You are here
London Telegraph: Central banks have pushed us to the precipice again
From The Telegraph, London
Sunday, March 19, 2023
https://www.telegraph.co.uk/opinion/2023/03/18/central-banks-have-pushed-us-precipice/
After the collapse of California's Silicon Valley Bank left Prime Minister Rishi Sunak promising reporters a week ago there was "no systemic contagion risk," here we are again.
Now the threat is even closer to home, with UBS in talks to take over all or part of Credit Suisse, in a deal brokered by a desperate Swiss government.
... Dispatch continues below ...
... ADVERTISEMENT ...
Bullion Star Opens in the U.S., Selling and Vaulting Gold and Silver
Bullion Star is now open in the United States, offering gold and silver bullion at extremely competitive prices with free delivery. Bullion Star also offers customers a year of free vault storage along with free delivery as well as storage in its secure precious metals vault in Dallas, Texas.
Storing precious metals is challenging. Homeowner's insurance seldom covers precious metals, and safe deposit boxes offered by banks are neither insured nor covered by the government deposit insurance. Bullion Star's vault is an independently run, Class III UL-rated vault with uncompromising surveillance and round-the-clock security.
With Bullion Star you can transact and store your metals securely and confidentially. Your bullion is fully insured against all risks at full replacement value. Bullion Star uses five audit methods to verify the existence and correctness of your stored bullion.
For more information, please visit:
The sudden run on deposits at SVB was bad enough. It was the biggest U.S. lender to fail in more than a decade. Credit Suisse is in a different league altogether -- one of only 30 banks worldwide classed as systemically important.
Already, there are warning signs that the move could threaten thousands of City jobs in London.
UBS has also made it clear it does not want to take on the full liabilities of Credit Suisse, asking the Swiss government for a backstop guarantee. The problem, of course, is that the combined balance sheet of the merged Swiss group would be much larger than Switzerland's GDP -- not a good place for a small country in the early stages of another global storm.
The fault for this slow-moving crisis is not hard to identify. Overconfident central banks and regulators, convinced of their godlike power to manage the world's economy and keep it from danger, have once again pushed us to the precipice.
While individual banks deserve to face the consequences of their investment decisions, and directors, shareholders, and bondholders are ultimately responsible, it would be too easy to focus on their errors alone. The arrogance of financial regulatory authorities has helped to make the situation worse.
The immediate cause for the banks' distress is a recent spate of interest rate hikes. The Federal Reserve in America runs annual stress tests on the banking sector to keep participants behaving responsibly. It emerged last week that, for the past decade, these tests have not assessed how banks would cope after a sudden, sharp rise in interest rates. False assurance in the system's robustness came from the top down.
The impact of these hikes was then worsened by a regulatory system that assured financial institutions that government bonds such as U.S. Treasuries were the safest possible bet. Bond prices fall when rates rise, leaving any institution that swallowed the guidance nursing huge paper losses. That can be fine, unless these investments suddenly need to be turned into real money.
SVB appears an extreme example of where that advice could lead.
The interest rate rises that are now causing such havoc are themselves the result of earlier errors. Central banks decided that they had no choice but to act after inflation suddenly raged out of control last year, after decades of moderation.
Yes, Putin's war of aggression in Ukraine played some role in this economic shock. But the greatest culprit was once again a bout of desperate ingenuity from the center. This time it was the extraordinary fiscal stimulus unleashed during the Covid pandemic. Worldwide, nearly $11 trillion was pumped into the system: a staggering 10% of global GDP.
Little wonder that our systems struggled to adjust in its aftermath.
Nor is this the beginning of the story. We have been living in the Alice-in-Wonderland world of easy money since 2008, or, arguably, since Alan Greenspan's time at the Fed.
Quantitative easing and near-zero interest rates have kept the global economy on life support for a decade and a half. In this crisis too the ratings agencies proved asleep at the wheel. How can so few have realised the obvious: Interest rates that fall can also rise, and rise very quickly? Since when had the laws of finance and economics been repealed?
False confidence from regulators breeds instability. Interest rates need to be allowed to normalise from their artificially low levels so they can play their proper coordinating role in a free economy.
Yet in the brittle, artificial situation the gods of the central banks have created, every crisis produces more action and every action produces another crisis.
At some point we need to break the chain of failed interventions and acknowledge the limits to the power of central banks.
* * *
Toast to a free gold market
with great GATA-label wine
Wine carrying the label of the Gold Anti-Trust Action Committee, cases of which were awarded to three lucky donors in GATA's recent fundraising campaign, are now available for purchase by the case from Fay J Winery LLC in Texarkana, Texas. Each case has 12 bottles and the cost is $240, which includes shipping via Federal Express.
Here's what the bottles look like:
http://www.gata.org/files/GATA-4-wine-bottles.jpg
Buyers can compose their case by choosing as many as four varietals from the list here:
http://www.gata.org/files/FayJWineryVarietals.jpg
GATA will receive a commission on each case of GATA-label wine sold. So if you like wine and buy it anyway, why not buy it in a way that supports our work to achieve free and transparent markets in the monetary metals?
To order a case of GATA-label wine, please e-mail Fay J Winery at bagman1236@aol.com.
* * *
Support GATA by purchasing
Stuart Englert's "Rigged"
"Rigged" is a concise explanation of government's currency market rigging policy and extensively credits GATA's work exposing it. Ten percent of sales proceeds are contributed to GATA. Buy a copy for $14.99 through Amazon --
-- or for an additional $3 and a penny buy an autographed copy from Englert himself by contacting him at srenglert@comcast.net.
* * *
Help keep GATA going:
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
