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…
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.