The collapse of Silicon Valley Bank has highlighted simply how fragile the legacy monetary system is.
This is an opinion editorial by Mickey Koss, a West Point graduate with a level in economics. He spent 4 years within the infantry earlier than transitioning to the Finance Corps.
This was inevitable and it’ll proceed being inevitable in a single type or one other, so long as the system exists as is. When the repair is extra money printing, which doesn’t repair something, the collapse will at all times be inevitable.
Reflecting on the occasions from this weekend, I have a sense that it is solely the tip of the iceberg, setting the stage for what could come to be over the subsequent few years; a gradual movement prepare wreck of the monetary and banking system, systemically-dependent upon rising ranges of credit score and debt, whipsawing between durations of inflation and close to collapse because the monetary levers are pulled in reverse instructions in increasingly-frequent durations.
The truth is that the Federal Reserve brought about this collapse, and its inevitable pivot again to quantitative easing would be the precipice for the subsequent collapse. Easing is the one remedy for the issue that easing causes. To paraphrase Jeff Booth, the system can’t be fastened from throughout the system. They’ve gone too far and there’s no turning again.
Anti-Antifragile
The collapse of Silicon Valley Bank (SVB) has highlighted simply how fragile the system has grow to be because the Fed desperately tries to tighten and stem the tide of inflation that has swept the western world for the past year and a half. “Demand destruction,” they name it, code for deliberately and artificially elevating the price of capital so as to trigger unemployment. Fewer folks working means fewer folks spending, hopefully serving to to ease the upward strain on costs exerted by the quantitative easing, helicopter cash and provide chain destruction that outlined the COVID-19 period of the early 2020s.
The solely reply was printing cash, to drive the yields down, to drive the markets again up, to hold the system from collapsing. In order to keep confidence, although, the Fed rapidly reversed the development, collaborating in essentially the most aggressive tightening cycle ever. The results are now beginning to play out within the banking system.
Who is aware of what number of banks are already bancrupt and struggling to stay afloat? Who is aware of what number of emergency conferences had been held this previous weekend by terrified executives, determined to duct tape over the holes in their stability sheets earlier than traders and depositors alike obtained clever?
The downside with financial institution runs is that they are all primarily based on confidence. If a financial institution loses confidence, the following deposits can wipe it into insolvency, even when it weren’t in any hazard prior to the financial institution run. It’s a self-fulfilling prophecy. And it is now a systemic threat.
The transfer to backstop 100% of deposits following the SVB collapse was all about sustaining confidence in any respect prices, to forestall the subsequent financial institution run and the financial institution run after that. Federal authorities are desperately attempting to stem contagion earlier than it takes maintain. They want to end the job on inflation earlier than they can credibly begin printing cash once more. Or so they say.
With the 100% depositor assure, the Fed has, in essence, already pivoted. Money doesn’t simply seem out of nowhere, except you’re employed on the Fed, I guess.
Though the brand new Bank Term Funding Program is not referred to as “quantitative easing,” I see no significant distinction. Lending cash to banks towards depressed belongings to forestall them from marking their losses to the market is nothing greater than accounting alchemy, shadow cash printing by one other title.
Hidden Cracks In The System
With bond markets depressed to ranges like this, it leads me questioning what the subsequent domino could be to fall. I suspect pension funds are in fairly a little bit of hassle. How lengthy can they survive the bond bear market? How a lot principal are they dropping, servicing their obligations that they won’t ever give you the chance to exchange? How lengthy till the Federal Reserve has to step in to again cease their bonds?
How lengthy till they begin overtly printing cash once more, miserable yields to the purpose the place pension funds have to lever up simply to meet their obligations once more? It’s cyclical. It’s going to be cyclical till it may’t survive anymore.
Money printing brought about this downside within the type of quantitative easing. Money printing is the one means out of this present debacle. It is an inevitability. At the identical time, cash printing will solely make issues worse.
It’s a cycle, doomed to repeat, advert infinitum, till it may’t anymore. The subsequent a number of years are possible to be unstable with accelerating durations of easing and tightening because the Fed fights inflation after which the following monetary collapse triggered by its reversals — a lethal dance edging on the verge of hyperinflation and full monetary implosion in alternating cycles.
Bitcoin is basically completely different. I heard American HODL right now refer to cash as time, and inflation as time theft. Manipulation of cash constitutes the manipulation of time for all of those that are pressured to work for a dwelling. Bitcoin is merely a greater system, fully separate from the whims of man, outdoors the grasp of the ruling class that at all times appears all too keen to pull the levers of management of a posh system. I save my cash in bitcoin to stay outdoors that sphere of affect. The value I pay is fiat volatility, however in my view, it’s properly value the price.
Bitcoin would possibly simply be extra essential than ever, and I suppose folks are beginning to see it.
This is a visitor put up by Mickey Koss. Opinions expressed are fully their personal and don’t essentially replicate these of BTC Inc or Bitcoin Magazine.
