short-term loans) – emergency funding when fissures erupt in the banking system. But, yea, sure sounds like he’s saying the Fed will function as a fire department for banks that mismanage their reserves.
Or, one might ponder whether this is really about taking out regional/small banks as a prefatory step to consolidation of control. Wall Street versus Main Street as it were.
SVB was nearly 100% “Wall Street.” It was the billionaires playground.
My problem continues to be the massive balance sheets.
Why did the central banks choose to raise short term interest rates, but leave in place the massive balance sheets? If they had sold off those balance sheets, they would have incurred minimal losses and been able to get the balances down to reasonable levels quicker.
So why raise interest rates and then make it impossible to sell the balance sheet off rapidly without incurring large losses?
The only rationale I can come up with is that they believe that the massive balance sheet works differently than increasing short term interest rates. The balance sheet crowds investment out of safe Treasuries into riskier assets, thereby creating asset bubbles for rich people.
What the central banks are attempting to do is to reduce inflation by reducing consumption by slowing the economies, but they simply do not want to pop the asset bubbles, which would be a different path to reducing inflation. This is a choice that they make to prop up the rich, while they screw the poor and middle class.
Wolf – tell me if I am wrong. Do you think that QT and QE via asset sales and purchases has a different impact or at least a different impact on markets than changes to short term interest rate policy? Or do you think it is fungible? Any evidence why it either matters or doesnt matter?
“How about student loan forgiveness for the poor students?”
How about mortgage forgiveness for the poor homeowners?
How about auto loan forgiveness for the poor commuters?
Why not just forgive all debt at that point?
“How about student loan forgiveness for the poor students?”
Rich students Fixed it for you
and yet 30 year bond closed at 3.6%
something smells in Jerry’s kitchen
No FED fan but it has been stating for awhile, higher for longer. Was looking for the Wolfmans explanations of todays events. Thanks for the education………
I think this is more like pulling one’s nose hairs in the rear view mirror and talking on the cell phone with neither hand on the steering wheel and slamming on the brakes in the rain in the carpool lane at 70 mph, all whilst sticking a sucker in the baby’s mouth BEFORE the baby hits the dashboard.
There. I fixed it.
“Looks like the FED will keep raising rates.”
The 25 basis point rate hike was widely anticipated. With price inflation still running far above the target, the Fed couldn’t plausibly pivot and end rate hikes. But make no mistake, the inflation fight ended the moment the central bank created the bank bailout program.
“the inflation fight ended the moment the central bank created the bank bailout program.”
Have you forgotten the reason that QE occurred in 2008?? The banks failed. They are in no better shape (even worse), now! The early cracks in the foundation can be covered with a little duct tape, but there are probably hundreds of big banks in the same position as SVB. When these dominoes start to fall, the FED will almost certainly step in, inflation be damned.
You’re confusing two issues:
In 2008, the problem for banks were defaulting mortgages, backed by collateral (homes) whose values had in many cases plunged by 50-70% when sold at foreclosure sales. This was a credit problem – credit was going bad. Loans are and ASSET on the bank’s books.
Back then, QE was designed to push up home prices to end the mortgage crisis for the banks.
Today’s problem is deposit flight – run on the banks. Deposits are a liability (money the banks owe); Unlike in 2008, a big part of their assets are pristine in terms of credit quality (Treasuries and agency MBS). Their market value declined on average by 10% due to higher rates, but the price decline reverses automatically as those securities approach maturity, and at maturity, the banks get ALL their money back, plus they collect interest along the way. When the deposit flight stops, the problem is over because then banks can hold those securities to maturity, without having to sell them now, and they’ll get ALL their money back.
The big problem today is inflation. The Fed broke price stability with QE, and it knows it. And everyone knows it.
That’s why the Fed is now separating the two:
1. providing temporary liquidity to banks so that they can handle the deposit flight;
2. and cracking down on inflation.
“But make no mistake, the inflation fight ended the moment the central bank created the bank bailout program.”
The exact opposite is the case. By inventing the 2 new facilities the FED made it possible to fight inflation even in case of crisis. Those 2 facilites has far reaching perspectives. The FED can tightening now and in case of punctual liquidity stress extinguishing the fire.
That would mean furthermore an intractable inflation will not occur in the future as predicted from many so called experts.
Dang, look at that Fed balance sheeeeet. Poof goes QT. That’s all it took. Wolf, when’s the next Fed update? You’re the only site I trust, thanks for all you do!
Here you go, just out:
Update on the Fed’s Liquidity Support for Banks
Was it the Swiss National Bank that Borrowed $60 Billion via “Foreign Official” Repos for the Credit Suisse takeunder?
– Mr. Market: Rate cuts are coming. (Price) Inflation or no (Price) inflation.
“Mr. Market” has been braindead wrong for two years about this.
Can someone please explain why the Fed makes money available to the banks and does not have any reserve requirements? If the banks were required to have even 10% reserves; perhaps the Fed wouldn’t have to step in.
In SVB’s case, that wouldn’t have helped because the run on the bank was so huge, and so fast, and so well coordinated by a relatively small number of people with gigantic accounts, that the Fed would have had to have a 50% reserve requirement for SVB to withstand that. Even then it would have gotten into trouble.
But you’re right, high reserve requirements force bank to exercise some prudence.
Above all, SVB was a huge regulatory failure — and the Fed is solely responsible for that.
In SVB’s case, that wouldn’t have helped because the run on the bank was so huge, and so fast, and so well coordinated by a relatively small number of people with gigantic accounts…
Makes me think a small number of people with gigantic accounts may have been trying to force Federal Reserve into doing a pivot. Well, it looks like they ain’t getting their pivot.
Full reserve banking and bank runs are no issue. 😉
On the other side, the economy would then have to be organized different to work.
SVB and Signature were crypto banksters
any wonder why they were the chosen ones
> Makes me think a small number of people with gigantic accounts may have been trying to force Federal Reserve into doing a pivot.
Maybe, or maybe Thiel wanted to create an economic mess on Biden’s watch.
ROKU had $486 million on deposit at SVB. That’s a fair chunk of change.
Do you mean entrepreneurial geniuses would have to use their OWN or their friend’s/family’s money when they have a GREAT IDEA for something that the rest of us just CANNOT live without?
How are they expected to improve OUR lives and get filthy rich themselves in THAT WAY?
Stepping on the American Dream is WORSE than HIGH TREASON in time of WAR!
Please keep such trash to yourself!
Who knows what great things we will now ALWAYS be without because of this SVB debacle?
Self crashing cars is just one of many.
WTF is a ROKU? Am I living this pathetic life of mine because I don’t have it?
Guess it doesn’t matter as much with me, I’m well past expiration date, anyway.
I’m sorry for this rant, but stepping on AMERICAN EXCEPTIONALISM like one would a bug is just more than I can take.
I may start drinking (heavily) again.
Think of the CHILDREN at LEAST, Sam! PLEASE.
Will they have to return to the filth and squalor of playing sports THEMSELVES instead of wandering blissfully through the Metaverse being Tom Brady if they choose?
May you burn in the Lake of Fire for that evil thought!!!!!!!!!!!!!!
In the March of 2020, Mr. Powell reduced the capital ratio for Banks to ZERO.
Good lordy. Jeeeesus. I’m going to tear my hair out.
The Fed reduced the “reserve requirements” to 0 (given that the system is flooded with reserves.
The capital ratios were not at all reduced, not one iota.
What a silly remark.
That Mr Market didn’t get his way, yet, doesn’t prove he is wrong.
Mr Market can walk away if he wishes and the FED and the Treasury can not. They are the ultimate bag holders and can only disperse the losses over the taxpayers. The FED is making losses and the Treasury is deprived of a source of income because of that. The taxpayers have to fill the gap.
We’ll have to see whose bluff turns out to be called. Mr Market has a larger play area than the other two and will outlive any government or any market manipulator. The difficulty for individual mortals is timing. And a lack of lifespan perhaps, to live to see things unfold.
My reply was to “J.M. Keynes” who said in his comment: “Mr. Market: Rate cuts are coming. (Price) Inflation or no (Price) inflation.”
And I replied: “Mr. Market has been braindead wrong for two years about this.”
I remember when “Mr. Market” thought the 10-year yield was going below 0% and so the 10-year yield fell to 0.5% in August 2020. That’s exactly how braindead stupid “Mr. Market” is. We’re coming up on the third anniversary of that month, LOL.
The fact is there is no “Mr. Market.” The expression is nonsense. The market is a chaotic environment where traders, algos, and investors fundamentally disagree with each other — some are buyers and others are sellers. And there is NEVER an agreement in any financial market, or else you wouldn’t have a market. You always need people who disagree in order for a financial market to exist. You need people who think this is the top and they sell. And you need people who think this is a good entry point and they buy. A market MUST HAVE buyers and sellers. And what changes is the pressure to buy or to sell.
“Mr Market” is a bunch of cheap money junkie chancers who dress their cravings for punchbowl return as ‘market’ expectations. Aka miserable ‘pivot crowd’.
