If there is a thread to the article, then it's that half of American banks are underwater, effect; Fed over-stimulation of the economy, the cause.
But this is just not true. Those banks are only underwater because of rising interest rates which have lowered the value of safe government bonds *but* at maturity date there is no such problem.
You can't say it's a problem caused by the dollar being the world's reserve currency because QE all started off in Japan and the Euro is similarly affected.
Obviously lending out the same depositor's dollar multiple times - what is called fractional banking - can only magnify the vulnerabilities, but then what is a capitalist financial system about if it isn't this?
If interest rates were determined by the market, and not by the fed, then where would we be? Well, rates would be high - maybe 12% - ie borrowing would be expen, there'd be little money for investment and consumption spending, and so we'd be living in an economy with little growth and a lot of unemployment.
So the fed artificially stimulates by buying up assets by QE or OMO, which are the same thing more or less, and this reduces the cost of money below the market rate and increases the money supply.
When all is said and done, this is bound to lead to inflation and devaluation of the currency.
What happens as best I can understand, is that
1. rising interest rates kill off people borrowing money and it starts in the housing sector.
2. So if the housing sector is stamped on, then demand suffers,
3. and if demand suffers and money is expensive then profits shrink,
4. and if companies see that their profits are shrinking they lay people off, and you get rising unemployment and falling stock markets
...and all of that is the road to what is called a recession.
... but if it's managed properly without excessive government interference, then it's just the business cycle.
https://youtu.be/PzCVj7SOx_I
0 comments:
Post a Comment
Keep it clean, keep it lean