Well Duh...

 

Is the Fed ignoring signs of another financial collapse? 

(The last one was a crisis. 2008.

The one that is coming is your collapse.)

"The Fed" and all the so-called experts 

and financial gurus 

have never accurately told you when a collapse was coming.

So why should now be any different?

"Minsky taught that a prolonged period of easy money (Low interest rates) and financial market stability sets up the conditions for pronounced financial market instability. By this he meant that as economic confidence rises and asset prices soar in a low interest rate world, the financial system tends to make increasingly risky loans on the assumption that asset prices will continue to rise and interest rates will stay low forever. (hello Covid and printing $) When the easy money stops and lenders realize that they might not get repaid, the whole credit market house of cards collapses."

It's inevitable.

The longer you keep interest rates artificially low? 

The worse the "snapback" when the shit hits the fan so to speak.

Federal Funds Rate

(Interest rates 1954 - Present (or there abouts)

We've never had rates that low.

Let alone for that long.

What do you really think is getting ready to happen?

"If ever we have had an abrupt shift from ultra-easy monetary policy to one of tightness, it has to be today. For many years, the Fed kept interest rates at their zero lower-bound and allowed the broad money supply to balloon by 40 percent from the beginning of 2020 and the end of 2021. This has been followed by a 525-basis point increase in the Fed’s target interest rate since March 2022, or the fastest pace of increase in 40 years. It has also been followed by a situation where the broad money supply is now contracting at the fastest pace since the Fed started publishing this data in 1959."

('There's a warning sign

on the road ahead..."

)

"Earlier this year, we got the clearest of signs that Minsky’s credit cycle is alive and well when three large regional banks — Silicon Valley Bank, Signature Bank, and First National Bank — failed. These banks failed largely as a result of the Fed’s high interest rates inflicting major damage on their bond portfolios. That in turn prompted a run on their deposits from uninsured depositors who questioned these banks’ solvency. Emergency Federal Reserve intervention has succeeded in stabilizing the situation — at least, for the moment."

Anyone who thinks that interest rate damage to the banks’ bond portfolios will not add further stress to the financial system has not being paying attention to the estimated size of the banking system’s bond portfolio losses as a result of falling bond values. According to a recent Social Science Research Network study, the U.S. banking system’s market value of assets today is some $2.2 trillion below its book value. Nor have they been paying attention to the fact that long-term bond yields have continued to rise to their highest levels since 2007 as the Fed keeps raising interest rates."

"Another sign that the credit cycle has turned is the rising default rate in the $1.5 trillion highly leveraged loan market. According to Goldman Sachs, we have already had $24.5 billion of these loans defaulting. That puts us on track for the third worst yearly rate of default on these loans in history. A similar story appears to be unfolding for auto loans and credit card debt."

(Thats chickens come home to roost in the form of all those loans that should have never been given out in the first place. And they were only given out to try and preserve a system that was going to fail anyway just a matter of when. Low rates and QE were the only options to the financial crisis, it was an experiment that had never been tried before...and now here we are.)

"Of very much more concern has to be the loan trouble brewing in the commercial real property space that is being battered by low occupancy rates in the wake of the COVID pandemic. It is estimated that these loans account for as much as 20 percent of the regional banks’ balance sheet and that more than $500 billion a year in these loans fall due over the next three years."

"It is difficult to see how these loans will be repaid in a world of high interest rates and low occupancy rates." 

(They won't be.)

"As if to underline this point, a growing number of property developers — including Blackstone, the world’s largest commercial property developer — have already walked away from their mortgages. Meanwhile, Morgan Stanley is estimating that commercial property prices in six major U.S. cities could decline by as much as 40 percent."

"In March 2008, the Fed overlooked the clear signals 

("The Fed" and all the so-called experts 

and financial gurus 

have never accurately told you when a collapse was coming.

So why should now be any different?)

of a turn in the credit cycle provided by the Bear Stearns’ failure and the trouble brewing in the sub-prime market. That trouble led to the September 2008 Lehman crisis and the Great Economic Recession. Today, in its quest to beat inflation at all costs, the Fed seems to be repeating the same mistake of downplaying the building strains in the financial system that are in plain sight.  

This makes it all too likely that we will once again pay a heavy economic price for the Fed’s failure to draw the right lessons from financial market history. 

(I disagree.

They know whats up.

They know they are powerless to stem the inflation of the money supply they caused. Interest rates dont lower the money supply and letting bonds roll off is going to be to little to late.

It's going to be just like the piece before this said:

"...increasing monetisation of government debt will become inevitable. Kiss goodbye to lower inflation, lower interest rates, and lower bond yields: embrace crashing bond prices and collapsing asset values. What over-leveraged bank can survive the squeeze on their balance sheets? Which of the western alliance’s central banks, already deeply into negative equity will be able to monetise their government’s debt with further QE against a background of soaring bond yields?"

Like the Elmore James song says:

Aint but one way out: