On Sunday, March 12, 2023, Janet Yellen initially gave the impression that the US authorities were going to let the situation in the US banking world rot. Janet Yellen had explained that the US government would not do any bailout for SVB.
Panic then took hold of the market and Monday promised to be difficult.
A few hours later, we learned that President Joe Biden himself had intervened to say that the US Treasury, the Fed, and the FDIC would backstop every single depositor at Silicon Valley Bank, regardless of the deposit amount.
Some people don't realize what this means, but it only confirms that the current system is headed for collapse. Consider the increase in FDIC coverage over the past decades:
In a world of fiat money printed out of thin air to infinity, some will tell you that it becomes logical that the FDIC coverage is infinite ...
Be careful though, because only custodians are concerned by this unlimited coverage of the American authorities. The equity and bond holders are being wiped out. There is a little bit of morale in the story, but very little all the same. I won't go into detail here about the fact that the government shut down Signature Bank on Sunday and put it in receivership since the depositors' funds will be guaranteed there too.
The goal of the Biden administration is clear: to do everything possible to restore confidence in the American banking system and avoid another bank run this week. Joe Biden says he wants to hold “fully accountable” those who are responsible:
This seems to start from a good feeling, but who is responsible for this monumental fiasco which comes 15 years after the one in 2008 with the bankruptcy of Lehman Brothers?
Already at that time, lessons had to be learned so that it would never happen again. Proof that no lessons were learned, Ben Bernanke finally received a Nobel Prize in Economics in 2022 even though he was the head of the Fed at the time and is at the heart of all the roots of the flaws of the current system.
Speaking of the roots of the flaws of the current system, we come back to Janet Yellen who was head of the Fed from 2014 to 2018 and who declared in mid-2017 that there would be no more financial crisis in “our lifetimes”:
Janet Yellen couldn't have hoped to live much longer to say that, since a new crisis is breaking out 6 years later while she is now head of the US Treasury.
Here you see one of the big problems of the current system: cronyism. All the key positions are given to the faithful who obey and will continue to do everything to save the current system. Janet Yellen is one of them. So is Gary Gensler, who when he was head of the SEC, let some imagine a crypto-friendly regulation in America.
The current system must be saved at all costs in the eyes of governments and central bankers. All those who take high positions must agree to play the game or leave. This is how the current system will not be fixed.
We are stuck in a flawed and not fixable system. I keep telling you that.
So who are the people responsible that Joe Biden promises to find and hold “fully accountable”?
Joe Biden would rather target private bankers. The evil private bankers to whom the Fed and others will provide a massive, multi-billion dollar bailout to avoid the worst. Every effort will be made to avoid using the term bailout, but it will be a bailout. The US government will allow banks to post collateral, mainly Treasuries, as collateral to borrow against, but they will be able to use the par value of the asset rather than the market value.
This is pretty crazy, but I'll give you a more telling example.
Let's say you buy a house that is worth $1,000. The real estate market collapses. The house is only worth $700. You can then go to the bank to take out a loan and demand the bank honor the original $1,000 value.
Insane, isn't it?
But that's what American banks can do. A necessity in the eyes of Joe Biden and the Fed to save the American banking sector while JPMorgan has $47.9B in unrealized losses on these bonds. As a reminder, SVB collapsed with “only” $15B of unrealized losses. So there is an urgent need to save the US banking system.
Despite my dislike for the way private banks operate, they are only applying the rules that the Fed allows them to apply. The root of all the ills of the current system lies with the Fed.
Do you doubt it?
Let's look at the facts to understand how the Fed created the current scenario.
The Fed kept policy rates at zero for far too long by telling everyone not to worry because the Fed would not aggressively raise rates by having forward guidance suggest less than 0.5% interest rates months and years out. The Fed also repeated that inflation would be transitory ...
You know the rest as well as I do. The Fed had to face the reality of high inflation and raise interest rates by 4.5% in a few months. This put all the US banks in an extremely difficult position as they took what the Fed was saying at face value.
The effect was to create over $200B of unrealized losses on bank balance sheets. This led to a mini bank run on March 9, 2023, which could have been much worse if the US authorities had not acted by covering deposits in an unlimited way as announced at the end of the day on March 12, 2023.
The simple summary is this:
Fed-regulated banks are suddenly shut down by the Fed and depositors are bailed out by the Fed, because key rates were raised too aggressively by the Fed.
Many people now imagine that the Fed's pivot will be announced soon regardless of the CPI numbers that will be announced tomorrow March 14, 2023. Why? Because the Fed can't keep raising rates to fight inflation if it puts the entire US banking sector at risk.
The situation is more than complex, but at the root of this system's ills, you will always find the Fed.
A Fed that will probably tell you in the future that what just happened justifies the creation of a digital dollar to mitigate the risks for savers by having a direct link between the dollar and individuals without going through private banks. This could pave the way for CBDCs all over the world!
Make no mistake, this will not be progress but a huge regression for everyone.
Even so, you can see that fear remains prevalent in all markets. US 10-year bond yields are falling while short-term bond yields are exploding:
Many players in the market are thus preparing to see more banks fail. We will have to follow this closely in the days to come.
On the Bitcoin price side, you can see a big rebound from the low of $19.5K hit on March 9, 2023:
The price of Bitcoin is currently $24.3K and the $25.2K resistance that Bitcoin has failed to pass several times in February 2023 may be tested in the coming hours. The fact that Binance has announced that it is using its recovery fund to buy some Bitcoin is putting enormous upward pressure on it.
Be careful though, as high volatility is expected in the coming days on the price of Bitcoin as well.
In the Bitcoin world, we usually use the following meme: “Bitcoin fixes this.” This meme is used to say that Bitcoin fixes the flaws in the current system. What is happening right now and highlighting once again all the flaws in the current system should make us rethink how we use this meme.
I don't think Bitcoin fixes the current system. This system is not fixable. That is a misnomer. Bitcoin is here to provide an alternative system that will allow you to survive the collapse of the current banking system. So those who buy Bitcoin should stop focusing on the short term and understand that their primary goal is to protect themselves from this coming collapse to protect their future.
Stay strong, Stay Bitcoin HODLers.
Don't take for granted the word of Bitcoiners who tell you that Bitcoin is an incredible monetary revolution, but verify it for yourself by developing the knowledge to build your truth about Bitcoin.
That's what I suggest you do in the book “The Truth About Bitcoin: Everything you need to build your truth about Bitcoin and stop trusting others without verifying.”
The book is available on various platforms:
In P2P mode in PDF format or EPUB format with payment in BTC (-20% if you buy in Bitcoin): contact me by email at [email protected]