You cannot have a trade without a buyer and a seller both thinking they won the trade.
We had a better concept of this during the 80s when people used to scream at each other on the floor. At least that was my takeaway from ferris bueller and that Eddie Murphy/Danny A movie.
Good movies, wish they made those kinds of comedies.
Shit, I am old.
Powell hiked by a 1/4 point to save face he’s done. And so much for QT 6 months of QT wiped out in 1 week. Are you blind? The Feds balance sheet just increased by $300 billion in 1 week! You just won’t admit when your wrong. QT is over it can’t be done. How many times of QT will you see before you see they cannot do it? Inflation will run rampant. Small banks will go under and gobbled up by the too big too fail banks. The only BS is you!
My headlines in the near future are going to be a hoot:
“Fed Balance Sheet Plunges by Most Ever, by $210 billion in X Weeks, as QT Continued and Liquidity Support for Banks Unwound.”
You’ll love it. The only thing I still have to do is wait for the final amount in billions and number of weeks, such as “4.”
“Nothing is so permanent as a temporary government program” – Milton Friedman
Wasn’t QE supposed to be temporary at start?
I bet the > $300B liquidity pumped by Fed is much higher than that of UK.
Bernanke said in a WSJ article July 2009. rates would normalize when unemplyment dipped below 6.5% (then 11%)
That was $5 Trillion ago. And thats how you win a Nobel prize in economics.
“Thats how you win a Nobel prize in economics.”
When he should be wearing an orange jumpsuit instead.
Check the facts, there is no Nobel Price in economics.
Bernanke was awarded “The central banks” price in economics.
Oh, you mean “The Sveriges Riksbank Prize in Economic Sciences”? The clue is right in the title!
“Nothing is so permanent as a temporary government program” – Milton Friedman. Wasn’t QE supposed to be temporary at start?”
Would you like a list of all the Fed’s various alphabet programs from 2008 that were phased out? It’s a long list.
The last round of QE started in March 2020 and ended in March 2022.
The prior round of QE ended in 2014.
So they do end.
But the current liquidity program will vanish very quickly. Why? Because it’s expensive for the banks. They’re now borrowing at 5% at the Discount Window, AND they have to post collateral, when they could borrow for less from depositors or bond investors WITHOUT posting ANY collateral.
The FDIC has already made deals to sell most of the Signature Bank assets, and the bridge bank will return funds to the Fed when those deals close. SVB has lots of interest from potential buyers, and when those deals are done, the bridge bank will return the funds to the Fed.
This liquidity support will vanish so fast it will make your head spin. And when it vanishes, are you going to call it mega-QT, LOL
You say “…This liquidity support will vanish so fast…” via these short term (bridge style) loans being paid back (i.e Bridge bank returning $$ to Fed).
Can you explain how a bank(s) get into this liquidity problem, get loaned $$ at what seems to be a fairly high interest rate, then magically become liquid within a short time (a year or less)?
If these banks made bad decisions to get themselves into needing these “bridge” loans, how is it pretty much guaranteed they will pay back the bridge loan and not blow the bridge loan $$ the same way they failed to be stewards of prior investor / depositor funds?
I don’t mind calling it mega-QT. Also I am happy learn that these borrowings are expensive, but they are not free markets. I bet free markets would giclvw them a real junk rate of 20%.
Also, what worries me is that Fed doesn’t set any timeliness on these loans / programs. They normally go like “whatever it takes”. So they took $8 Trillion from Fed and still in grand scheme of things we are still going from one crisis to another.
We should just let stuff fail. The good old Darwin’s law works pretty well.
Update on the Fed’s Liquidity Support for Banks
Was it the Swiss National Bank that Borrowed $60 Billion via “Foreign Official” Repos for the Credit Suisse takeunder?
Ahh yes, Uncle Milty. Product of the Chicago School, contrived by Horse and Sparrow fans to bring back the Gilded Age using the hard scientific proof of Economics and phony Nobel Prizes.
Seems to be working….and…and……sad…but I’m all ranted out.
Seriously doubt rate cuts are coming anytime soon.
On the otherhand, I’d say the Fed is pretty much done now raising rates; inflation will adjust downward on its own.
This is NOT the economy of Paul Volker. So many differences hard to touch them all. This economy does NOT need interest above rate of inflation as secondary effects (wage increases) will not succeed at the same level as in the 1970’s. Also, there is hardly any savings by the mass of US unlike the 1970’s, so that buffer will assist with continued wage stagnation.
The other strategic point missed by most on this entire interest rate issue is Ukraine/Russia/China, et.al. We have entered a new era for challenge of dollar hegemony. The Fed knows this and will keep the dollar strong at almost any cost (save depression). So even as inflation slows down, don’t expect a move back to COVID levels with interest rates.
What data are you looking at that makes you confident inflation will move down?
Serious question – I personally believe inflation will stay high for a long time, although I’d prefer to be wrong about this.
Don’t forget demographics. Volker raised rates right before the biggest generation in the world started its highest earning years. Now we have the biggest generation leaving the job market.
Gen-Z has overtaken Millennials by nearly 4 million to become the largest generation in the United States. Baby Boomers are the third-largest generation.
The Fed is about to be exceedingly busy.
The Fed is hoping it can wave away a giant problem of its own manufacture.
The banks (all of them) are holding long duration paper that has lost value as rates have risen. How much would you pay for a 2021 MBS yielding 3% when you can buy a new one at 6%? More than 3/4 of MBS yield less than 4% right now.
Banks can’t sell this paper without taking a loss, and can’t hedge it because the comparable duration Treasury costs more than the underlying paper yields.
By providing loans at par the Fed is allowing the banks to access cash without selling the toxic paper and having to book the loss. This is most definitely not QE; the banks are paying out the ass for this cash at 4.75%.
The Fed is providing a large scale, short duration, expensive hedge for banks that are holding so much underwater paper, the US banking system as a whole is probably insolvent at this point. If they had to mark to market.
Just thinking out loud but one option is for the banks to hope the homeowners go into foreclosure and default on their loans. The loans are backed by the GSEs so the bank would get 100% of the MBS paid off as soon as the home owners default and they would not have to hold the MBS for the length of the loans?
This would move the MBS loss from the bank to the tax payers via the GSE.
A lot of them have very low fixed rates. Some will rather cut their arm off then to give them up (ouch for the banks) But it is like turning a huge tanker around, it takes time and tide but yes this will occur especially if unemployment / divorce/ have to move for a new position/ retirement comes around, as it will, as it always does. I feel for the loans to commercial properties and watch as the little food and coffee shops slowly close up on the ground floor tenancy’s This is a Note from my favorite coffee shop ” Stellarosa has fought hard through Covid- 19 then WFH to remain a viable business and now with lead tenants leaving we can now longer afford the losses, we thank you for your custom and wish all clients safe employment and good health” Alexandro lost $160,000 of the buy in 3 years ago but still has 2 years to run on his lease… Bankruptcy is his only way out.
Slowly Slowly catch the monkey
You might want to check the price of rents in your area. Renting may be more expensive than the house payments.
Who gets the interest on the long duration papers against which the banks have borrowed from the fed? If the interest on the long duration papers are 2% and banks get paid these interest then may be the over all deal (4.75% – 2%) is not too bad?
My personal gut feeling (again too many complicated things going on) based on the experiences I have had with big banks in last several weeks and what I have experienced with some companies switching things on employment front (from planning and starting layoff to now stopping layoffs and continuing as good old times), I believe inflation is going to stick around longer then most people would think.
If banks treated bonds as bonds, they wouldn’t have to worry about the “share value” of the bond. A bond is a contract with a fixed term, meant to be held to maturity.
Banks are in trouble because they don’t understand the difference between a bond and a stock.
If bonds were bonds then:
Bond – having a profound realisation of being a human sharing one Earth Sea and Space
Stock – stopping to take in the view of the bond.
Bank – expressing gratitude for bond
Share – always acting in the interest of the bond.
But don’t stop refining, promoting and living the concept.
I have a few 5 year CDs with only one year left, paying only 3.1%. They are brokered so I’m down around 2% if I sold them today. If the Fed would take these CDs off my hands and give me 100% for only 4.75%, that is not going to help me much.
If I was a bank and had ignorantly not hedged long duration, low yield treasuries and was sitting on a 20% mark to market loss, then it would make a lot of sense to swap that loss for a 4.75% loan as now I can invest that money recklessly again at par, rather than wait possibly as long as 30 years to get full value like was the original rules of the game.
Yes this is not like main lining “QE”, but it does provide liquidity in unnatural ways, depending on what the banks do with the new liquid funds borrowed at 4.75%.
I get it, it had to be done or risk a banking collapse, yet the real damage is the moral hazard as why play by the rules and hedge your bets when Uncle Sam will bail you out in the end from ignorant choices. This does not make a stronger society, this makes a more willfully ignorant and reckless one instead.
