Federal Reserve is Killing the Banking System

Reliving the 1929 and the Years of Volcker

The testimony of officials from the Federal Reserve and FDIC this week revealed that the central bank is replaying several scenarios at once, leading to confusion and contradictions in their congressional testimony. These scenarios include the 1980s, when Fed Chairman Paul Volcker pushed market rates above bank funding costs and annihilated a class of non-banks known as Savings & Loans; and the Great Crash of 1929, when the FOMC raised short-term rates to stamp out speculative behavior, leading to the Great Crash of 1929.

The scenario that the Fed has created is the outflow of deposits from banks to money market accounts where the yields are higher leaving the banking system with declining capital to work with. The Fed's overnight reverse repurchase agreement facility is subsidizing money market funds as an alternative for uninsured bank depositors. Essentially the Fed is killing the small and mid size banks and soon could crush on of the largest banks. You couple this with the banks Hold to Maturity asset that where bought between 2020-2021 and you have yourself a good old fashion redneck bar-b-q of our banking system.

What Do You Do as an Investor?

Simple. Don’t fight the current. I live at the beach in Florida. Yesterday the beach’s had a Red Flag because of the strong Rip Current. They say that most people die when caught in a rip current because they try to fight it and swim against the current. The way you survive is to ride the current out until it spits you out into open water giving you the ability to swim back around the rip current to shore. The stock market is no different. If you subscribe you will better understand my new additions to the portfolio allocation found below.

Subscribe for $11.99 a month. Cancel anytime.