Fed Battle Plan for Inflation Shredded by Financial Turmoil. Federal Reserve Chair Jerome Powell’s strategy to speed up the central bank’s inflation-fighting efforts is unraveling in the wake of Silicon Valley Bank’s collapse.“
“A week ago, Powell surprised markets by saying the Fed may need to raise interest rates at a faster pace than the quarter-point hike it delivered in February to curb stubbornly persistent inflation. Days later, SVB and Signature Bank failed, and the Treasury and Fed launched a vast emergency lending facility saying more banks faced the risk of runs.
“Turmoil in markets on Monday suggested broader fears about financial instability — and the risk it could catapult the US economy into a recession.”
The Fed Is On The Cusp Of A Gargantuan Mistake…“
“The Fed historically tightens until something breaks. Well, things just broke. I am not suggesting this is not the fault of SVB management for not handling their interest rate risk more conservatively, but being behind the curve on inflation is a mistake the Fed has also made. The stock market is no longer worried about inflation but about contagion in the financial system…”
Silicon Valley Bank collapse ‘could force central banks to stop interest rate rises’.“
“Economists said financial stability concerns after SVB’s collapse would probably force banks to act more cautiously when issuing loans – in effect doing some of the same job as higher borrowing costs. However, they also said SVB’s failure showed delayed impacts from the most aggressive rate-rising cycle in decades were feeding through. “The Fed is starting to break things,” said John Briggs…”
Central banks walk tightrope in juggling mandates [I would disagree with this metaphor; a tightrope at least offers a viable path forwards to safety, even if it requires great skill].“
“Central banks juggling inflation and financial stability mandates are prompting the wildest swings in bedrock government bonds for over a decade and a surge in volatility that may end up causing problems of its own.”
Short-dated US Treasury bond yields posted their largest drop in nearly 15 years Monday as the sudden collapse of Silicon Valley Bank continued to send shockwaves through financial markets.“
“Yields on 2-year US Treasury notes fell 57 basis points to 4.02%, for their biggest one-day loss since the 2008 financial crisis, according to data from Refinitiv.”
Silicon Valley Bank’s collapse and tumbling stocks signal that the global economy is now entering a stressful time…“
“The US Treasury and Federal Reserve hope that by putting in place a backstop they can prevent a repeat of 2008 when the collapse of the investment bank Lehman Brothers set off a global crisis which resulted in a deep recession.”
Don’t Call It a Bailout: Washington Is Haunted by the 2008 Financial Crisis…“
“… as he endeavors to head off a crisis of confidence after the failure of three financial institutions in recent days, Mr. Biden wants to avoid not just a run on the banks but a run on his credibility. “The term and the idea of bailouts are still highly toxic,” said Robert Gibbs, Mr. Obama’s first White House press secretary.”
Moody’s changes outlook on U.S. banking system to ‘negative’ after SVB collapse.“
“Moody’s Investors Service on Tuesday revised its outlook on the U.S. banking system to “negative” from “stable”, citing heightened risks for the sector after the rapid unraveling of SVB Financial Group (SIVB.O) fueled fears of contagion.”
Large US banks inundated with new depositors as smaller lenders face turmoil.“
“Large US banks are being inundated with requests from customers trying to transfer funds from smaller lenders, as the failure of Silicon Valley Bank results in what executives say is the biggest movement of deposits in more than a decade.”
Credit Suisse warns of ‘material weaknesses’ in financial reporting.“
“Credit Suisse has said it found “material weaknesses” in its financial reporting controls and that clients were still withdrawing cash, the latest blow to the Swiss bank as it tries to recover from a string of scandals.”
Credit Suisse plunges to fresh All-Time low as Saudi National Bank rules out assistance. Now down 96.7% below ATH. pic.twitter.com/33KDigAlDc
— Holger Zschaepitz (@Schuldensuehner) March 15, 2023
Jeremy Hunt risks triggering another financial crash.“
“If the Treasury wants to make it easier for insurers to invest in private equity, property and infrastructure then it has to accept that there is a trade-off. It will mean that capital is trapped in long-term illiquid assets that are difficult to access in the event that the industry finds itself facing a flurry of big payouts – essentially what happened with SVB.”
‘It was frantic’: the scramble to save SVB UK and avert a banking crisis [UK]…“
“In offices, spare bedrooms and kitchens across the UK, it was all hands to virtual battle stations as a small army worked through the weekend and well into the early hours of Monday morning to try to salvage the UK arm of the tech lender – or risk turmoil when markets opened.”
US banking crisis could sway ECB from committing to future rate rises…“
“Tensions have been intensifying between ECB rate-setters over how much further it should raise rates. Austrian central bank governor Robert Holzmann has called for four more half point rate rises, but Italian central bank boss Ignazio Visco criticised this approach, calling for prudence.”
“Inflation in the European Union tripled in 2022 compared to the 2021 annual figures, clocking the highest growth rate ever. The harmonised index of consumer prices (HICP) rose to 9.2% in 2022 for the EU, compared to 2021’s annual value of 2.9%.”
