Deja Vu All Over Again - part the third

OK, you'll have heard it here first when you tell your grand kiddies about how you survived the Collapse of 2023^©.

Despite what is said and written, even (and especially?) from the Left, this is a deja vu moment.

The 2008 Great Recession implosion happened because a bubble burst. That bubble was over-priced houses on mortgages with ratched interest rates. As the ARMs clicked up year after year, the 'owners' (who had been conned into the mortgages) met the enemy: a monthly mortgage nut which couldn't be paid. In the many decades before, fixed-rate mortgages were the overwhelming norm, so national defaults weren't in the history books. Not in the history books, so "it can't happen" was the mantra. All those fancy MBAs (I'm talking to you Blythe Masters), neglected their basic sums. It paid to ignore those basic sums.

The Collapse of 2023^© has a similar, though not perfectly identical, cause: Uncle Sugar and Jerry Powell. Some of us saw it coming. Those, in particular, who found the Volkerization Plan he was following could only end badly. Moneterists are like the carpenter whose only tool is a hammer: everything tends to look like a nail. In the case of The Fed, it has always looked at inflation as solely caused by too much moolah, ignoring the fact that inflation can be caused by wages (on the whole not rising dramatically) and by slack supply (boy howdy, Big Time). The True Monetarist solves the inflation problem by driving down demand to meet the level of supply which the bidnezzmen choose to provide. Heads they win, tails you lose.

Since SVB (and most banks) are too chicken to invest in the private sector most of the time, they hold Treasuries. Now, when Jerry went on his Volker Rampage by driving up interest rates, he had the required effect on the market value of said Treasuries: the market value fell. So long as a bank just kept them in the vault, no one cared. But SVB, which catered to tech and biotech, needed to backstop an increasing number of these 'cutting edge' clients who were in some amount of financial distress (sounds like ARMs coming due?) and had to sell off Treasuries at a loss (market value less than book/acquistion value).

SVB demonstrated the bubble bursting. And it will happen again. I'll leave the mess of the two (and counting?) crypto-trapped banks aside. Despite the rhetoric, most financial institutions are scardy cats and hold boatloads of Treasuries, rather than invest in the rest of the private sector. Basically, they lie. Jerry will kill at least a bridage's worth before he's put down.