May 4, 2023 | Premium Service | The Federal Open Market Committee committed another significant error yesterday by raising interest rates a quarter point. The symbolism here is more important than the 25bp, since much of the US banking sector, as well as insurers and pension funds, are already insolvent on a mark-to-market basis. The concentration of risk caused by the FOMC’s massive open market bond purchases in 2020-2021 now threatens the US with a 1930s style financial collapse.
This situation is caused first and foremost by hubris and insensitivity by the US central bank as to how its actions impact markets and financial institutions. This AM we had a chance to speak with Hugh Hendry of Eclectica on Bloomberg Radio about what happens next. Hugh is a thoughtful guy who has seen this movie before. He suggested that US authorities may need to erect formal gates to prevent bank depositors from accessing their funds. We completely agree. Welcome to Brazil or Mexico circa 1970.