Long term moral hazards are most concerning, IMHO. Stopping every “Clearing event” both economically and nature wise often end in massive fires that can’t be contained by any means.
Yet it is difficult to connect the dots over such long time lines. For example it has taken 50 years after dropping the gold standard to really see the moral hazards and negative effects pile up and trap us all in the situation we currently exist. And it has taken 40 years to finally easily see that debts actually do matter, as productivity plummets and the financialization of everything becomes obscenely unhealthy.
Accumulated moral hazard will ultimately result in a “fat tail” catastrophic systemic failure. Virtually nobody claims to care until “tomorrow” arrives and it’s now.
This one wasn’t the first and it won’t be the last. Prior regulations and policy decisions to prevent debt defaults have led to the most overleveraged financial system with the lowest aggregate credit quality in history.
The financial system is not “sound” or ‘resilient”. If it actually was, then this action wouldn’t have been necessary. No different for over a decade of QE/ZIRP and unprecedented deficit spending. “Normalize” monetary and fiscal policy to pre-GFC and either the house of cards falls apart or living standards plunge.
““Normalize” monetary and fiscal policy to pre-GFC and either the house of cards falls apart or living standards plunge.”
Why can’t it do both? I’ll argue we’ll get both ;)
Also your above comment was unavoidable when they chose to do what they did it 2008. The rest was just timing. If they normalize they’ll be the biggest loser, hence why we never normalize. We don’t have an economics crisis, we have a political crisis.
I think there are two separate issues to consider. The first is the bank run problem, which provided people don’t flee to physical cash, the money has to be held in a bank somewhere. So all the fed is doing is wheelbarrowing funds in the back door so that customers can take it out the front and to the bank down the road. That bank then eventually just deposits it back at the fed as well. There isn’t really any net gain/loss to the overall financial system.
The more serious issue seems to me to be that these assets have taken a real loss, so someone must be bearing it. If you were sitting on treasuries at 1% you’ve just taken a hit and there is no way around this. Even if you sit to maturity, inflation has eroded the value of that bond at redemption vs what you could have had.
So who is bearing these loses? At the moment it would seem lots of depositors sitting on 0.5% rates are being hosed. But the longer rates remain elevated the bigger the losses, so whose balance sheets are these going to start popping up on? At that point either you get actual insolvencies or the fed has to actually start bailing out.
Wolf, how come the corporate debt market has been so quiet? I always thought this would be the cause of the next GFC as so many companies were leveraging up against very thin profits. I mean, even Apple started taking on debt despite having zero need to do so.
Not likely but…just a thought. I had a friend call me over a year ago. Said, hey bud, take a home equity loan at current 3% rate. I stated, bubba, don’t need a loan, don’t want to make a monthly payment either. His response: rates are gonna go up it’s a freebee in case your financial state changes and you need liquidity for whatever.
Speaking of moral hazard…..
This is what most people miss.
There are far more paper claims representing supposed wealth than actual wealth. In a credit based economy, it’s never 1:1 but the gap keeps on expanding. Eventually, enough people wake up and there is either a deflationary crash or exploding inflation. Maybe both.
I am telling everyone that will listen that you are solving nhe banks problem if you are leaving deposits with them at near zero. The market rate for cash is nearly 5%.
@Old school, I am old too and have almost my entire IRA loaded up with 5+% CD’s, 6 month T bills, some government backed notes at 5+ % and the balance in MM funds paying 4.46% (today). Anyone leaving money in the bank @ 0.05% is either totally uninformed or just plain lazy.
And even at the 5% average I am making in my tax sheltered IRA (and Roth), I am only losing about 2 – 5 % from inflation which means it will take longer to go broke!
Better than a stick in the eye though!
A long-winded, but correct, way of saying sustained QE/Federal spending created huge debt obligations that now have to be serviced in an era of rising interest rates. Good luck with dat!
Mechanics of all of this aside – the people who engineered all of this (does anyone actually believe it was accidental or “poor” theory?) need to be held accountable – with extreme prejudice.
How much would you pay for a 2021 MBS yielding 3% when you can buy a new one at 6%? More than 3/4 of MBS yield less than 4% right now.
Based on net present value, around 30-40% less. That’s from a starting point of 1% discount rates. A $10k bond at 3% has an NPV of $12k, and at 6%, $15k. That $3k difference is the unrealized loss that all banks are facing not just SVB. Bugg try because of 10:1 leverage, that $3k loss could be $30k. That loss would equal more than the entire market capitalization of the bank. In fact, more than the deposits at hand or reserves. Banking in essence is a ponzu scheme that only works with government guarantees.
The unrealized losses that banks face are about 10% on their securities since they hold a mix of maturities.
MBS holders get pass-through principal payments every month (including the Fed, see my Fed articles), which reduce the balance of the MBS, as the underlying mortgages are paid off through sale or refi of the home, or are paid down through regular principal payments. There are no losses involved at all with these pass-through payments; they’re at face value. After the balance of the MBS shrivels enough, it is called by the issuer, and the remaining underlying mortgages are repackaged into new MBS. So a 30-year MBS shrinks constantly and may be called after 8 years or so. In that respect, a 30-year MBS is a lot less risky (duration risk) than a 30-year bond.
re: “the banks are paying out the ass for this cash at 4.75%.”
Good point. How many of the banks are going to sign up to lose money?
Good summary. Spot on.
Given a choice, the Fed prefers not to utterly contradict mkt trends…but it is much more amenable to act so as to spread the consequences of mkt trends over *time*.
The problem is that the Fed had “incrementally” interfered so long and so thoroughly with ZIRP and its predecessors that the mkt itself is thoroughly and almost completely distorted (vast asset overvaluation).
The Fed wants to slow walk the crumbling…okay…but without crumbling there is no fix (of inflation).
What happens after the “one year” anti panic Fed bank loans still can’t be repaid (because no one wants underwater bank held paper, except at a discount sufficient to cripple/close banks?)
SP500 is a longer duration instrument than even a 30 year treasury. Its a little strange that it hasn’t got marked down more than it has.
S&P500 going to 1500. How’s that for a mark down. z.🤣
That 401k money gets pumped into SP 500 index funds no matter how stupid the overvaluations (especially when the ZIRP fixed income alternatives were 1%).
The SP 500 stopped being fairly valued around 2015…but 401k autopilot/auto destruct – along with goofball individual valuations at Tesla, Nvidia, etc – kept Wiley Coyote suspended in mid air.
Also, mkt cap driven over concentration in the SP 500 top 10 stocks has also facilitated the madness.
While Apple/Microsoft/Google may not have Tesla/Nvidia level insane PEs…even at 25 to 30, given their mkt penetration, they are overvalued…you can’t own the earth twice.
And those three players might make up 15% of the entire SP “500” value.
Madness, madness, lunatics all the way down.
Of course, if humanity wakes up and realizes that a $15 Android phone has 80% of the functionality of a $750 Apple phone…the Fed can always buy Apple equity at “par” (whatever price necessary to not torpedo the 500…).
What a joke. The irrational Fed is lying again as it is only bailing out failing banks to feed money back into the upper 0.!% of the people that possess most of the world’s wealth. We the middle American taxpayers will be shouldered with this burden. High time to dismantle the Fed and let free markets function without usurpation from mindless Fed subhumans. Examine what Powell did decades past in Milwaukee, WI, wherein he engineered the financial destruction of a high-tech ball bearing manufacturer that, at the time of his acquisition was in the black and very solvent. When he sold it, it was nearly a billion dollars in the red. Sic
And as an added bonus, the bigger banks have an opportunity to pick through the wreckage and gobble up what they want at a bargain basement price, and let whatever they don’t fall by the wayside. What’s not to like?
And a greater share of banking moves into “too big to fail” banks, meaning more exposure by taxpayers, directly or indirectly. Or is every bank now too big to fail?
No bank is “to big to fail”, it is rather a question on how to distribute the distress. It can be done orderly by arranging the regulations to minimize the impact before it happen or put of until there is a chaotic failure that can not be managed.
The message from Powell (and Yellen) has been loud and clear, but it seems that no home owner and stock investor wants to hear it after 14 years of QE and ZIRP. Entire asset classes and careers are joined at the hip with what Bernanke initiated, and the “new regime” will cause painful adjustments.
Also, Powell knows that a country with 32 trillion dollars in debt and counting; massive budget deficits, and 1 trillion dollars in trade deficit cannot afford to let the reserve currency go, and bond investors will demand higher returns now that inflation will be with us for a while.
The can has been kicked long enough, and we have run out of the road.
They sure did kick the can a long way. I am still stunned how long the nonsense has continued till recently.
A lot of it had to do with the psychology of “American Exceptionalism.”
The Romans, The Germans, and the British all met their end because of it.
I always thought it meant living within your means. HEE HEE I have a lot to learn about history.
Did you notice currency parity takes time
This is a good point (just how much ruin DC was able to find in the US economy before actually destroying it…).
