Sometimes a revisit on past articles helps ground where you are in the moment. Looking back at the economy article in 2021 it seems I luckily guessed the invisible hand that eventually moves the market. The thesis took a while to come to fruition but cracks continue to enlarge. The question now remains if we are headed for more uncertainty.
As posited in a previous article it is beneficial to flush the economic system of fraud. The problems only fester when central banks refuse to face reality. They do not see the cost of living increases as a bigger threat than portfolio balances. Inflation is still a monster that has deep roots in the entire economy. It hides and pops up in different data points that harms all classes especially the poor.
End of the day people need to eat, sleep, and shelter. If the costs to eat and shelter continue to increase at the rate seen then no longer can many enjoy the basic necessities in life. Buying $10 eggs and yogurt is not sustainable long term by people. Home prices have only begun to fall but the inventory remains tight. A major concern will continue to be inflation a worse case would be stagflation over a longer period.
Failure in life is expected. Same with failure in some banks. When the Fed coddled the industry with more money, they did little to teach a lesson. The FDIC even failed too when they increased the safety nets. Brushing problems under does not make them go away. There should have been some pain for the savers in a haircut for the higher balances. It was a difficult situation but one that could have been prepared for with better controls on the circulation of money.
When the banks that are saved include ones that have been doing scrupulous behavior for years then it enables that for future generation of banks. Absorbing the bad with the good is trying to inflate the system to outgrow the root issues. But there is never a true flush of the bad. People learn quickly during trauma and must adapt to better themselves. Banks can learn to better manage their risks and become more efficient if they know there are consequences for acting poorly.
In the end the balance of the economic system should return to equilibrium at least for a moment. To have the reminder that there is a chance of failure will require individuals to do more due diligence on where they bank and create a self-policing ecosystem. If the path continues at the current rate, then what is the point of having multiple banks. It might as well turn to one big USA bank that holds everyone’s money. There should always be the freedom to choose where you bank and having one is same as none. This is a basic right that everyone should have where freedom to bank continues the evolution of the economy.
Appendix:
Many days I read people’s comments on news articles to get a better sense of differing opinions. Separating bots from humans is easier after awhile but who knows with AI technology around the corner. Here is an example of an interesting response to the SVB crisis which helped shape some ideas.
Mishandled over a weekend, the boards of the FDIC and the Federal Reserve improperly performed their central functions as guarantors and lenders of last resort; Washington has opened a Pandora’s box, risking contagious runs on the rest of America’s financial system by fiscally unsound limitless <$250k guarantees in a time of spiraling inflation not seen in generations.
What incentive is there for banks to play by the rules when those prudent are punished, when the great levelers, the Biden-assembled kakistocracy reward failure by imposing punishment, a special assessment on all banks to cover the losses of a few reckless scofflaws?
Rewarding failure brings more failure causing more bank failures.
Return to local regional banking before we all sink into the abyss trying to make whole the deposits of just one of the too-big-to-fail.
With little note, yet sweeping transformation, the 1994 Riegle-Neal Interstate Banking and Branch Efficiency Act permitted nationwide interstate banking for the first time.
It should be repealed; mergers reversed, broken up into regional independently state-chartered, and driven by local economies as they once were, not imaginary and detached whether money center banks in NYC, Charlotte, or worse of all Washington.
Scrutiny by bank examiners in the regulatory bureaucracy is no substitute for competitive free market disciplines; the greatest existential threat to our enduring America is too interventionist government.
Decentralize…
WSJ Commentor