And there you have it! The FED just announced that key lending rates are going up to 4.75 to 5%. On top of that, they will continue with their quantitative tightening by offloading mortgage backed securities and treasuries. There was intense scrutiny in the days leading up to today's conclusion of the FED FOMC meeting as to whether the FED would pause or pivot in some way after regional and international bank failures of the last week spreading fears of contagion in the banking world. The worst fears were a full on bank run which is exactly what happened.
Pension funds, companies funded by venture capitol and even celebrities such as Sharon Stone have lost millions to billions just with the Silicon Valley Bank collapse. The banking woes we are seeing now are related to the lagging effects of rate hikes from last April, May, June and maybe July. While the FED has reduced the rate of its increases down to just a quarter percent as they did in January, it's still a full half percent in just 2 months and they're still tightening.
Now, with each passing day, we'll continue to see increasing effects of last year's rate hikes. It doesn't take a rocket scientist to figure out where this is going. There are some very smart financially literate individuals out there who are sounding the alarm that an even bigger banking crisis is coming. It's already taken out Credit Suisse, one of the most systemically important banks in Europe and is now being gobbled up by UBS for about $3.2 billion.
The FED did say in their statement that the 'U.S. banking system is sound and resilient'. Well, it hasn't been so resilient as of late. How are the banks going to manage with all the remaining lagging effects of last year's rate hikes to come. Since the FED did raise today by 25 basis points, that means the financial system will have to deal with its lagging effects right through to this exact time next year and into the following summer.
It's this summer that things should start to get really exciting. After all, summer is the best time for fireworks!
Silver, my favorite metal reacted positively to the news. I am still in awe of how low the spot price is. The good news is that it gives people another shot at taking possession of silver at 1970s prices, relative to inflation. No other commodity is at 1970s prices except sugar, oddly enough which I've noticed has also languished at depressed prices for decades.
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