My theory is that the China boom was hugely deflationary (far, far beyond what the US consumer actually saw) and that allowed DC to act in horribly inflationary ways (vast DC controlled deficit spending) that exploited the China deflation to net out to something like price stability.
But that is a corrupt, dangerous, and asinine way to manage/run a ntl economy.
Like trying to make toast with a propane torch instead of just fixing the f*cking toaster.
That $32 trillion is one reason we are not going to Volker type rates. 5% or so will get the job done once it works thru the system. Let the real estate defaults begin.
Oh, the gvmt is not done issuing excessive treasuries. The debt game will continue.
oh the government is still going to run up the debt, but it isn’t going to be serviced at a high rate. Japan debt service is 25% of budget at less than 1% interest rate. If Powell kills inflation to 2%, I bet 10 year goes to 2% or less. We are too broke to pay a positive real rate.
Plenty of precedent for this “enormously important” Fed hustle, in American history:
18th Amendment: “Prohibition goes into effect. No more alcohol for the masses. Purity”
Al Capone: complains but cashes in.
21st Amendment: “Prohibition repealed”
Al Capone: can we go back to prohibition?
Nothing about this really makes sense, in any paradigm.
Inflation is now clearly a supply side problem, because manufacturers would rather up their price than produce to prevent shortages.
Powell won’t be happy until unemployment kicks up and “destroys” demand.
If folks are unemployed, they won’t be producing the supply.
Demand will go down, but sure won’t go down uniformly across all sectors.
It’s like the housing problem catch-22. Purchase prices and rental costs will keep going up until we get more house on the market, but as long as the cost keeps going up, interest rates will keep going up, which makes it even harder to finance those house for builders and buyers, so the prices will keep going up.
All while Jay Powell keeps stacking the interest rate payments on the pricier bonds on the federal deficit for Congress to sort out later.
“Inflation is now clearly a supply side problem, because manufacturers …”
You need to start paying attention. Inflation shifted to services a year ago. Prices of many manufactured goods have actually dropped for months, but prices of services are spiking:
You are spot on, the inflation battle is in services which in 2021, contributed to about 77% of the US economy.
Ergo, since services are human resource dependent, inflation will not come down until the supply of services workers increases or demand for services falls. I am just an average guy but I think we need a recession and cuts in Biden Bucks to cool inflation.
And the reason we have ridiculous services inflation is due to the “because I CAN charge more” problem. Every single supplier of services or materials I deal with has caught on to the inflation story and has raised prices by outrageous percentages… sometimes multiples of previous prices. This in spite of the fact that the cost of their materials or services is essentially the same as it was in pre-pandemic times.
Everyone from car dealers to title companies to handymen, plumbers and hardware stores are all crying the inflation song. They’re all selling less product and working fewer hours and making the same as, or more than before.
Maybe the fed is right. Put enough people out of work and scare the hell out of the rest who are still working, and they’ll stop charging double or asking for raises every 2 months … or god forbid, some might even go back to work.
The right price is the price where the product of price and volume give the highest return. Gross earnings or return on investment is the sellers choice.
We may have seen a switch where return on investment is the goal. If so, we may see a steady decline in supply with prices sticking or going up.
Less people working only reduces purchasing power and to keep the margins supply is reduced as no one want to see their return on investment rate shrink.
The cure for that mentality is a lack of demand and readily available labor. When you have lots of labor willing to do the work for cheap and a lack of demand, those businesses that ask outrageous prices will lose customers.
I am in the midst of bringing costs down on some vendors who think I am locked into their services and can raise price as much as they want. Screw them.
It all makes sense if you translate it from Newspeak. “Maximum employment” is double mandate with “Price stability”. Akin to “Inflation Reduction Act”.
Inflation is a monetary problem… you can not goose the monetary base by 38% in two years with no increase in goods and services and not get inflation
Just as in physics, for every action there is an equal and opposite reaction.
According to some studies, as much as 3.4% of inflation (not percentage of, but 3.4 out of 5.8% inflation) is attributable to profits. It seems that companies used COVID and Supply Chain Fiascos to gouge the market and consumers! Shocking!
And yet so many people remain capitalists! Of course, then you trot out the “No True Scotsman” argument. Anyway, who cares? We have about 20 years of this left before it all changes. Let the good time roll.
Geez o flip!
According to Hussman excessive government deficits basically flow to corporate profits. No coincidence that biggest deficit of all time flowed to highest profit margin of all time. A business is not a charity and they will raise price if market will pay it.
Too bad that markets, as outcomes of human behaviour, have more in common with biology than physics. Expecting mass human interactions to conform to simplistic models based upon Newtonian mechanics is a recipe for disappointment.
No Fed fan here, either, but this seems sensible.
Cue a few posters on this board with their over the top “lock J-Poww up! stuff.
The concern I have is that this move short circuits price discovery. If the asset is has gone down in value then it should not be allowed as collateral at par. And this favorable valuation should not be given to one group of asset holders only. Additionally, if price discovery of assets is prevented, value discovery of money is impossible.
Money is a tool to distribute goods and services efficiently to those who have demonstrated good sense in using their resources. The banks have been foolish. They should bear the consequences. Otherwise there will be no price discovery and markets will break down. Money will cease to be a store of value and a tool for exchange.
This policy doesn’t feel right to many people. It makes them distrust their money. Money is morality. It’s what people trade their life and talent for. People have to trust that it’s honest. It might be the best policy available, but it’s a bad policy.
FDIC insurance has short circuited price discovery in the banking industry since 1933.
I tend to agree and it would be nice to see them burn for their mistakes and irrationality but on the flip side it would send everything into a massive tailspin, crash the economy and likely send the world into chaos. As much as I like seeing rich bankers totally bereft, I also like to be able to live in a prosperous society.
I also cannot say I wasn’t an active participant in this chaos with my 2.5% mortgage and sub 1% car loan. We’ve all benefited from this extended QE.
This isn’t a good deal for them to be fair. They’re not selling the bond, they’re loaning it to a body and paying interest for the privilege.
It’s like if you loaned me a five dollar gold coin and paid me 5% on top of that for five dollars in paper money for one year. Youre still going to get your coin back and it’s likely going to be worth less when you get it back still, plus you lost out on 5%.
In a fractional reserve bank, this is a very very bad loan.
We’ll see if they keep upping the loan duration though.
“I tend to agree and it would be nice to see them burn for their mistakes and irrationality but on the flip side it would send everything into a massive tailspin, crash the economy and likely send the world into chaos.”
You need to back up that statement with something reasonable. Otherwise, it sounds like the same self-serving fear mongering our banking industry has been spouting for decades.
A free market provides an obvious cure for market dislocations. Why wouldn’t it happen here?
I know Wolf touched on this theoretical conundrum in this article. The conundrum being ensured liquidity. I just still feel like banks will not care as much now that ensured liquidity has been made public by the federal reserve and ecb. There are things I would do with a safety net that I would not dare without a safety net. The banks are no different.
True that. Exhibit A – condoms.
The conundrum is that while Powell was talking QT (after rasing rates .25%), the actual rates on 2-year to 30-year treasuries went down.
That is a deck reshuffle. It is a temporary affair. Higher for longer is not just a statement but a needed fact
I see it as market is betting that Fed is going to cause a recession and will have to lower rates. Summation of likely short term interest will be less than 3.4% over 10 years. Might be right or wrong. Ten year treasury trade has been the right bet for a few months.
I wouldn’t touch a 10-year or 30-year until the Fed disavows use of the money printer. They still consider it a tool to manage the economy. The current debate is about WHEN they use it, not IF they use it.
I believe they will target 2% inflation and get 4-8% inflation for the foreseeable future because they will continue to fire up the money printer in times of unforeseen crisis, and they never project a crisis in their projections.
“I just still feel like banks will not care as much now that ensured liquidity has been made public by the federal reserve and ecb”
It’s unclear what you mean about “the banks” not caring. SVB bank was taken over by FDIC. Would this make executives of other banks care less? Perhaps the SVB “bank” could be partly defined as its executives. Since they were fired, it seem like this would not cause other bank executives have less care government adjustments to insure liquidity.
As much as I am a hater of big money capitalism backed and insured by government, it seems that it might be a harmful hit to American competitiveness to just evaporate hundreds of millions of dollars aimed at technological or other valuable types of R&D. Let the zombie companies evaporate the money on their own as the free money dries up. But don’t starve the efficient and innovative companies from getting needed capital.
A lot of SVB’s customers (alleged high tech companies that are gonna save us all…) are actually mostly a lot of broken-down unicorns with horribly thought out business models/unit economics and “tech elements” that are vastly exaggerated, non-functional, or more easily duplicated than commonly understood (3 million plus Android apps leads to a lot of duplicate functionality).
Ask yourself, if these unicorn factories were filled with such geniuses…how did they allow their own concentration of risk in SVB?
And…any “startup” that has spent over $50 million (and there are a lavishly funded *ton*) without proving business model/unit economics viability…are likely to implode eventually regardless, since they never really had realistic businesses in the first place.
