14 March 2023
The biggest problem with trying to explain economic events is that the reader must have already a substantial understanding of the basics. Getting the basics requires a high volume of information that has to be processed and internalized. In other words, unless you already have some college level Econ 101 through 104, none of this is going to make much sense. That's the nature of economics, the "dismal science".
It's the fundamental nature of western banking and fiat currencies to be inflationary. Stability of value in any fiat currency (dollars, pounds, francs, lire, etc.) is utterly impossible. The whole point is to hand the economic whip to the banking classes, to put them in charge of all things economic. It turns the system into a weapon against the lower classes of society. It creates a situation where the banking class can become de facto owners of every physical object of value via the means of loans and collateral. It's meant to sucker the little people into borrowing because it's the only way to get a rise in consumer comfort.
Inflation reduces the value of the currency against the value/utility of the things people own. The trick is to ensure that the things people buy don't last long enough to retain their value. Then, they keep having to buy newer stuff at newer prices. And the system works to depress wages, so that they always lag behind the market as a whole. So, the banking system does not work as advertised; it creates money out of nothing and loans it out. Raising the amount of currency against real property reduces the value of the currency. It's buying up the property and future productivity of the little people by creating currency out of nothing.
That kind of grip the banking class held in previous centuries was there, but not so strong as they liked. With the creation of the Federal Reserve, the bankers were handed ownership of the entire physical property and future productivity of the United States. The same system spread like cancer across the entire West, and was foisted upon the rest of the world through the IMF and similar institutions. So, when our Federal Reserve Bank (the Fed) decides the working class have gotten too good of a deal, and are demanding too much, the Fed raises interest rates to "fight inflation" which it controls in the first place.
All of these things leave the system vulnerable. But keep in mind that, while the banking class treats the financiers as allies, they are not really friends. The financiers are what you would call the "stock market" and various related financial markets. Thus, when the little people start breaking too free, the bankers are willing to hammer the financiers. The financiers are willing to take these risks to get in on the money and power they would otherwise not have, because they are simply smart and educated little people, not bankers.
Yes, "bankers" generally means "Jews", though it's not a precise definition. It simply works that way in effect. The net result of banking activity inevitably serves the Jewish ethnic agenda, though some bankers are not Jewish. The point is that this cannot be explained solely as class warfare. Rather, the apparent class warfare happens to coincide a great deal with the hidden ethnic warfare. You won't get that explanation from some of the best commentators on economics.
That includes this explanation from Michael Hudson. Granted, Hudson leans to socialist values, but what really matters is that he accurately explains in relatively simple terms the underlying mechanics of economic activity, including banking. He warns that the current system was just barely working until it became politically necessary to enact sanctions in the West against Russia. That the bankers knew this was coming is not the point; the reason things are coming apart right now is because of how those sanctions put a strain on a creaky system. First the financiers, then those banks and bankers who were already cheating the system for plunder are the first to fall. Thus, SBF's FTX (crypto-currency exchange) fell first, then Silvergate (crypto friendly bank), and now the Silicon Valley Bank (techno lending bank) is trailing behind in the same fracture in the system for somewhat less flagrant cheating.
What puts all the other smaller banks at risk is the strain on the system from Russian sanctions, which slices off a lot of money flow. There is a similar loss from all the wokist policies and the inevitable financial losses from them -- they aren't profitable. And then the little people in some ways start prospering again and that simply cannot be allowed, so the Fed boosts the interest rate. Using the voice of government, the Fed can shut down consumer demands by claiming that the consumers must take one for the team. Side note: rising interest rates are not passed on to consumers as interest on their deposits. Banks are keeping the difference. Anyway, as Hudson explains, rising interest rates causes the value of existing bonds and similar assets, all of which were issued at a lower interest rate, to lose their value. Thus, the banks that hold such assets suffer a loss in asset value against their various outstanding loans.
Rising interest rates cause the prices of bonds already issued to fall – along with real estate and stock prices. That is what has been happening under the Fed’s fight against “inflation,” its euphemism for opposing rising employment and wage levels. Prices are plunging for bonds, and also for the capitalized value of packaged mortgages and other securities in which banks hold their assets on their balance sheet to back their deposits.
The result threatens to push down bank assets below their deposit liabilities, wiping out their net worth – their stockholder equity. This is what was threatened in 2008. It is what occurred in a more extreme way with S&Ls and savings banks in the 1980s, leading to their demise....
Depositors began to withdraw their money to get higher returns elsewhere, because S&Ls and savings banks could not pay higher their depositors higher rates out of the revenue coming in from their mortgages fixed at lower rates.
Little banks cannot absorb those losses the way big banks can. Yes, things were going downhill anyway. But what made things so very unstable just this past week? Hudson says it was the derivatives market, something exceedingly hard to explain even to those with a basic economic understanding. It's comparable to a gambling casino for financiers and bankers only -- high risk and high profit. Last week, the balance of the betting shifted quite suddenly, turning the tables on who had been winning and losing. I can't explain that part; it has to do with the vagaries of things no one can predict. It requires getting inside the heads of too many people at the same time, people who are financiers and who are all rather independently minded about things. The only way to draw them into the gambling casino is to give them enough liberty to mess things up to some degree.
Knowing that Jamie Dimon decided early last week that it was time to spook on SVB, and that Peter Thiel, among others, took his advice, does not explain everything. If it was just them alone, it would have taken longer. Something that the financiers were gambling on in their private derivatives casino, something none of them could have controlled, shifted suddenly. That something is rooted in a very large number of nobodies who suddenly made choices few expected. And the whole thing rests on a large number of indicators that are used differently by the various casino gamblers. We'll never know what it was, but something shifted.
At this point, says Hudson, everyone is heading for the exits on one set of investments and putting their money into treasuries and related securities. The US Treasury will displace banks as the safe haven for cash. For now, the stock market has not moved much. But if stock investors get spooked and flee, that market will crash. Everyone will be dumping stocks and values will plunge. That's a high probability, but once again, it rests on something we cannot predict -- the aggregate choices of a lot of fairly independent people. Indeed, it would seem that, all things considered, they must eventually do so.
Long ago, I learned that our economy wobbled along the knife edge of collapse because it was almost entirely powered by consumer sentiment. Consumers are so very fickle in the aggregate. Now I'm seeing just how fragile our system was. Do you understand why the powers that be are struggling so hard to seize control of the Internet for the purpose of censorship? It takes only one real "influencer" to knock everything down by saying something that changes the way consumers act, even for a brief few days. It's that fragile.
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