Predicting The Unpredictable
There is a massive financial asteroid hurling toward us.
Especially with this recent news from the Feds:
Explainer: Here’s how the government plans to stop more banks from crumbling and turning this thing into a full-blown banking crisis
Silicon Valley Bank collapsed spectacularly on Friday. Then yesterday, down went Signature Bank in New York. And the big three regulators – the Treasury, Federal Reserve, and the FDIC – had to work all weekend (poor things) to come up with a solution that would hopefully stop widespread bank runs leading to America’s banking system collapsing like the Jenga tower in “The Big Short.”
Their solution, which they announced last night, they’re calling “BTFP.” Despite all the acronyms you could create with those letters to describe what’s currently happening, BTFP stands for “Bank Term Funding Program.”
They’re not calling it a “bailout” – remember, Treasury Secretary Janet Yellen said Saturday that there would be no bailouts – but, yeah, it’s definitely a bailout.
So, in other words, the Fed, through their bai– BTFP program, will make loans available to all banks and credit unions, thus preventing them from having to offload assets at fire-sale prices in a desperate attempt to stay solvent should they be swarmed by customers and left illiquid. The loan term length is one year, and if at the end of that one year banks are unable to repay said loans, the Treasury has a $25 billion credit fund set aside to save them anyway.
To sum it all up: If the regulators’ plans work, all Silicon Valley Bank and Signature Bank customers will be able to recover all their money (even above and beyond the insured $250K) starting today, and any further bank collapses will be thwarted by the Fed’s BTFP program, which is backstopped by the Treasury’s $25 billion in credit protection.
Now, $25 billion may seem like a lot, but in this scenario, it is not. SVB customers alone withdrew $42 billion in hours just before the collapse.
Even if it does work, however, everything that’s happened since Friday changes the whole game. Remember Fed Chief Powell’s aggressive rate-hiking campaign we’ve been living through since Covid hit (and that kicked off his banking meltdown)? Yeah, that’s likely right out the discount window. We’ve pivoted in one weekend from aggressive rate hikes – and Powell had been saying there were more to come! – to likely widespread liquidity injections. Maybe even rate cuts. In the midst of sky-high inflation. Hoo boy.
They are, in effect, saying they are ensuring all deposits (even the trillions left unsecured) in every major bank. The Feds are doing so with money that they don’t even have. A measly $25 billion is nothing.
Even if nothing comes after these two banks, the stage is now set for endemic, continual bailouts of an unsustainable proportion.
That will certainly end well.
We know this is completely insane. But be careful of trying to logically or rationally predict what is going to happen.
As I said in Our Irrational Markets:
Trying To Rationalize The Irrational
Many people have been attempting to predict economic movement based on a libertarian, free-market economy. This is silly because we do not have that kind of market.
But others try to rationally review our debt-based monetary system through the correct lens of debt and the Fed, but even that isn’t lining up.
In short, nothing is happening that should be happening if we think about the situation logically. Housing, supply chains, the stock market, jobs, the American dollar, inflation… you name it. None of it makes sense.
We can’t even follow historical trends fully, because historical trends rested under different market precepts than what we have now.
This is why when people try to predict or explain what is going to happen in the market rationally, they get it wrong. Because the market is not rational. But it’s also not just sporadic, either. It is now fundamentally irrational.
It may be helpful to relate the market to a person. The market is not a rational person at a chess table that realizes what is going on and is acting strategically, giving us the ability to predict or expect certain moves. No, our “market man” is the complete opposite. He is a schizo hopped up on bath salts and fentanyl—We have no idea what he is going to do, but we know with almost crystal clarity that it will not be rational.
Some of our guys keep trying to rationally explain the workings of the market. This is in vain.
Our markets are not rational, and they cannot be made rational given our current conditions.
Trying to analyze the recent bank collapses through a rational, analytical, incentive-based, and logical approach would be misguided.
But everyone is attempting to do so anyway. This is why so many people are getting everything so wrong.
These people are trying to understand the system in a logical manner, when the system itself is no longer logical.
It’s like trying to scientifically explain the behavior of a world that has no rules or laws of nature. It is fundamentally impossible.
I know everyone wants to hear precise details on the events to come. But I am not going to join in on the bandwagon. Most of those actors are doing so for their own personal gain. They are using particular psychological tactics to convince others they know what is happening. When they are probably even more clueless than everyone else.
The entire system has been completely illogical since (at least) covid. If it were “upside-down”, we could at least deduce an understanding by seeking the inverse of the norm. But our financial system is not even doing that. It’s truly a creature from clown world, entirely unpredictable and irrational.
A lot of people have a lot to lose. Thus, they have much to sell you. Be wary of them. Especially if they are claiming they know what, and when, things are going to happen.
We know that the stage is being set and that our financial condition is rapidly deterioriating.
But further knowledge is out of everyone’s hands, besides the ruling class who is running it all.
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