Banks are dropping like flies as the Fed finishes raising rates. It’s hard to imagine a more favorable situation for bitcoin.
Last rate hike for the Fed?
The Fed raised its key rate by 0.25% on Tuesday, bringing it to 5.25%. We went from 0.25% to 5.25% in 14 months. The goal ? Stemming the worst inflation in 40 years.
The jargon of the FOMC statement reads:
“The Fed will take into account the impact of monetary policy tightening, the lag in which it will affect economic activity and inflation, and economic and financial developments to determine the extent to which further tightening may be appropriate. to bring inflation down to 2% over time.
In the March press release, the sentence, “continued rate hikes will be appropriate ‘, had been replaced by “some additional monetary policy tightening may be appropriate.”
This time the sentence “some additional monetary policy firmness may be appropriate” has been replaced by “to determine the extent to which additional firming may be appropriate”.
This rate hike was not a surprise, mainly due to the publication of an exchange between Jérôme Powell and a Russian journalist pretending to be the Ukrainian president.
This interview recorded in January has been online for six days. The chairman of the Fed reveals his intention to raise rates twice. This makes two with this increase which is therefore perhaps the last.
Amusingly enough to note, 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 regional Fed in Kyiv.
QT and banking crisis
Regarding QT (Quantitative Tightening), it will continue as planned, at the rate of 60 billion dollars per month for Treasury bills. And $35 billion a month for mortgage-backed securities.
In other words, the Fed is trying to resell the debt securities it has been accumulating since the 2008 crisis. That is the equivalent of 9,000 billion dollars.
We’ll see if nothing breaks by then. For the moment, the dollars that the Fed manages to recover on the one hand via the QT, stand out on the other to manage bankrupt banks…
Speaking of bankruptcy, the FOMC statement indicates that “the US banking system is healthy and resilient”. Same story on the side of the US Treasury which estimates that the “American banking system rests on solid foundations”.
The reality is that three major banks have just failed. In all, the stock market value of the US banking sector has shrunk by $2.5 trillion this year. That of regional banks fell by more than 40%!
See the size of banks that recently closed:
And it’s not over. Shortly after closing, Bloomberg reported that regional bank Pacific Western Bank ($28 billion on deposit) was examining “a series of strategic options, including a sale”. The bank’s share price has since fallen 60%.
We are witnessing bankruptcies on a scale worthy of the 2008 crisis…
And meanwhile, the debt is spinning
At the time, US public debt represented 62% of GDP. We are now at 132%.
Of the $31 trillion in US debt, about $16 trillion will have to be repaid within three years. And 30% over the next six months.
Clearly, the interest on 30% of the US debt will soon go from 1% to something closer to 5%. In fact, the interest bill has already exploded by 50% compared to last year. Or 929 billion dollars per year:
VSis more than the $767 billion defense budget.
The explosion in debt service is directly linked to the increase in interest rates.
There are too many debts. It is a headlong rush. The only way for the United States to pay off its debt is… to issue more of it. Expect high inflation for a long time. »
We all know the rest. After shaking the coconut tree, the Fed will lower rates to prevent the US debt from going exponentially. This will be the return of QE infinity.
There is no other solution. Governments will not take the risk of stopping paying pensions to balance their budgets. Their heads could end up on pikes.
According to theAmerican Enterprise Institutethe engagements unfunded of the US government (such as retirement pensions) reach nearly 93,000 billion dollars. You read correctly.
This is as much money as will have to be borrowed and which will ultimately fuel inflation. And you don’t have bitcoin yet? With the halving planned in less than a year?
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