All of them really deserve a FDIC haircut…but DC won’t allow it due to the belief that accountability triggers panics (which tells you all you need to know about DC…)
I hear you and share your sentiments. Let me offer a slightly different experience. Our very small company, not tech-related but a service-based company uses Patriot Payroll. I have had less than pleasant experiences with ADP and Intuit. Patriot’s customer service has been excellent. We are a small company so our needs are fairly limited; payroll taxes and direct deposit.
Turns out, since a significant portion of the direct deposits were funded through SVB accounts, enough that direct deposit was shut off for all Patriot customers and only turned back with the new due to the FDIC/SVB policy(?)
For us, this was a small inconvenience and paper checks are always at the ready. What shocked me however, was that I had exposure to a bank that I would have never chosen to work with. I suspect the damage without the guarantee would have been significant well outside of the immediate blast zone.
Fair enough. I’m will the consider the possibility of collateral damage/disruption.
But it sounds like your situation would have been days worth of operational disruption rather than loss/haircut of funds.
There is definitely a sense of “everything is connected to everything else” in an economy…but the possibility of disruption cannot completely displace the possibility of *accountability* – otherwise you end up with lavishly overfunded fiascos who basically use their customers/peers/etc as hostages for political leverage (too big/central to ever be allowed to fail/pay any significant price…no matter the level of irresponsibility).
Government operations are the worst at this (public education’s main tax/spending message has long been “we have your children” while petting “their kids” with a Saddam-like paw) but Silicon Valley has shown itself to be just as craven in a crisis.
I agree whole-heartedly. As you said, for us, a potential short-term cash flow non-issue. Definitely not a reason to rewrite rules to bail out parties friendly with DC. I waffled about posting my remark in the 1st place. I have no desire to feed a narrative that the swamp has sage elders at the wheel. I have no confidence in such a narrative.
Real leaders would have engaged in controlled burns decades ago.
Thank you for taking the time to reply.
Some consequences directed at the banks executive would help mitigate what you are referencing an definitely share your concern. I suspect that many who object to the SVB standard recently applied would feel a lot better seeing a perp walk or even a significant clawback. I would. I am highly skeptical we will see anything of the kind.
“Large-scale purchases of long-term securities [QT] are really meant to alter the stance of policy by pushing up the price and down longer-term rates, which supports demand through channels we understand fairly well,” he said.
@Wolf, you added “[QT]” to what Powell wrote, but I believe you meant to write “[QE]” as raising the price and lowering the rates of long-term securities is Quantitative Easing.
Powell’s comment: “…bolstering confidence in the banking system and thereby forestalling what might otherwise have been an abrupt and outsized tightening in financial conditions.” If these are one year loans then the forestalling will end then.
It would seem that Powell has to rapidly end inflation in order to lower interest rates so those bank long term treasuries are worth something again. Otherwise slow rolling this inflation is going to be a 1970s decade of up and down stagflation with regular banking crises.
The liquidity crisis is already abating. It will be over soon. Liquidity is like that, like a liquid that ebbs and flows, not like a rock that stays in place.
Hussman had a pretty interesting thought that too much liquidity led to liquidity problem. Banks were faced with the problem of what are you going to do with all those deposits? Oops, we did the wrong thing.
The BTFP eliminates the liquidity dilemma that killed SVB; it had to realize a loss on its long duration bond holdings in order or liquidate them to satisfy depositors’ flight. This is an enormous help to banks. If the interest rate on BTFP loans starts pinching bank solvency on a cash flow basis the Fed will cut the rate. The power to create money from nothing makes any bank problem resolvable if the Fed is willing to expend its credibility and fix it.
re: “This is an enormous help to banks”
Then why aren’t the banks borrowing more?
I’m wondering about the possibility of banks not being able to fullfill the pay back terms of the short term provisions.
In addition, what if the people panic about their deposits in small and mid size banks that have not been promised the same short term liquidity provisions as the to big to fail banks.
People might start looking for the safety larger banks that have the Fed backing. Could this result in an avalanche of small and midsize banks not having the reserves for stability
As long as I keep my deposits in any bank, big or small, below 250K, I am not worried. FDIC insurance covers it. Hopefully quickly so I can pay my bills. That is the point of FDIC insurance.
If I was over 250K, I would likely have deposits in multiple banks. Long term CD’s, accounts issued by different banks to keep my exposure in any bank below 250K.
If I was a small/medium company with over 250K that covers payroll and holds order income, I might be worried. That is not that much money for a company. Maybe there is umbrella insurance that can be purchased?
I don’t know if it is possible to split payroll across multiple banks?
I believe that the BTFP and the discount window are available to all regulated US banks. If the rate of interest charged starts to present a solvency problem for the banks the Fed will reduce the rate.
So, why do more banks use the discount window?
There is plenty of demand at the BTFP and the discount window; they are keeping the wobbling midsized banks afloat.
Update on the Fed’s Liquidity Support for Banks
Was it the Swiss National Bank that Borrowed $60 Billion via “Foreign Official” Repos for the Credit Suisse takeunder?
Explicitly put, lets get rid of small and mid banks, the community orientated, the ones with a face, that act in the interests of locals.
As tech and AI continues to infest every day life, small banks are slow to adopt the new faceless app based instant real time model. Fewer and larger banks will allow things to happen much faster in the event of The Great reset? This may be a case of ” never let a good crisis go to waste”
Wisoot – well said, akin to the fixing the number of HOR seats back in the late 1920’s (the Constitution sets a lower, but not upper, population size for Representative districts-check U.S. population in 1930 vs. now, and do the arithmetic on some of what’s happened to the power of your ‘local’ vote at the Federal level…).
may we all find a better day.
I’m still way way out!
“Above all, SVB was a huge regulatory failure — and the Fed is solely responsible for that.”
They are not responsible for regulations, just enforcement. That’s the job of congress and the senate. 2018 saw rollbacks on how mid-size banks are leveraged and their transparency requirements — and that contributed in large part to this fiasco, which is really just moral hazard and stunning incompetence writ in 2000pt comic sans.
The Fed knew that SVB was in trouble and they knew that a number of other regional and mid-size banks had similar liquidity issues as both a natural result of the interest rate jump AND unhedged positions AND clear managerial avarice well before this happened. But cops can know that a drunk is likely to drink and drive and not be able to do anything about it until they get behind the wheel.
I found the 11th-hour bonuses and pre-emptive stock sales of SVB execs to be particularly disgusting.
Clawbacks of the SVB bonuses and stock sales would be appropriate, but I don’t know if they would be legal. Medicaid claws back assets of the deceased, as much as it can. Maybe clawbacks are only used on the poor.
Wil Leake: In bankruptcy court there are “claw back” provisions that will probably come into effect for some of this, as it relates to SVB.
Thanks. That should send a chill up the spines of SVB management and SVB workers.
re: “The Fed knew that SVB was in trouble”
See WSJ 3/17/23 “Another Banking Crisis Was Predictable”
The original sin was monetary policy, Thomas Hoenig says, but regulators failed to heed the warning signs of a disaster in the making at SVB and elsewhere.
“The Fed knew the duration-risk problem was developing long before SVB hit the panic button. A second-quarter 2022 report from the Kansas City Fed notes that “since year-end 2019, U.S. commercial banks increased securities holdings by $2.0 trillion. . . . The increased holdings were in longer-dated maturities, extending portfolio duration and exposing banks to heightened interest rate risk.” The report notes that rising interest rates have “led to historically high unrealized losses on banks’ available-for-sale (AFS) securities portfolios.”
Whatever reason Powell gave for the new money, I look at the effect this way:
1. When the bank run occurred, no money got lost or destroyed. It just moved from one temporary storage to another.
2. To stabilize these troubled institutions, he is creating new money (printing) and paid more than the collaterals are worth today. That itself is inflation. If this money just sits in the troubled banks books to assure the depositors and stopping further withdrawal, it is fine. But they will be lent to others increasing money in circulation that would chase the already inflated assets.
So, in Powell and the elites definition, inflation means just the increase in salary, food, etc. (the small items). For them it is fine to have inflated housing, inflated stocks and what not because these things keep our big system from collapsing. Cities love inflated houses (RE taxes). Fed loves inflated assets (increases tax revenue), pension funds can pay their obliged distributions.
Tell where I am going wrong?
I don’t think you went wrong sir,
But you sure nailed a part of the overall fraud.
#1 is more a controlled siphoning then a “storage”.
#2 is the scam.
I just think what happens towards the next week when more lower tier banks get swallowed by the 12 TBTF’s?
Get ready for a whole new s**t and swallow show.
There is an “effect” that you’re summary may be missing. It’s the “debt side” that needs to be considered more fully: the upshot of Fractional Reserve Banking.
Money deposits “lent to others increasing money in circulation” can be lent at up to 10 dollars for each dollar deposited. The banks create this new money themselves. The Fed merely controls the license to print. New money = new debt.
