Current State Of The Economy Flashcards
Who is Janet Yellen?
Treasury Secretary, used to be the head of the FED
Why are small/regional banks failing?
All of these banks over the last several years have accumulated all their deposits because the President (Biden) removed ALL the “reserve” requirements to 0…. SO MOST OF THESE BANKS HAVE VIRTUALLY NOTHING IN TERMS OF CURRENCY ON HAND…. because they would take these deposits and buy bonds with them (typically treasuries, and in many cases mortgage backed securities) at interest rates above what they were paying back to the depositors of course 💵
Typically this would be considered a safe place to store money. The problem is that all of those bonds have an average yield of 2.5% BUT THE PROBLEM IS, since interest rates have risen closer to 5% EVERYONE OF THOSE BONDS IN THEIR PORTFOLIO HAVE LOST 50% OF THEIR VALUE OR MORE! The banking “regulations” say that they don’t have to “mark those to market” (Mark to Market MTM - a method of measuring the fair value of accounts that can fluctuate over time, such as assets and liabilities) UNTIL they sell them… ie they don’t need to assess its accurate value based on MTM standards until they go to sell them. SO they have a whole balance sheet full of toxic assets that have lost their value of 50% or more….
So when people start doing these bank runs and these banks don’t have any of their deposits on hand and they’re all in these toxic assets that have basically lost half their value, THEY ARE FORCED TO SELL THEIR BONDS AT A HUGE LOSS IN ORDER TO MEET CUSTOMER DEMANDS…
If enough people withdraw their money and the banks are forced to liquidate their bond holdings that worth waaaay less than what they got them for them…. A large bank can become insolvent in less than 24 hours like we saw with Silicon Valley Bank, Signature and others…
The FDIC cannot handle this… their insurance fund is only 0.03% of Bank Deposits $125B (FDIC liquidity) to cover over $9.5T in deposits…
Who decides which banks will be saved and which ones won’t
Janet Yellen, Super Majority of the FDIC board, and members of the Federal Reserve.
What are we seeing customers do after the recent bank failures?
Flood billions of dollars into much larger banks because they’re terrified of what’s been happening with the recent bank failures.
Specifically large depositors in regional banks.
Who was #2 in charge at the federal reserve who moved into current President Biden’s White House?
Lael Brainard - her whole thesis is to remove commercial banks and to issue in the Central Bank Digital Currency… she is a modern monetary theorist.
This will heard 1000s out of the small regional banks (that provide personalized helpful service to the small guys) and they will evaporate because people are scared….
This puts a very large amount of people and a few mega banks…
Is it not that far off to see that this banking crisis was deliberately implemented in order to create the necessary “chaos” to get depositors to move into a more “centralized” position of putting their money into government controlled commercial banks.
They may just let one large one fail just like Lehman brothers in 08’ to get the people to REALLY move.
YET in comes the “central bank digital currency” on a white horse to save the day… and being the solution to why the the current “unstable” commercial banking system must transition into a much stabler option = CBDC (good ole’ problem reaction solution strategy)
Her thesis is to get rid of commercial banks and enact central bank monetary policy straight to people’s mobile phones 📱 hence FedNOW…
What significant mandate did the
Bank for International Settlements
enact?
That all countries in the BIS network (over 130) are required to implement a working CBDC before 2025
Whats the difference between why the government and the IRS are interested in a CBDC vs. why the Federal Reserve wants a CBDC?
The government and the IRS can watch anything you do and if they don’t like what you’re doing they can penalize you. By locking your money down or by saying you can’t purchase certain things or have bought too much of something.
The Federal reserve wants it because the way that money is created in this country is by it being “LENDED” into existence…
The commercial banks have the US Treasury bonds, they buy them from the treasury and have them on their balance sheet… if the FED comes to them and says I want your bonds THEY ARE OBLIGATED TO SELL THEM… for example: a commercial bank will sell their bonds back to the FED and they get CASH…. with that cash they can do 2 things: 1. lend it into existence (pushes a button, creates money and gives the banks the $ to buy the bonds)… if those banks want to lend it into existence like on a credit card at 18% interest or HELOC at 8% or a mortgage or a car note then they do that… THAT IS HOW MONEY IS CREATED… that money that is in the form of a loan is freshly created money into the system… THIS IS HOE THEY STIMULATE THE ECONOMY. If the banks don’t want to do that… they will pile that money into the “reverse repo market” which is over night lending, they GIVE IT BACK to the FED earning 4% with safety instead of lending it out into the system!
They would rather give it back to the FED at 4% than to give it to someone on a credit card payment earning 4x that BECAUSE THEY DONT TRUST THE ECONOMY….
So when the commercial banks are not lending and are in fact giving it back to the FED in their reserve accounts and in the reverse repo market THATS ACTUALLY NOT WHAT THE FED WANTS when they want to stimulate the economy and create inflation
So… their agenda (THE FED) is to enact monetary policy without it having to be “lended into existence” by the banking system… They want to be able to give you money or take your money to create inflation or deflation if things get too hot or not hot enough.
How are they testing the CBDC?
13 Banks have been mirroring their transactions with VISA and MASTERCARD to test the CBDC as per Biden’s executive order.
Why does the value of bonds go down when interest rates rise?
Because the newly issued bonds have a much higher yield than the older bonds with a much lower interest rate (coupon rate) therefore the value you goes down on old bonds because they are undesirable unless purchased that a rate of return equal to what current newly issued bonds are offering.
Banks are in trouble with this because they tossed nearly all their deposits in treasury bonds at much lower interest rates and now the rates have gone through the roof and people are wanting to move their deposit money into larger much safer banks now that they see the economy is in bad shape and some banks are failing.
