Moody's Downgrades the US Banking System: This is the 3rd Banking Crisis in the Past 15 Years. The 2nd Crisis Wasn't Even Reported.
Banking, Inflation & Doubling Mortgage Rates.
Here is what we will be getting into today:
The US Banking Crisis: A Structural Problem in Need of Addressing.
Government Intervention in the Banking System To Protect Depositors.
Inflation Continues to Be An Issue As Services Hit Four-Decade High.
The Threat of Doubled Mortgage Rates: Declining Real Estate Activity in the US.
Let's Dive In!
Website: Wall Street On Parade
Title: Moodys Downgrades Entire U.S. Banking System; Credit Suisse Plummets. Welcome to Banking Crisis 3.0
Link: https://wallstreetonparade.com/2023/03/moodys-downgrades-entire-u-s-banking-system-credit-suisse-plummets-welcome-to-banking-crisis-3-0/
Here are the key highlights:
The US banking system is at risk of systemic contagion, as warned repeatedly by experts over the years. Critics have argued that the Federal Reserve's stress tests failed to prevent the next banking crisis, and that the Fed should be stripped of its bank regulatory powers and restricted to setting monetary policy.
Moody's downgraded the entire US banking system's outlook to negative from stable, indicating high levels of risk. However, instead of a stock market crash, the news sparked an unwarranted optimism, leading to a major rally in the prices of publicly-traded banks. The next morning, major European banks were temporarily halted from trading after steep selloffs, and Credit Suisse plunged 24 percent to a new all-time low of $1.74.
This is not the first time the Federal Reserve has deployed emergency measures to bail out the US banking system. The current banking crisis marks the third time, excluding COIVD, that the U.S. banking system has required emergency measures from the Federal Reserve over the past 15 years. Prior to the repeal of the Glass-Steagall Act in 1999, which prohibited the integration of Wall Street trading firms with federally-insured banks, no significant Fed bailouts had occurred in 66 years.
After the 2008 financial crash, the worst since the Great Depression, congress still did not restore the Glass-Steagall Act. In September 2019, the Fed was back to secretly bailing out the trading units of the behemoth depository banks while mainstream media across the board censored this story. This censorship has just kicked the can down the road to now, the next banking crisis.
Without measures to address the structural problems in the US banking system, the country is headed towards an even greater banking crisis.
Newsletter: Apricitas Economics
Title: The Fed's Plan to Rescue the Banking System.
Link: https://www.apricitas.io/ppp/the-feds-plan-to-rescue-the-banking
Here are the key highlights:
The recent collapse of tech-related banks and the potential for a broader panic in the banking system has led regulators to implement a plan to restore confidence. The US Treasury Department, Federal Reserve, and Federal Deposit Insurance Corporation have declared Silicon Valley Bank and Signature Bank as systemic risks to the financial system, ensuring that all depositors will be made whole.
The government has also made funding available through the Bank Term Funding Program to help depository institutions borrow and maintain stability. While shareholders and unsecured debtholders may not be fully protected, this is a necessary step to prevent a potential run on the banking system.
The critical part of preventing bank runs is the perception of the banks' health among depositors.
Given the rapid amount of withdrawals experienced by Silicon Valley Bank, it is crucial to ensure that other institutions are not susceptible to another run. The government's actions demonstrate their willingness to take extraordinary measures in the face of significant risks to the banking system. As depositors and investors, it is important to have confidence in the stability of the financial system and trust that regulators have implemented necessary measures to prevent a broader panic.
It is imperative that we prioritize the necessary resources and infrastructure to ensure quick and effective action in the face of future financial threats. This may require increased funding, staffing, and training in order to build the necessary infrastructure to respond to financial threats. In addition, it is crucial that regulatory bodies work together in a coordinated manner to identify and address potential risks to make this happen.
Website: Wolf Street
Title: Services Inflation Rages at Four-Decade High: Fueled by Rents, Auto Insurance, Repairs, Airfares, Hotels, Pet Services, Food Services, Delivery
Link: https://wolfstreet.com/2023/03/14/services-inflation-rages-at-four-decade-high-sticky-entrenched-fueled-by-rents-auto-insurance-repairs-airfares-hotels-pet-services-food-services-delivery/
Here are the key highlights:
The Consumer Price Index (CPI) for February revealed that inflation continues to plague services at its worst level in four decades, while inflation in many goods categories is decreasing.
Services inflation without energy services increased by 7.3% in February YoY, the worst increase since 1982, and the third month that it remained above 7%, according to the Bureau of Labor Statistics (BLS) data. Services account for almost two-thirds of consumer spending, making inflation a more significant challenge.
Moreover, the BLS adjusts its health insurance inflation estimates annually and averages the changes over the next 12 months, leading to a large downward adjustment for health insurance inflation that has been causing concerns.
While the PCE price index also figures out services inflation differently, and in this index, inflation has been aggressive. Rent of primary residence has increased as tenants are paying more to landlords, while homeownership costs are also based on homeowners' reporting of what their home would rent for, leading to spiraling costs.
The CPI for food at home experienced 10.2% YoY in February, while the CPI for gasoline experienced a two-year spike that is yet to entirely unravel. The overall CPI depicted a rise of 14.4% over the last two years. Despite the slight decline in January, the core CPI, which excludes volatile food and energy products, saw YoY growth of 5.5%.
Newsletter: Macro Visor
Title: Why a slowing real estate market is a growing concern.
Link: https://www.macrovisor.com/p/why-a-slowing-real-estate-market
Here are the key highlights:
Declining residential and commercial real estate activity is likely to have a drag impact on the broader economic environment.
One of the key factors driving this decline is rising mortgage rates, which have doubled the cost of home ownership, pricing out many potential buyers.
Additionally, reduced office space utilization is likely to have a significant impact on the commercial real estate market. As more people work remotely, there is less demand for commercial office space, and retail store closures and idled warehouse space are contributing to vulnerability in commercial real estate.
Further complicating the issue is that the Federal Reserve has identified a housing bubble as a key problem generating unwanted wealth impacts and contributing to inflation.
The declining residential and commercial real estate markets in the US are likely to have negative economic impacts.
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