In a deeper sense, money is not what people usually think it is. Money is merely debt with a more palatable name. And debt is what really makes the world go ’round because there is always more debt and debit on the books than there is what we call money.
Maybe I’m not being clear. So open your wallet and examine some greenbacks. Federal Reserve NOTE is printed on all denominations. You know what a NOTE is, right? Just take it from there. And prepare to reassess your understanding.
Next week I’m going to Billy Bob’s AutoMall to exchange about 1500 NOTES for four tires and four struts. Billy Bob will use my NOTES to pay Firestone and Monroe who will use those NOTES to meet payroll to the people who have a mortgage bundled into securities or somesuch derivative … etc.
On the more positive side, inflation (not my new tires!) and debt are absolutely essential for growth. And growth is facilitated because we don’t use Gold and Silver Certificates as money any more. Controlling it all is what’s so messy to fathom. Our boat is no longer anchored to Gold. Drifting away… away…
Not to pick on you personally bki, BUT:
“On the more positive side, inflation (not my new tires!) and debt are absolutely essential for growth.”
“Growth” and Inflation and debt are NOT essential AT ALL,,, except for those profiting off the labor of others…
NO inflation whatsoever IS essential for social stability that leads to political stability, etc.
Certainly, any Inflation is BAD for WE the PEONs whose ”holdings” go down in actual value, no matter what ”money” cost may become.
I dig. And I used to feel the same way. For my own practical purposes and philosophy I needed an attitude change. Kind of a “don’t fight city hall” approach. We’ve gone from capitalism to financialism and I can only recommend that approach for my own self, yet offer it to others who may be searching to construct their own philosophy.
Inflation is built-in. There’s no escaping it. No alternative. That is, not until growth stops due to resource depletion, climate, population and other things that we have no political will to improve. And nobody has been in training to manage a low growth or no growth economy. The fed won’t allow deflation. So, for now, the growth train is unstoppable. Yet it can sometimes be managed well, when it’s not being managed badly.
Was it you who told me that dollars are more than tokens? I do contend that most everything is a token for something else. Everything is representative of something.
As I always say, your mileage may vary.
If you think inflation is bad, Vintage, you should see deflation. There’s a reason that governments and regulators will do almost anything to avoid it, but you have to be familiar with the deflationary episodes of the 19thC to understand why.
Wrong on several accounts.
IF, you have an economy that is productive, that by definition is deflationary. So some money growth has to occur to offset the deflation. This is primarily to protect the credit system. Idealy, you make the inflation small enough and steady enough that no one notices. The reason a full gold standard would never work in the decades of the industrical revolution is because there was so much productivity gain that gold “couldn’t keep up”. Gold worked great in most of history where productivy growth (and/or population growth that could also cause growth) was nill. No energy but huma and beast, no population explosions; if anything implosions from plague.
But in that scenario (like we had in the 50’s and early 60’s) it works pretty well.
All that said, in a hugely debt ridden economy, inflaton is even more imperative to reduce the debt burden off the economy.
The problem the Fed has faced in recent decades is that money growth primarily went into assets (for a variety of reasons) and little into general price level. Not all but most. The Fed has been interested in experimenting with ways to get the general price level inflated (slowly of course) and bypassing asset growth. The most recent inflationary impulse was led by the Fed (I believe) with lots of free money help from the US government and so general price level inflation was borne. Controlling it is necessary, but make no mistake, the Fed wanted inflation and the got it in pretty good measure.
From here on out, I believe interest rates will not drop signficantly because, as I’ve stated before, there is another more pressing issue facing the US economy and that is challenge to dollar hegemony by Russia, China and a whole host of other pissed off countries that know the US has been living way beyond its means for decades now.
The factors needed for growth are an increase in the population and/or and increase in productivity. That’s all.
Unfortuneately, it seems like financialized debt will just get worse , and sound money backed by anything is just an old dream.
The push for digital money goes along with the communist/socialist agenda of removing freedom, and governments controlling everything.
Pray that it is not true.
Bought4 tires at wal mart for wife’s suv 18” originally $210 on clearance $50 . If you are frugal ,there is still ways to beat inflation
You are correct — the Bank of England published a paper about this back in 2014.
This for Mike R:
There is now long and longer known FACTs that NO ”credit” system is actually needed,,, except to keep alive the wealth and especially the propaganda of those who do no REAL work, as in making real ”stuff” and maintaining it…
Every thing in our current so called economy is just another ”RIP OFF” of the folks who actually DO make stuff and ”FIX” stuff…
All the rest of the ”leeches” etc., etc., can either GO TO ”heck” in as straight a line as Wolf will allow,,,
OR, preferably find some actual skills,,, likely imbedded in their genetics,,, and actually contribute and STOP ”sucking off the teats” of WE the PEONs who make and do real stuff…
BEE Clear folks,,,, now a days, the guy who was doing your yardwork for $20 is going to charge $100 or more, and that will just keep up with the ”inflation.”
And you don’t even want to think about the folks who did/will do your plumbing, electrical, carpentry repairs, remodels, etc., who will be even higher…
Think, for one minute, or more if you’re able, about the now QUADRILLIONS in the ”derivatives”…
Not enough to convince you???
Call a plumber,,, LOL…
I’m in your camp, trust me. I was just clarifying why inflation was used by CB’s and ramifications if not used.
P A Ramamoorthy,
“Tell where I am going wrong?”
Lots of places. read my prior articles and comments on this. Not repeating it here.
I thought the regime, or perhaps regiment, was 5% unemployment and 2% inflation, giving us a 7% “pain” index. We’re at 3.5% unemployment and 6.5% inflation now for 10% pain.
Unemployment will likely double before inflation drops below 5%. So whatever Powell does, he’s looking at an increase in pain that will have political repercussions.
It’s a crisis of Powell’s own making. Warren was bashing him on CNN. Langone was bashing him on FOX. I guess there’s a certain amount of skill involved in bringing that about.
The problem is zirp for too long. There is always going to be problems when you have to deal with the other side of easy money.
If printing money was the solution, someone would have figured it out before now. Did printing money make a house easier for someone to own? No it distorted the market causing gambling. It was an immoral act as there are losers based on no fault of their own.
It’s really not difficult to grasp, but we as a society seem to ignore the basic psychology. Show me an incentive, and I will show you the likely behaviors which will emerge from it. We’ve never been adept as a species at long-term thinking or planning, but the degree of “Omigosh, whouda thunk our policies – intended for only good things – could have incentivized shenanigans in the market is a total shock to us!” from the likes of the Federal Reserve leadership boggles the mind. They made money SO ubiquitous and interest rates on more conservative investments SO low, and then give their shocked face when companies use debt to buy back stocks, banks use the money to purchase risky assets rather than lend out, pension plans moved too far out on the risk-curve, or similar nonsense.
There are times it is very hard to accept these people are actually that educated and intelligent.
“There are times it is very hard to accept these people are actually that educated and intelligent.”
…is it incompetence, or hidden motives?
In any case, the Fed’s powers and mandate need to be scaled back. The organization has inflicted unbridled pain on the majority of society, while dropping huge bounties at the feet of asset holders.
I couldn’t agree more.
“…is it incompetence, or hidden motives?”
Precisely the question, isn’t it? I know this is all very terribly complex, but one would think with all those M.A.s and PhDs from fancy universities concentrated all in one place, *someone* would have pointed out things that would be obvious to mere mortals like us. So, I am forced to conclude that either
a) they are incompetent
b) they are competent but this is such a complex issue even THEY can not see the consequences of their actions.
c) they are perfectly competent, understand the ramifications, have chosen to do what they are doing, and are being disingenuous publicly about their true motives.
None of these options is particularly comforting. Perhaps one could argue they inherited a Faustian bargain and are doing their best, in which case the same questions should be applied to those who came before.
Maybe, just maybe we humans should stop thinking a small cabal of any of us – even the smartest and bestest – should ever be handed so much power over such vast and complex systems, eh?
I need to stop mixing up Blackstone and Blackrock.
Blackrock=Barclays (iShares ETFs)
“It’s not intended to directly alter the stance of monetary policy,”
“It’s having its intended effect of bolstering confidence in the banking system…”
I seem to recall a road to some place that is paved with intentions of a particular kind.
Bank Term Funding Program – loans for up to one year against collateral at a fixed rate near to 5%.
Bank Term Funding Program 2 – loans for up to 3 years against collateral at a fixed rate near to 2.5%.
Bank Term Funding Program 3 – loans for up to 10 years against collateral at a fixed rate of up to 0%.
It’s getting hard for me to keep all these acronyms straight.
andy is either a joker or a liar. I’m waiting for his answer to that question.
This shit is not funny.
You’re either joking — and then you should have indicated that — or you’re abusing my site to spread effing lies. Which is it???? I need to have an answer!
I hate this shit.
The loans have a term of a MAXIMUM OF ONE YEAR.