Swedish inflation soars in February, Riksbank under pressure.“
“Core inflation jumped in Sweden in February, fresh data showed on Wednesday, putting pressure on the central bank to hike aggressively at its next meeting in April and to keep tightening policy in the months ahead.”
Spain’s core inflation hits new record despite government measures…“
“On Tuesday, the consumers association OCU demanded “an urgent and substantial increase in the amount of a €200 allowance (recently approved by Madrid) for vulnerable households, as well as in the number of beneficiaries,” while calling the left-wing executive to approve a temporary full exception of VAT (0%) on meat and fish.”
Traffic, fuel, rubbish: France braces for yet another pension strike…“
“France is set for more disruption on Wednesday (March 15) as opponents of the government’s controversial pension reforms — which include raising the minimum retirement age from 62 to 64 — go on strike again.”
Turkey’s current account deficit hits highest level since records began.“
“Turkey has posted a record high current account deficit, underscoring the challenge facing President Recep Tayyip Erdoğan as voters’ discontent over his stewardship of the $800bn economy grows ahead of a general election in May.”
Lebanese currency hits all-time low amid financial crisis, political deadlock.“
“The Lebanese currency on Tuesday collapsed to 100,000 Lebanese pounds (LBP) per dollar for the first time in history as the country’s financial crisis and political deadlock linger on. The value of the Lebanese currency lost 8,000 pounds from two weeks ago when it stood at 92,000 pounds against the dollar.”
Afghans brace for Ramadan amid deepening economic crisis…“
“Many Afghan families are running short of food amid deepening inflation, unemployment, famine, and poverty. This is the second Ramadan since the Taliban took power in August last year, following the catastrophic withdrawal of the US.”
Pakistani police fire tear gas into Imran Khan’s home as defiant former leader resists arrest.“
“Pakistani police fired tear gas into the grounds of Imran Khan’s Lahore home on Wednesday following a night of violent clashes between security personnel and the former prime minister’s supporters as attempts by authorities to arrest him stretched into a second day.”
Argentina Inflation Surpasses 100% as Economic Recession Looms…“
“Inflation is taking center stage in this year’s presidential elections, challenging both of the top two political parties to entice voters after they failed to stabilize the crisis-prone economy. But at the same time, polls show inflation is voters’ top concern…”
Argentina: Power outages reported in Buenos Aires Metropolitan Area March 14…“
“Power outages have been reported across the Buenos Aires Metropolitan Area on March 14 due to an intense heat wave. Reports indicate over 50,000 people have been affected in the Buenos Aires Metropolitan area.”
South Africa Has Plans in Place to Safeguard Food Supply Amid Power Crisis.“
“…measures have been taken to ensure abattoirs can continue operating and animal vaccines are protected, Agriculture, Land Reform and Rural Development Minister Thoko Didiza said in an interview at Bloomberg’s Johannesburg offices on Monday.”
South Africa’s Towns Owed $17 Billion, Face Revenue Squeeze…“
“Debt owed to South African towns and cities jumped to more than 300 billion rand ($16.5 billion) in the final quarter of last year, adding to the financial woes of municipalities that are struggling to meet revenue targets amid persistent power cuts.”
A global public debt crisis is brewing and there are no short-term fixes available.“
“The growing public debt crisis poses a significant threat to the global economy, as it doubles at an alarming rate and with no immediate solutions in sight. The geopolitical changes associated with this economic crisis are exacerbating the issue, which is not confined to less developed countries but developed ones too.”
Power cuts, war, and hybrid cars are predicted to cause a platinum price surge in 2023…“
“According to the World Platinum Investment Council there will be a “deeper-than-expected” global deficit of platinum in 2023 as demand soars and supply struggles to keep up.”
You can read the previous “Economic” thread here. I’ll be back tomorrow with a “Climate” thread.
If you found value in this content, please help me continue this work by becoming a patron of my work via Patreon. And if you are already a subscriber or have donated – thank you! It is an enormous help as the cost-of-living crisis ratchets up here in the UK.
Sh*t is getting real, my friends!!!
“Don’t call it a bailout”= buy time while we figure out a term that sounds different as we do the same thing. As the multi polar world sets the alternative payment system into full swing the non-west can just default any payments to the world bank or IMF and swing to a new system with a clean slate.
The West’s financial hegemony is under threat, for sure, Red.
1.Tomorrow is the big day in France then the decision on the new pension law will be made. The strikes are coming to an end at the moment, except for those of the rubbish collectors. The dirt is piling up in Paris with rats really everywhere, where Paris was the ‘front runner’ anyway.
Today began the three ‘ anti inflation’ months. Indeed, the French government is meddling in everything, even the price of groceries. The French need to be protected! That’s why the government deficit is so high.
