Banking carnage after the Fed

Banks are falling like flies as the Fed finishes raising rates. Hard to imagine a more favorable situation for Bitcoin.

Last rate hike for the Fed?

The Fed raised its benchmark interest rate by 0.25% on Tuesday, bringing it to 5.25%. We’ve gone from 0.25% to 5.25% in 14 months. The goal? To stem the worst inflation in 40 years.

The FOMC’s jargon indicates:

The Fed will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. The Committee will closely monitor incoming information and assess the implications for monetary policy. In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time.

In the March statement, the phrase “further rate hikes will be appropriate” was replaced by “some further firming of monetary policy may be appropriate.” This time, the phrase “some further firming of monetary policy may be appropriate” was replaced by “in determining the extent to which additional policy firming may be appropriate.”

Syntactical smoke aside, this rate hike was not a surprise. The reason is the publication of an exchange between Jerome Powell and a Russian journalist posing as the Ukrainian president.

This recording from January has been online for six days. The Fed president suggests raising rates twice. That makes two with this hike, so it may be the last one.

“We have those money printers in the basement.” — Jerome Powell pic.twitter.com/plgofPfq4F

— DumboCharts (@whowhathow5) April 28, 2023

Funny enough, J. Powell did not say no to the possibility of replacing the Ukrainian currency with the dollar. The banker even smiled at the idea of creating a thirteenth Fed region in Kiev.

QT and banking crisis

Regarding QT (Quantitative Tightening), it will continue as planned, at a rate of $60 billion per month for Treasury bonds. And $35 billion per month for mortgage-backed securities.

In other words, the Fed is trying to sell the debt securities it has accumulated since the 2008 crisis. That’s the equivalent of $9 trillion.

We’ll see if nothing breaks before then. For now, the dollars that the Fed manages to recover on one side via the QT are coming out on the other to manage bankrupt banks…

Speaking of bankruptcy, the FOMC statement indicates that “the U.S. banking system is healthy and resilient.” The U.S. Treasury is singing the same tune, saying that “the U.S. banking system remains resilient and on a solid foundation.”

The reality is that three large banks have just gone bankrupt. In total, the market value of the U.S. banking sector has fallen by $2.5 trillion this year. The market value of regional banks is down more than 40%!

See the size of the recently closed banks:

Bank failures over the last 15 Years👇🏽

A MAJOR event is on the HORIZON.

Opt out of Fiat. Choose #Bitcoin pic.twitter.com/Ous9LuRQWm

— The ₿itcoin Therapist (@TheBTCTherapist) May 3, 2023

And it’s not over. Shortly after the closing, Bloomberg reported that regional bank Pacific Western Bank ($28 billion in deposits) was considering “a range of strategic options, including a sale.” The bank’s share price has since fallen by 60%.

We are witnessing bankruptcies on a scale reminiscent of the 2008 crisis…

And in the meantime, debt’s soaring

At that time, U.S. public debt was 62% of GDP. Today, it is 132%.

Of the $31 trillion in U.S. debt, about $16 trillion will have to be repaid within three years. And 30% in the next six months.

In short, the interest on 30% of U.S. debt will soon rise from 1% to something closer to 5%. In fact, interest costs have already surged 50% compared to last year. That’s $929 billion a year:

The interest expense to service outstanding debt will soon exceed $1 trillion in the US.

To put this into context: $1 trillion is greater than the $767 billion spent on defense in 2022, and more than double the $475 billion spent on interest expense during the same year.… pic.twitter.com/HuZ7EKDMVG

— Mark Harvey (@thepowerfulHRV) May 1, 2023

We all know what comes next. After shaking the tree, the Fed will lower rates to prevent the US debt from going exponential. This will be the return of QE infinity.

There is no other solution. Governments will not risk stopping payment of pensions to balance their budgets. Their heads could end up on pikes.

According to the American Enterprise Institute, the US government’s unfunded obligations (such as pensions) total nearly $93 trillion. Yes, you read that correctly.

That’s a lot of money that will have to be borrowed, ultimately fueling inflation. And you still don’t have any bitcoin? With the halving coming up in less than a year?