The rate is fixed when the loan is taken out; it is the one-year overnight index swap rate plus 10 basis points, which is currently about 4.7%
Read the term sheet instead of abusing my site to spread lies:
Oh Wolf, sorry about that. Clearly failed attempt at humor. I do realize people take your site seriously, but hopefully not the comment section. The comment section however does have many nuggets of knowladge.
If you do something like this, PLEASE indicate at the bottom that this was sarc.
1) SPX & TNX are down today to close a gap.
2) The Fed raised rates, yet the 1M, 3M up to 6M are below FFR, because
investors park their money in the front end. Investors avoid the 10Y as much as they can.
3) The 10Y will rise above the 3M and the 2Y, no demand.
4) When the 10Y reach 8%/9% investors will move in, park their money in the 10Y and take it down.
5) When we enter recession the long duration will be above the 3M and the 2Y. The yield curve will not invert.
6) The Fed dots are wrong !!
“4) When the 10Y reach 8%/9% investors will move in, park their money in the 10Y and take it down.”
Nah, I’ll be all over the 10 year at 7% and so will many of my compadres!
Michael, text me when it get there!
WE, in this case as is your case from what you have commented on here AA, The Family WE have started ”LOANING” our cash:
First go will pay the property taxes, at least for now.
Hopefully, 2nd go will pay the utilities, or at least half of them if rates banks or UST will pay is enough,,, WE can HOPE.
Grandma lived most of her life after age 60 with NO DEBT and just a bit of SS and a bit more of fixed return (6% IIRC from 70+years) private investments.
IMHO, THAT is the way it ”should be” for elder and elderly, and THAT is what any so called reparations should be about,,,
NO way young entrepreneurs, artists, ”deep thinkers”, theoretical physicists,,, or any other such creative folks should have anything in the way of sufficient support to ”DO THEIR CREATIONs”..
Great Spirits can tell you supporting CREATIVE folks will get you KNOW WHERE… eh
(Hope I don’t need the sarc notice on Wolf’s Wonder ???)
Why shouldnt large depositors pay for more deposit insurance?
Covering all deposits going forward is of a magnitude of which Yellen has no grasp.
IMO they now are legally bound to do so.
Larger houses and fancier cars also cost more to insure.
Yellen is giving me a major headache listening to all her flip flops, confetti money drops and misinformation. Same with Powell. I’m done with both of them. No way the Fed and Treasury can guarantee 7 trillion in deposits. That statement is inoperative. Congress needs to be in the loop to approve guarantees of that magnitude. Who are these people?? Dictators of a third world country?
People need to understand that banks have assets, and when the FDIC takes over a bank, it gets ALL the assets. The FDIC sells those assets, and the FDIC fund only has to fund the difference between assets and deposits plus secured liabilities.
The FDIC has made a deal to sell a lot of the assets of Signature bank. SO the $90 billion in deposits are paid with asset sales, except for the shortage which is $2.5 billion. So the FDIC only needed to fund 2.7% of the total deposits. The rest was covered by asset sales.
People need to get real about this.
Here is the analogy
The driver hits the gas
The driver invites the toddler to crawl up into the front seat
The driver tells toddler he is taking him to a pony ride with ice cream and balloons
The driver says the faster he drives (120 billion a month) the more the ice cream
(I left out the rainbow part)
Then the braking and hydrolic issue
The “Powell Pause”. Oh and don’t mind our balance sheet…it is not QE if we say it is not intended to be QE even though our balance sheet just ramped up. LOL! Powell Pause leading off, QE on deck, Powell Pivot in the hole, and Rate Cuts batting cleanup. Inflation will win this game. So sad.
If you’re calling the liquidity support “QE,” you’re going to have to call it “MEGA-QT” when it unwinds. I will make sure to remind you and everyone else out there about it in the headline, LOL.
What would you call the flight to RRP then???
IS there actually a “banking crisis”? Or are there a handful of mismanaged and now distressed banks?
There are a lot of losses as the Fed raised the rate by which everything is valued by 5% in one year.
Some business models can handle it and some can not. Some have low financing locked in for several years. I know the REIT I follow has bank financing locked in at 3.1% for 5 years probably at a regional bank. Not sure what that looks like on the bank side. I assume it depends on if deposits stay in the bank or if it was hedged properly.
You should do an interview with Gordon T. Long. He also puts the lie to the typically simplistic (and incorrect) narratives and I’d love to hear your take on his ideas.
LONGWave – 03 08 23 – MARCH – All Economic Indicators Don’t Lie
“It’s more like stepping on the brake with one foot while putting an arm around the baby to keep her from hitting the dashboard…”
Or rather playing whack-a-hole to staunch the wench of fed-induced moral hazard.
Not sure I would call this a “new regime” as they have only come up with this solution in the last few weeks as these small banks have gone bust. They look surprised, reactionary and vacillating to me as they do for every crisis. The fundamental problem is all this debt cannot be repaid. There are simply not enough real assets to satisfy the underlying obligations. There are too many bubble assets requiring endless amounts of illusion and delusion, the so-called “music”, to keep everyone dancing. Now, the music is starting to stop and the first chairs found missing are for the small banks…next???
NFCI does show some tightening… Credit & Leverage beginning to dry up a bit. But still some ways to go IMHO.
Index Suggests Financial Conditions Tightened in Week Ending March 17
The NFCI was –0.24 in the week ending March 17, up from a revised –0.27 (initially reported as –0.35). Risk indicators contributed –0.05, credit indicators contributed –0.10, and leverage indicators contributed –0.08 to the index in the latest week.
The ANFCI moved up in the latest week to –0.23 from a revised –0.27 (initially reported as –0.37). Risk indicators contributed –0.06, credit indicators contributed –0.07, leverage indicators contributed –0.06, and the adjustments for prevailing macroeconomic conditions contributed –0.03 to the index in the latest week.
One of the interesting things that Powell said yesterday was that these indices that track financial conditions might not fully reflect the tightening that is taking place — if it is taking place — in the lending activities by the banks, where most consumers and businesses actually feel it. These indices don’t track that. They track yields, spreads, and prices in the markets. It will take longer for tightening in the actual lending activities to show up in various data, such as loan officer surveys, etc.
Think I got what you’re saying… these are just the current Financial Indicators and the banks have to determine how to leverage the current ‘financial conditions’ to make money on loans?
And any realization or changes in that assessment takes time before it becomes ‘lending policy’?
That makes sense to me, and thanks!
So, we’re saved, right? I can go back to happily buying the dip and using debt to finance my new boat, right?
In all seriousness, isn’t the issue deeper than just the banking sector? How does this help with the issue of “zombie” companies who are unable to maintain or roll-over their debt due to higher interest rate costs? Is a soft-landing here really possible?
I agree, Wolf, and I expected as much from this Fed since it conforms with what I understand to be their beliefs about monetary policy mechanisms.
Whether or not their beliefs are accurate can only be known empirically in hindsight.
“Whether or not their beliefs are accurate can only be known empirically in hindsight.”
Which is exceptionally comforting to all of us living through the consequences if they prove not to be.
They never should have been allowed to exercise this level of control over the financial system, but that could be my “get off my lawn-ism” resulting from age.
NO! Z, your comment: “They never should have been allowed to exercise this level of control over the financial system, but that could be my “get off my lawn-ism” resulting from age.” IS CORRECT,,,
not only IMHO as one who has watched and continued NOT to ”invest”/gamble in the SM and CM for many decades now,,, after doing very well IN the SM, back in the day when ”discovery” was presented by each and every broker of every ”financial instrument” — of which there were few besides stocks and commodities.
Again IMHO, the entire ”stock market” has become a gambling den in which WE the PEONs are the ”marks.”
Came on to Wolf’s Wonder to try and figure out IF WE, in this case the family WE could invest in stocks again since being out of that mkt since the 1980s.
That mkt certainly appears to be WORSE for WE the PEONs at this time…
But hope springs eternally,,,
What’s your definition of “accuracy”?
Regulators and government are always behind the curve. It’s a bureaucracy which takes time to reach some version of consensus with conflicting motives.
BAGEHOT’S DICTUM: the central banks should lend early and ‘without limits’ to solvent firms at a ‘higher interest rate’ with ‘good collateral’. Discounting was made a penalty rate on January 6, 2003
But Volcker did the opposite.
And: “In 2002, the Federal Reserve began to set the discount rate above the federal funds rate, reversing its previous practice of keeping the discount rate below the funds rate.”
Bank credit contraction is cumulative and reinforcing. Contraction is usually volatile and disorderly.
Yep this is where I agree with the simple logic that this is going to be worse than 2009 because the leverage is greater than in 2009. It’s not called the everything bubble for no reason.
One commentator I heard said the extra liquidity from the Fed & dollar swap line expansion will create too many unwanted dollars globally.
He said the dollar will fall slowing the us economy (higher import prices) but benefit Europe & other developed international markets.
Do you agree?
