The collapse of Silicon Valley Bank has highlighted just how fragile the legacy financial system is.
This is an opinion piece by Mickey Koss, a West Point graduate with a degree in economics. He spent four years in the infantry before moving to the Finance Corps.
It was inevitable and will continue to be inevitable in one form or another, as long as the system exists as it is. When the solution is to print more money, which solves nothing, collapse will always be inevitable.
Reflecting on the events of this weekend, I feel that this is just the tip of the iceberg, setting the stage for what may come over the next few years; a slow-motion sinking of the financial and banking system, systemically dependent on rising levels of credit and debt, oscillating between periods of inflation and near-collapse as financial levers are pulled in opposite directions over the course of increasingly frequent periods.
The fact is that the Federal Reserve caused this collapse, and its inevitable return to quantitative easing will be the precipice of the next collapse. Easing is the only cure for the problem caused by easing. For paraphrase Jeff Booth, the system cannot be repaired from inside the system. They have gone too far and there is no turning back.
The collapse of Silicon Valley Bank (SVB) has highlighted just how fragile the system has become as the Fed desperately tries to tighten and stem the tide of inflation that has has swept the western world in the last year and a half. “Destruction of the requestthey call it, code to intentionally and artificially raise the cost of capital to cause unemployment. Fewer people working means fewer people spending, which will hopefully help ease the upward pressure on prices from quantitative easing, helicopter money and supply chain destruction. that defined the COVID-19 era of the early 2020s.
The only answer was to print money, drive yields down, drive markets up, keep the system from collapsing. In order to maintain confidence, however, the Fed quickly reversed course, participating in the most aggressive tightening cycle ever. The effects are now beginning to be felt in the banking system.
Who knows how many banks are already insolvent and struggling to stay afloat? Who knows how many emergency meetings took place over the past weekend by terrified leaders, desperate to tape the holes in their balance sheets before investors and depositors got wise?
The problem with bank runs is that they are all based on trust. If a bank loses confidence, the resulting deposits can push it into insolvency, even if it was not in danger before the bank run. It is a self-fulfilling prophecy. And it is now a systemic risk.
The decision to guarantee 100% of deposits after the collapse of the SVB was intended to maintain confidence at all costs, to prevent the next bank run and the bank run that will follow. Federal authorities are desperately trying to stem the contagion before it takes hold. They need to finish the job on inflation before they can credibly start printing money again. Or so they say.
With the 100% depositor guarantee, the Fed has, in essence, already pivoted. Money doesn’t appear out of nowhere, unless you work at the Fed, I guess.
Although the new Bank Term Financing Program is not called “quantitative easing”, I don’t see any significant difference. Lending banks money against depressed assets to prevent them from marking their losses in the market is nothing more than accounting alchemy, parallel money printing by any other name.
Hidden cracks in the system
With depressed bond markets at levels like this, it makes me wonder what the next domino to fall might be. I suspect pension funds are in trouble. How long can they survive the bond bear market? How much principal do they lose, for the service of their obligations which they can never replace? How long until the Federal Reserve should step in to support their bonds?
How long before they start printing money openly again, driving yields down to the point where pension funds need to leverage just to fulfill their obligations again? It’s cyclical. It’s going to be cyclical until he can’t survive anymore.
Money printing caused this problem in the form of quantitative easing. Printing money is the only way out of this current debacle. It is a fatality. At the same time, printing money will only make things worse.
It’s a cycle, bound to repeat itself, ad infinitum, until he can’t take it anymore. The next few years are likely to be volatile with accelerated periods of easing and tightening as the Fed battles inflation, and then the ensuing financial meltdown triggered by its inversions – a deadly dance on the verge of hyperinflation and a complete financial implosion in alternating cycles.
Bitcoin is fundamentally different. I heard American HODL today designate money as time and inflation as time theft. The manipulation of money constitutes the manipulation of time for all those who are forced to work to earn a living. Bitcoin is simply a better system, completely separate from the whims of man, out of the grip of the ruling class who always seem too eager to pull the levers of control over a complex system. I save my bitcoin money to stay out of this sphere of influence. The price I pay is fiat volatility, but in my opinion, well worth the cost.
Bitcoin may well be more important than ever, and I think people are starting to see that.
This is a guest post by Mickey Koss. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.