Bank Failure’s

While some might still be liv­ing under a rock and may not have heard about three bank clo­sure’s in the last few days many oth­ers are con­cerned about the pos­si­bil­i­ty of mul­ti­ple fail­ures.

After all how well do you know what your local bank is up to?

Sure the bank in your local town is prob­a­bly not in any dis­tress but how do you know that?

The FED has been aggres­sive­ly rais­ing rates over the last few months and in fact some ana­lysts sound­ed an alarm that IF the FED did not start using oth­er tools (instead of just try­ing to raise inter­est rates over and over again that there could be some “serous” prob­lems) but those alarms were not heard by the FED and they con­tin­ued to raise inter­est rates. 

Now we have three banks that have failed or closed its doors in the last two weeks. 

After some indi­ca­tion that the stock mar­ket and the cryp­to mar­ket bounced back fair­ly quick­ly many won­der what is going to hap­pen next. 

It is almost like watch­ing an episode of the Twi­light Zone… 

Will the FED con­tin­ue to try to raise the inter­est rates giv­en that it could be suc­cess­ful­ly argued that the aggres­sive nature of inter­est rates hikes may have con­tributed to the shut­ter­ing of these banks in some way. 

Just last week there were some reports that the FED was caus­ing seri­ous dam­age to the finan­cial sys­tem by arti­fi­cial­ly increas­ing the inter­est rate in some way (Hop­ing) and cross­ing its fed fin­gers that they can force the infla­tion reports to go down… 

Sad­ly we have his­to­ry to study when look­ing at IF inter­est rate increas­es actu­al­ly reduce infla­tion. 

The answer to that is NO and NO it does not work, all you real­ly have to do is to look at the late 1960s and ear­ly to mid 1970s to see that this does not work. 

Part of the 1980s also saw high inter­est rates but no relief from infla­tion. 

It was not until the mid to late 80s that things began to look bet­ter. 

So, what are we look­ing at here, we know that the FED can­not stop this by increas­ing the cost of loans of all kinds like real estate, new cars, busi­ness loans, all of these things are impact­ed and now we also know that con­tin­u­ing to raise inter­est rates will even­tu­al­ly cause banks to fail. 

(Of course this does not mean that some banks still make igno­rant deci­sions that end up cas­ing a fail­ure) 

That is some­thing that we can’t pre­dict but it is also some­thing that we have to con­sid­er with regard to bond hold­ings where the inter­est rates have dra­mat­i­cal­ly con­tributed to big loss­es. 

So back to infla­tion. 

The FED seems to believe that rais­ing inter­est rates is the only way to go… 

They have to be “think­ing that” because sure­ly they would not have con­tin­ued to do the same thing over and over again with­out suc­cess. 

But in a very real way that is what they have done over and over again… 

In June 2022, the Fed raised the rate by an addi­tion­al 75 basis points, or 0.75%, in an effort to curb the con­tin­ued ele­va­tion of infla­tion.

So, that did not work out and infla­tion still went up but appar­ent­ly the FED still did not real­ly have a han­dle on the dam­age that they were caus­ing… 

Some ana­lysts prac­ti­cal­ly begged the FED to stop doing this but again they just con­tin­ued to raise inter­est rates over and over and over again… 

So here we are three fair­ly large banks closed and it is like­ly that there will be even more. 

WE sure hope not but from what we have seen recent­ly the FED is not going to change, one top reporter on Fox Busi­ness stat­ed that they would not dare to increase rates for a while and that would seem to be com­mon sense but the prob­lem here is that thou­sands of econ­o­mists became more vocal about inter­est rate increas­es and the FED still raised inter­est rates sev­er­al more times… 

IS there a point where the actions of the FED would con­sti­tute a clear and present dan­ger to the eco­nom­ic health of the Unit­ed States?

IF that were too hap­pen could con­gress step in and force a change?

Well there are a lot of peo­ple that would love to see that hap­pen and per­haps even a lot of the peo­ple in con­gress would like to see that hap­pen too but in real­i­ty it is very unlike­ly that con­gress would come in and close up the FED even though they deserve it for act­ing blind­ly in the face of infla­tion. 

The truth here is some­thing that we have seen hap­pen in the past and it is some­thing that must be cor­rect­ed we have the FED that is attempt­ing to do things that was nev­er a part of the orig­i­nal sys­tem but now they are try­ing to stop or pre­vent infla­tion and that is a real issue because in some ways the mon­ey that was print­ed up a few years ago is now com­ing home to cause prob­lems. 

In some ways the FED may have caused some of the issues that we are see­ing right now. 

The real ques­tion is will con­gress and the FED change the way they have been doing things so that we can find a bet­ter solu­tion than just try­ing to increase the cost of print­ing mon­ey… 

What?

Oops, no that’s not a typo, that’s not even a Freudi­an slip  no what might be is the truth.   

Could it be that the spend­ing over the last two years and the FED’s actions be cre­at­ing a cri­sis in the bank­ing indus­try? 

Alleged­ly Yes and cer­tain­ly there will be many that believe it is the truth. 

One thing seems for sure IF the FED does not find anoth­er way to fight infla­tion than just rais­ing inter­est rates over and over again then we could see anoth­er Great Depres­sion.