It’s easily arguable that the risk from massive spending dramatically increased inflation under Biden. Take for example the $1.9T inappropriately named American Rescue Plan. [PLINK, there goes a domino] Larry Summers, the former Treasury Secretary and economic advisor to Clinton and Obama warned us at the time of the impact on inflation even going so far as saying “I think this is the least responsible macroeconomic policy we’ve had in the last 40 years.” His prediction comes true. [PLINK, another domino]
So, to combat the resulting inflation, the Fed starts raising interest rates. [PLINK]
Now, with excess investment money coming into banks like SVB, SVB begins securing that money with low rate, long term treasury bonds, which are normally safe. This is seemingly a cautious move by SVB, until you realize that rates are likely to rise because of rate hikes (go figure) thereby making those tens of billions in treasury bonds worth less since new bonds are carrying a higher rate. SVB may have overlooked this risk because of pro-woke priorities instead of risk assessment for the sake of earnings. [PLINK]
Since the printing presses have slowed, investors realize that they more need more cash, they go to SVD to retrieve their money. [PLINK]
Enough of these runs on SVB and the bank doesn’t have the available cash to cover the withdrawal without selling bonds for a loss. When withdrawals reach the brink for SVB, it’s bye-bye SVB. [PLINK]
Then bye-bye Signature Bank. [PLINK]
Next is the decision on bailouts. How far will they go? Remember too-big-to-fail?
The only remaining question is, when the last domino falls, will it simply go plink or will it be much much louder?
It’s easily arguable that the risk from massive spending dramatically increased inflation under Biden. Take for example the $1.9T inappropriately named American Rescue Plan. [PLINK, there goes a domino] Larry Summers, the former Treasury Secretary and economic advisor to Clinton and Obama warned us at the time of the impact on inflation even going so far as saying “I think this is the least responsible macroeconomic policy we’ve had in the last 40 years.” His prediction comes true. [PLINK, another domino]
So, to combat the resulting inflation, the Fed starts raising interest rates. [PLINK]
Now, with excess investment money coming into banks like SVB, SVB begins securing that money with low rate, long term treasury bonds, which are normally safe. This is seemingly a cautious move by SVB, until you realize that rates are likely to rise because of rate hikes (go figure) thereby making those tens of billions in treasury bonds worth less since new bonds are carrying a higher rate. SVB may have overlooked this risk because of pro-woke priorities instead of risk assessment for the sake of earnings. [PLINK]
Since the printing presses have slowed, investors realize that they more need more cash, they go to SVD to retrieve their money. [PLINK]
Enough of these runs on SVB and the bank doesn’t have the available cash to cover the withdrawal without selling bonds for a loss. When withdrawals reach the brink for SVB, it’s bye-bye SVB. [PLINK]
Then bye-bye Signature Bank. [PLINK]
Next is the decision on bailouts. How far will they go? Remember too-big-to-fail?
The only remaining question is, when the last domino falls, will it simply go plink or will it be much much louder?