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Anatomy of the Banking Crisis of 2023 (Jeffrey A. Tucker)

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Fishrrman:
https://www.theepochtimes.com/anatomy-of-the-banking-crisis-of-2023_5128105.html

Anatomy of the Banking Crisis of 2023

By Jeffrey A. Tucker
March 16, 2023

For three years, I’ve been amazed at the relative calm in the financial system. It truly did not seem believable to me that governments and central banks could utterly shatter all market functioning and flood the world with paper money and yet there be no structural consequences for the banks.

My only question was what would be the trigger and how would it unfold.

In retrospect, the whole thing is perfectly obvious.

Between the first week of March 2020 and exactly two years later, the Federal Reserve printed $6.5 trillion, at some point reaching a per annum increase of 26 percent. We’ve never experienced anything like this before. It also represented a complete reversal of Fed policy, which had been attempting a tightening for the prior six months.

Fed chair Jerome Powell was attempting to reverse the disastrous policy of 2008 enacted by Ben Bernanke, which put a hard price control on interest rates. He drove them to zero, thus creating 12 years of production distortions in which money chased high-end information-based sectors and eschewed savings. It was a massive subsidy to leverage, and Powell knew that he had to change it.

Then the pandemic panic hit. He was called upon to play his role of counterfeiter-in-chief. Buying all the lies and baloney about the impending plague, he accommodated Congressional spending with the most irresponsible monetary policy one can imagine.

The new money was spread around the population with direct infusions of cash designed to mitigate the effects of lockdown. That began exactly three years ago today. Every amount of horror we’ve seen since then traces to that day.

Initially, the money seemed like a wonderful blessing. It always does. Savings soared to the heavens. It peaked at an astonishing 38 percent before plummeting again and reaching a rock bottom of 3.2 percent. Why? Inflation hit and the money ran out for American households and businesses.

But the new money was not destroyed of course. No amount of changed Fed policy could undo the damage. The Fed attempted to reverse course with higher interest rates. A furious and bitter Powell then tried to calm inflation with a repeat of Paul Volcker’s experience from the late 1970s.

But there was a huge difference. Powell was starting at zero. He had to chase down inflation rates reaching double digits. That would require the most brutal interest-rate increases in modern history. But he was all in. He wanted to be valorized in the history books as the man who killed the great inflation of 2021–22.
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At last, the banking crisis arrived. It was right to long expect one but to perfectly foresee how it would happen was not entirely easy. As these things go, the unfolding of events is perfectly obvious in retrospect.

What can the Fed do now? It has no choice but to stay the course on its tightening, even as the Biden administration just promised the most irresponsible spending and printing policy in modern history. The two policies are at odds with each other. They make no sense at all.

What should happen? The banks that are in trouble need to die, contagion or not. There is no getting around the payment of a hugely heavy price for the biggest disaster in public-policy history, namely the decision three years ago today to lock down for a virus. You cannot wreck social and market functioning and expect that there is not a mean price to pay.

Yesterday, there was all sorts of talk about a new Great Depression. At this point, to predict such a thing is not very controversial. We would be extremely lucky to avoid one. Looking around at the banking and financial system, the leverage in households and businesses, and the instability in world trade in general, it truly does seem like our luck has finally run out.

More at URL above (with charts)...

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