From Reuters, yesterday: “Oil prices rose about 2% to a one-week high on Wednesday as the dollar slid to a six-week low after the U.S. Federal Reserve delivered an expected small rate hike while hinting that it was on the verge of pausing future increases.”
Others here will know better if interest rate hikes will further erode the dollar further. Hell, everything I know about currencies from my old economics classes told me the dollar should have weakened immensely from all that money printing we did, but the old rules aren’t what they used to be, eh?
There has been ZERO activity on the swap line, according to the daily data, despite shifting it from weekly to daily auctions. Those Youtubers and bloggers say no matter what BS to get some clicks. And as a result, the misinformation is HUGE.
Update coming with today’s balance sheet when it comes out this afternoon. Lots of BS was published about the swap line expansion. And I’m going to ridicule it later today, LOL
“No, absolutely not. No. If we need to raise rates higher, we will,” Powell said. The plumber has the pipe wrench now. All that haven’t made money or set themselves up for success in the last 14 years of QE need not cry, the water bill has simply came due.
Something ominous is taking hold. US asset prices are rising while the US dollar is dropping and systematic banking risk is elevated.
Markets seem to have little faith in the Fed’s ability to keep its hands off the money printer.
Hopefully this is just another mini-orgy that will reverse out, which should be the case if the Fed continues its tightening.
I agree with what Depth Charge said. There is still way too much liquidity and rampant speculation in the system. Netflix and Nvidia stock price still climbing up like crazy. The Fed only takes emergency measures to backstop for the bankers but not for inflation.
$7 plus Trillion gov spending along with printed money has to flan inflation.
Fed increasing rates to combat…”inflation”.
One throws gas on the fire, while the other hoses it down.
What am I missing here?
“Fed increasing rates to combat…”inflation”.”
This is not going to work. Reason: Most companies are just going to pass on the increased interest rate costs to the consumer and thus increase inflation. If you look at your monthly expenditures, most items in your budget are from monopolies or something close to that. You just have to pay up or be denied essential services. What are you going to do, cut off your Cable TV and Internet, cut off your water/electric/gas to your house, not pay your property taxes, etc.
What is needed is a massive cut in Federal spending across the board, so the FED would not have to print so much money to fund the deficits. Elimination of government Agencies completely. Zeroed out, not just cut.
“It’s more like stepping on the brake with one foot while putting an arm around the baby to keep her from hitting the dashboard”
The baby is the .1% right? Got to save them while driving over the peons.
If the banking system collapses, the lights go out. You won’t be able to buy gasoline. Your job vanishes. Your utilities shut down. Grocery stores close. The economy dies without banks. Banks are financial utilities — and they should be regulated as such. The problem is that they aren’t.
“Banks are financial utilities — and they should be regulated as such. The problem is that they aren’t.”
No truer words have ever been said. So the question is why.
Is it because banks and their PACs control the Government? At what point will “our” elected representatives regain any semblance of control and work on putting prudent policies to safeguard everyone’s interests? Never I guess. I am stupid to even raise these questions.
Well… in a unique sign of bi-partisanship, Rick Scott(R) & Elizabeth Warren(D) are trying to hold them accountable and change Fed Oversite policy, but there are powerful forces at play!
Maybe there’s hope, maybe not!
Wolf, care to comment on this, or is it a whole ‘nother Blog Post?
What an enticing idea. I bet we’d have to crawl over the corpses of a lot of bankers before they’d allow “bank utilities” in the US haha.
“The problem is that they aren’t.”
No. We have credit unions here in the US. They provide the same services as banks. The difference is banks report to shareholders and credit unions report to account holders, which is why banks are constantly running into problems (greed). Banks can fail for all I care. As long as they don’t and keep getting bailed out, this country will continue to fall apart.
Is there a reason the markets keep fighting the Federal Reserve?
Powell just said explicitly yesterday, not one FOMC member expects to cut rates in 2023. In fact, almost half of the committee expects another 0.50% or more of tightening after yesterday.
Today morning, weekly jobless claims continue to come in low: 191K. It’s one data point & employment tends to be a trailing indicator, but at least for March, the labor market is still red hot.
No other banks have failed since SVB & Signature 2 weeks ago.
Yet the market has dug in deeper on the pivot, now pricing in 1 full percentage point of rate cuts by December 2023. Big Tech & speculative stocks are rocketing higher.
Market know that Powell/agencies would fold even with the slightest mishap.
Take example of SVB. SVB was not at all a systematic bank to risk any contagion but they still folded.
May be because of most of the FDIC uninsured depositors are democrat donors.
Way too much liquidity in the system. So the market can keep fighting the Fed. The balance sheet is still over 8 trillion. But the Fed is never going to increase QT because it will cause stock price to crater and hurt the 1%.
Rishi Sunak saved GB, US and the west.
Regardless of how much blame you do or do not assign the fed for getting themselves into this situation, I don’t see any cause yet for scrutinizing their attempt to fix the problem. Ever since they finally gave up on the ridiculousness of “temporary” inflation, their efforts to curb inflation have been reasonable. Their recent response to contain fallout from those efforts were prudent and only time will tell if any of these actions were unwarranted. Yea. The effects of fixing those policy mistakes will create winners and losers and it would be nice to hear them admit culpability, but for now I’m not crucifying the effort to restore financial stability. I do blame them entirely for letting the pendulum swing too far but I can’t recall one person who I heard complaining about their zero interest car loan or the gains to their 401K or the checks they were getting.
Totally not agree with you.
I think FED along with Govt agencies are the main culprit.
For example, what was the need to keep buying MBS in March-2022 when the home prices in last 24 months already shot up by 45% or so.
You are right about people not complaining. But most of them are not able to see the big picture like the readers here.
Little people got checks for few thousands, rich people became obscene rich and now little people are facing the lay off notices.
I did acknowledge that they were partly responsible for the whole
mess in the first place. Although their culpability pails in comparison to the politicians. On both sides. IMO.
It’s time to consider Ending the Fed as Ron Paul proposed in his famous book “END THE FED”. What are the 300 PHd’s there doing for God and Country. Can someone come up with one thing they’ve done correctly since the reign of Paul Volcker. I can’t think of anything.
yes, they have kept the welfare and warfare checks clearing and kept the corporate profit margin at record highs. If you were a saver you got screwed over big time. Who needs savings, when you can print it into existence?
The unrealized losses that banks face are about 10% on their securities since they hold a mix of maturities.
Then can someone please tell, who is holding “unrealized gains” on the opposit side of the bank?
If banks are losing money then who are they losing it to?
Hi Wolf, if this question is not dumb and if possible please explain. Thanks.
Only a holder can have either an unrealized gain or a loss. Other side does not have it yet so they don’t have any gains. They just buy it on the market at a discount and if they hold it till maturity they redeem at par. If they sell it on the market it’s either a gain or a loss depending on the market prices at this particular time.
Thank you Rob.
Banks are losing $0 if they hold to maturity.
If they have to sell today, they will lose 10%, and the buyers, if they hold those securities to maturity, will earn that 10%, plus the coupon interest.
This may be a good time to buy Long Term Treasuries. You get a good rate of return, safety, plus likely capitol gains as the economy goes into recession. I’m thinking of moving some of my funds into a fund that is invested in these securities.
Not sure if this is an acceptable post since I am cutting and pasting from a CNBC article. To me, it seems like the crisis is just getting started.
“Banks ramp up use of new Fed facility created during crisis”.
* Institutions borrowed $53.7 billion from the Bank Term Funding Program as of Wednesday, up sharply from $11.9 billion last week.
* Another category of loans made mostly to shuttered banks to meet obligations to depositors and other expenses jumped as well. These borrowings surged to $179.8 billion from $142.8 billion last week.
* The new bank funding program was introduced March 12 to alleviate similar strains on banks and other institutions; it extends one-year loans backed by Treasurys or other assets, paying full price for the assets even if their market value is lower.
Bullet # 3 indicates that the BTFP is funding over and above the asset market prices. Why would they do this?
Overvaluing debt securities collateral at par rather than at market provides badly needed liquidity. The Fed isn’t worried about losing money; it can create it at will.
Update on the Fed’s Liquidity Support for Banks
Was it the Swiss National Bank that Borrowed $60 Billion via “Foreign Official” Repos for the Credit Suisse takeunder?
… or pperhaps Deutche Bank / Commerzbank?
Maybe my personal bank account, LOL? That theory is as good as yours.
Excellent analysis, Wolf. I read the same statement and saw the same press conference that everybody else did, and am taken aback by all the misconstruction and spin in the financial media, mainstream and alternative. Yours is the rare exception that gets it straight.
The Moderna CEO just announced a 400% increase in the price of it’s new vaccine which will be sold to the government. I wonder if this will show up in next month’s CPI inflation numbers? Probably not.
If only those Medieval goldsmiths (who originally had the only good safes) had said to the rich merchants, “keep your own damned gold under your own damned mattress, get a couple pistols, and sleep with one eye open”.
Or better yet, “Don’t make so fucking much money, we don’t, it’s just raw material we need to do our work”