Keeping up with the Fed's Debacles
Defaults on commercial real estate (CRE) properties have surged to a new high unseen since the global financial crisis (GFC) of 2008-9. Major companies with hundreds of billions of dollars in assets have chosen to default on billions of dollars of mortgages in recent months. The total value of
It may be helpful to refresh your memory as to how we have arrived at this point.
From 2008 to Q1 2020, financial assets go into overdrive
* The value of commercial real estate more than doubled.
* The assets of
*
* The ratio of credit provided by commercial banks to credit provided by the Fed shrank from about 10 to 3.35.
* The money supply (M2) doubled.
* The real GDP rose by 21.5%.
From Q1 2020 to Q1 2022, financial assets accelerate on steroids.
* (From
* The assets of
*
* The ratio of credit provided by commercial banks to credit provided by the Fed was cut almost in half, falling from 3,35 to 1.9.
* The money supply (M2) swelled another 42%.
* The real GDP increased a miserly 3.6%.
The many years of quantitative easing (QE) with a zero interest rate policy (ZIRP) caused an enormous bubble in CRE and its profitability between 2008 and Q1 2020, provided inflows of low cost deposits into the banking system, insured that banks were heavily dependent on investments that were deemed low risk, but were in reality bought at artificially high prices. The clumsy application of quantitative tightening (QT) in the past year has resulted in a dramatic downturn of profitability and value of CRE, higher interest available from the Fed and T-Bills than the banks can compete with, a growing list of bank failures. The monetary authority is competing with the small and regional banks and, when they fail, consolidating them into the big banking cartel. Color this reckless mismanagement in the first degree.
Given the deteriorating state of CRE and the banking system, the Fed is compelled to return to some form of what is effectively QE, although they may not wish to acknowledge it. The equity markets strongly believe that, and it may be the reason for avoiding a sustained decline, in spite of economic conditions which suggest that is possible. That will reinflate financial assets, following the well-worn path. This invariably results in a resurgence of inflation with some time delay. Because of the impending national elections, the Fed will seek some way to delay its arrival until at least late next year.
Even the cursory glance above exposes plainly glaring flaws in the financial system. The question arises naturally as to why responsible leadership to improve and correct has not been effective. Two factors contribute to this. One is the prevalent innumeracy of members of
Who is to be blamed for the economic distress? The correct answer is the Ponzi finance and dodgy accounting in the DNA of the global financial system. In plain language, the central banks.
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