The collapse of Silicon Valley Bank has exposed just how fragile the legacy financial system is.
This is an opinion editorial by Mickey Koss, a West Point graduate with a degree in economics. He spent four years in the infantry before transitioning to the Finance Corps.
This 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 more money printing, which solves nothing, collapse will always be inevitable.
Reflecting on the events of this weekend, I have a feeling it’s just the tip of the iceberg, setting the stage for what it may become in years to come; a slow-motion train wreck 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 move in opposite directions at increasingly frequent periods.
The fact is that the Fed caused this collapse, and its inevitable return to QE will be the precipice of the next collapse. Relaxation is the only cure for the problem that causes relaxation. TO paraphrasing Jeff Booth, the system cannot be fixed from within the system. They have gone too far and there is no going back.
Anti-Antifragile
The collapse of Silicon Valley Bank (SVB) has exposed just how fragile the system has become as the Fed desperately tries to tighten up and stem the wave of inflation that has swept the western world for the past year and a half. “demand destruction”, they call it, code to intentionally and artificially raise the cost of capital in order to cause unemployment. Fewer people working means fewer people spending, which will hopefully help alleviate the upward pressure on prices brought by the quantitative easing, helicopter money, and supply chain destruction that defined the COVID-19 era of the early 20s. 2020s.
The only answer was to print money, to drive down yields, to drive markets back up, to keep the system from collapsing. However, to maintain confidence, the Fed quickly reversed the trend, engaging in the most aggressive tightening cycle in history. The effects are now beginning to manifest in the banking system.
Who knows how many banks are already insolvent and struggling to stay afloat? Who knows how many emergency meetings were held last weekend by terrified executives desperate to tape up the holes in their balance sheets before investors and depositors noticed?
The problem with bank runs is that they are all based on trust. If a bank loses trust, the resulting deposits can drive it into insolvency, even if it was not in danger before the bank run. It is a self-fulfilling prophecy. And now it’s a systemic risk.
The move to support 100% deposits after the SVB collapse was all about maintaining confidence at all costs, to avoid the next bank run and the subsequent bank run. Federal authorities are desperately trying to stop 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 Federal Reserve has, in essence, already pivoted. Money doesn’t just appear out of thin air, unless you work at the Federal Reserve, I guess.
although the new Bank Term Financing Program it’s not called “quantitative easing”, I don’t see any significant difference. Lending money to banks against depressed assets to prevent them from marking their losses on the market is nothing more than accounting alchemy, shadow money printing by another name.
Hidden cracks in the system
With bond markets depressed at levels like this, it makes me wonder what the next domino could be. I suspect that the pension funds have enough problems. How long can they survive the bond bear market? How much principal are they losing by meeting obligations that they can never replace? How long until the Federal Reserve has to step in to stop your bonds?
How long until they start printing money openly again, depressing yields to the point where pension funds have to leverage just to meet your obligations again? It is cyclical. It’s going to be cyclical until it can no longer survive.
Money printing caused this problem in the form of quantitative easing. Printing money is the only way out of this current debacle. It is an inevitability. At the same time, printing money will only make things worse.
It is a cycle, condemned to repeat itself, ad infinitum, until it can no longer. 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 collapse triggered by its reversals: a death dance on the brink of hyperinflation and complete financial implosion in cycles. alternate.
Bitcoin is fundamentally different. I have heard American HODL today they refer to money as time and inflation as theft of time. The manipulation of money constitutes the manipulation of time for all those who are forced to work for a living. Bitcoin is simply a better system, completely cut off from the whims of man, out of reach for the ruling class who always seem too eager to pull the control levers on a complex system. I save my money in bitcoins to stay out of that sphere of influence. The price I pay is fiat volatility, but it is well worth the cost in my opinion.
Bitcoin could be more important than ever, and I think people are starting to see it.
This is a guest post by Mickey Koss. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