Food inflation rose to 14.8%…. so intervene
…..The ‘anti-inflation quarter’ starts today in supermarkets
Retailers have pledged to cut the prices of a selection of products of their choice for three months. But what exactly is this about? Each supermarket chain may charge lower prices on a range of everyday food products of their choice from this Wednesday. They “undertake to go beyond their usual spring offers”. The listed retail chains include Carrefour, Intermarché, Auchan, Casino, Cora, Lidl, Aldi and Système U. To help consumers find their way around, a blue, white and red “anti-inflation quarter” logo will be applied to products covered by the promotion. “The logos are currently being printed and you will see them on the shelves early next week,” he said. The economy minister also warned that checks will be planned to ensure that the reduction in certain products is really due to a reduction in distributors’ margins. From June, there will be renewed negotiations with the agricultural sector and the food industry to reduce prices. There is also criticism. Three associations, UFC-Que Choisir, Familles Rurales and Consommation Logement Cadre de Vie, consider it wrong that the government ” relies on the goodwill of supermarket chains to reduce their profit margins “. They want the “SRP+10” provision of the Egalim Act, which allows supermarkets to sell food products up to 10% above the purchase price, to be suspended…..
2. Highly recommended for those who want to understand something about mining in (South) Africa and why things are totally collapsing there. Goes back to the ‘ Boerenoorlog’…. very nice long read!!!
Zip, thank you for your thoughts. I had spotted that France was subsidising some basic groceries; it seems like a sensible arrangement to me.
Here in the UK, the Chancellor has just announced his budget. I haven’t looked at it any detail but the energy price-cap is being extended for three months. There will also be a roll-out of free childcare for children under three.
I noticed that the US is also trying to mitigate the cost of living crisis for its citizens: “A White House official detailing the new measures to CNN said they are aimed at lowering the price of health care, home heating, and broadband access, adding that they will impact “tens of millions of seniors, students, and families month-over-month.””
No doubt staving off unrest is a motive.
One of my favorite sayings: “When people lose everything & have nothing left to lose,they lose it.” My version; Be careful who you or others anger.
The rich can’t say they haven’t been warned. Flaunting one’s wealth is not a virtue,it’s a liability in a world of masses of poor & destitute.
Popeye: “I’ve had all I can stands,I can’t stands no more.”
We are certainly moving into an era where being ostentatiously wealthy could be unwise. I noticed that our ridiculously wealthy Prime Minister is in trouble over his new heated swimming pool:
“Rishi Sunak has rejected suggestions he is detached from the everyday concerns of the public after it emerged his new heated swimming pool uses so much energy that the local electricity network had to be upgraded to meet its power demands.”
Mitigating cost-of-living, in Australia — we are asking “Are We There Yet?”
Short answer – No – other than partially capping domestic gas prices for a year, so they will only rise by ~20% instead of ~50% come July 1, but the pressure is building for ‘relief measures’ in the next Budget in May. And because our grids are patchy with how much natural gas is used, in different cities/regions, and therefore how much electricity prices rises along with the gas, the price rises is all over the place – a ‘Postcode Lottery’.
And even our stock market, particularly banking, has seen an obvious “dip” from Credit Suisse where the US SVB etc wasn’t a drama, the Saudi’s blow to Credit Suisse is becoming one for us, (unfortunately).
All the critics coming out of the woodwork against AUKUS, including things like “we can’t trust the Brits, their economy is tanking .. LOL … and we shouldn’t support US against China anyway, “Biden can’t string 3 sentences together” LOL , it makes regional security and tensions worse, not better etc … and way too much money, better spent on quicker & cheaper to build fleet of conventional diesel subs (as in the original deal with France).
I looked at the details, its only a smallish commitment of $9AUD billion in solid contractual arrangements over the next 4 years, and most of that will be spent here on infrastructure / workforce in the ports, naval bases and shipyards. With just 1 US sub promised by 2027, when we will also be hosting both US and UK naval presence for “training” — another word for “technology transfer”.
Even if the first sub isn’t ready by then, we will still host at least the navy folks by 2027 – so expanding joint bases, probably including the Pine Gap facility (highly ‘secret-squirrel’ spy facility in the deep desert, been there since the 50s/60s). Heavily and scarily guarded by a huge perimeter, like Area 51 🙂
Just IMHO, its all about access to the latest technology around SMRs (Small Modular Reactors). Such technology has so far been limited to military applications in a handful of countries from decades of highly classified research, and Australia wants a share. And at any time, it can quietly collapse with minimal losses if it doesn’t work out after that first 4 years. Over the entire 30 years proposal? that’s a lot of government changes for all 3 countries.
Rain, thank you for the “on the ground” intel.
The AUKUS treaty and the sense, generally, that military tensions are ratcheting up around the world is unnerving. I always used to discount the possibility of another global war but you start to see how events could take on a life of their own. The UK papers are making much of this US drone knocked out of the sky by a Russian jet:
“This is the first direct confrontation between Russia and the US since the start of the war in Ukraine.”