This is why, from what I heard, the Fed is currently operating in the red as they effectively are bailing the banks out by writing things off.
I saw this described as a preemptive bailout, and it’s the best explanation of what’s happening I think. Back in 2008 they let the crash happen and then bailed the companies out. This time they’re pumping money into them ahead of time, but the net effect is the same.
Are they pumping in money or are they doing something else? I heard it wasn’t a direct money transfer but some other accounting move.
To the best of my understanding what happened is that the fed bought up overpriced bonds from financial institutions like Goldman Sachs, which wasn’t a significant issue when interest rates were under their control between 2008 and 2022. However, the loss of credibility on inflation led to rate hikes, causing accumulated losses. Fed “losses” are banks “gains” in terms of revenues, that ultimately become net income and turn into capital. Rate hikes and macro-management of money markets are designed to make borrowing expensive, protect big banks, and reduce demand by pushing small and mid-cap stocks into bankruptcy. This approach seems poised to result in further consolidation and monopolization of capital.
The scale of this graph is anxiety inducing, its at least an order of magnitude bigger than any other swing including crashes, which makes me think either there was a change and the thing going down is actually working out for the banks, or shit’s about to go down hard
Yeah that chart is really wild. I get the impression that the US has kicked the can down the road as far as they could at this point. The two levers the fed has are issuing more currency or raising rates. Issuing currency makes the inflation grow, and rates are driving a recession. So, they’re stuck between a rock and a hard place now.
I would say that it has something to do with the dedollarization that’s growing around the east, but the drop precedes it, so yeah the problem goes deep
I suspect that’s a big part of it. With dollar based economy shrinking there’s less demand for the dollar. That means when the US issues more currency there’s less of a market to absorb it. Specifically, oil being sold outside the dollar is a very significant development. Pretty much every modern economy needs oil to operate, and before you had to get dollars in order to buy oil. Nowadays that’s no longer the case.
The US made an incredible strategic blunder by freezing Russian foreign assets because it shows the whole world that western financial system is not safe. If a country starts making decisions that go against western interests then the west will steal their assets, and that makes it impossible to have sovereignty. I suspect that’s a huge factor driving dedollarization right now.
There’s a conspiracy theory that they are just pushing the collapse back as much as they can, so it blows up in Trump’s face when he gets into office in January.
It’s not a conspiracy theory it’s the only strategy because a crisis would kill any chance of electing someone of Biden’s party, and if they loose the election the bomb blew up in the hands of the opposition, and if they do get elected they have 4 years to figure something out
