BAILOUT NATION

 

The Fed this last week loaned out 152 billion in emergency loans to banks at the discount window and another 148 billion to the FDIC to help Bail Out Venture Capitalists at SV Bank.  And they guarranteed another 30 Billion that Chase and the largest banks pledged to bail out First Republic Bank.

That's 330 Billion in bail out money for the Non Bail Out that Tax payers are totally on the hook for as every cent of FDIC and SIPC money comes from tax payers in the form of transaction fees.

And every dollar of electronically created money dilutes every Tax payer dollar.

This bailout is massive.

And it is impossible to know how much more is needed as in 2018-19 all Mark to Market accounting in the banking system was scrapped as part of a campaign to "reduce onerous regulations."

If you don't mark your bond portfolio to market, but rather count them at face value, you are seriously under-representing your liabilities.  And over-representing your assets.  Any idiot should know that.  

Unfortunately every time there is a "Stress Test" now for the banks they mark all their bonds at face value.  So now, during a crisis, when they have to raise cash, they don't actually have the cash.  And it is at that point they are forced to liquidate assets at market value - and take massive losses.

Hence this massive rolling bailout, that has no end in sight, except insorar as the Fed and the US Treasury is willing to backstop it all with massive bailouts.

The implications for Inflation are staggering.

To be sure, a good recession will bring down parts of inflation.  Wages, Demand for discretionary goods.  Demand for discretionary services.  But not necessarity housing in the big cities where people want to live.  (Yes I've heard the myth about flight from the cities.  It's true that old people are moving to Florida.  They've always done that.   But young people still want to live in New York.  They're flocking here.  The median rental is up 8 percent from last year.  If you can find a place.)  And not necessarily food, with crops affected by erratic weather and global warfare.  And not necessarily education or health care.  So everything you need to spend on can remain terribly expensive, while discretionary spending plunges.

And when the Fed supports a flagging economy again with lower rates.  Inflation will explode.

And what does the Fed do next week.  Raise rates while liquidity is freezing up in the banking system - and while it is engaged in massive QE bailouts?

Or pause and admit inflation will careen out of control?

Got Gold?