I left this morning and realized I was just about out of gas. Although uncomfortable, our gas prices have been lower than most states, and I knew yesterday our regular unleaded gas was $3.12 per gallon. When I got to the station, the price had risen to $3.39 per gallon, an 8.65% overnight increase.
“The two enemies of the people are criminals and government, so let us tie the second down with the chains of the Constitution so the second will not become the legalized version of the first.”
This is how it goes with Washinton and media gaslighting. I will fill my tank and swallow the lie that inflation was transitory and has come down. This was a wake-up call that inflation is the silent killer that robs us all of our hard-earned money.
No one desires to maintain the status quo more than Washington and Wall Street. These two groups will spin any story in any way to support their worldview.
Maintaining the Status Quo
I was somewhat surprised about gas prices because I was watching CNBC yesterday, and the latest Consumer Price Index (CPI) indicated that inflation was finally easing off a bit. The Bureau of Labor Statistics (BLS) shops at a different set of stores than I do and gets their gas somewhere else. According to them, gas prices fell last month by 3.8% and from last year by 2.5%.
We must wait a month or two for the BLS to correct their calculations based on recent erroneous data. They have been proven wrong so often that every number from them needs to be taken with a grain of salt. I trust my credit card bill and prices at the pump more than I trust them.
It is not just banks and businesses that cannot afford rising prices; it is everyday Americans. An event that might erode consumers’ savings, like the 2008 bank failures, would be catastrophic to most households. No group is more interested in maintaining the status quo than those in power, and in America, that has become Washington bureaucrats.
FDIC Tactics and Concerns
We often hear of the “Too Big to Fail” group of the ten largest banks. The FDIC would probably save these banks if a real financial crisis arose. However, there is more concern this time, probably as serious as the 2008 crisis. The FDIC lacks the funds to bail out all the major banks, and starting to address risks and exposure is a necessity. The two big risk areas are unrecognized bond losses and commercial real estate loans. But in 2008, our national debt was sustainable; today, it is not.
In recent years, the FDIC and FED have rescued failed medium and smaller banks. These rescues often involve merging the failed bank into a larger and stronger one. However, with the sizeable unrecognized bond losses and looming commercial real estate problems, the usual “larger and stronger” group of banks is compromised.
The “Too big to fail” moniker still applies to them, but not to save small depositors. The FED, Treasury, and Congress have made disastrous decisions, and stepping in to “save” the banks makes them look like heroes, not villains. However, for the bureaucrats, the goal is maintaining the status quo, and saving depositors is the methodology, not the goal.
Politicians and Federal Regulators have allowed the problems to fester with securitization of loans, off-balance sheet risky assets, invisible derivatives, unregulated hedge funds, and debt forgiveness.
Interest Rates, Capital, and Reserves
The largest banks still have massive “paper” losses tied to their bonds, and until and unless the FED reduces rates, these potential losses will hang like the sword of Damocles over their heads. Because of these potential losses, the major banks are undercapitalized.
Bond losses may be helped if the FED lowers interest rates since there is an inverse relationship between bond values and rates. However, if inflation increases again, the FED must return to higher rates. We can project bank paper losses if inflation returns to its current rates. But if the FED must go to even higher rates, the losses will grow to an undetermined and uncomfortable level.
Also hanging over the Fed, Treasury, and FDIC is the connection to Treasury Auctions. The Treasury Auctions have had mixed success in recent months, and only higher rates will attract buyers. This puts a floor under the Fed’s desire to lower rates. They can lower rates but not control what bond purchasers are willing to pay. The higher rates the purchasers demand, the further in debt we must go.
De-dollarization
Tied into all this is de-dollarization. As central banks worldwide move toward gold as their preferred reserves, they lower demand for Treasuries. There are only two ways to sell the needed bonds in this environment. The FED can buy them, or the Treasury can raise rates to attract buyers. Both options are undesirable and undermine the FED’s inflation control goals. Either of these options raises the national debt to even higher unsustainable levels.
Washington bureaucrats are fond of saying that the only viable currency for a worldwide reserve is the U.S. dollar, and they are right. But they are not saying, and we are seeing, that the U.S. dollar is not the only viable central bank reserve. Russia, China, India, and the other BRICS nations have known this for a decade and are now shedding their dollars, further pressuring the FED to buy Treasury Bonds. This is loaning money created out of thin air to ourselves and then pretending everything is all right. It is whistling past the graveyard at night and praying no ghouls and goblins are coming to get us.
I listened to a recent podcast on the YouTube channel Adam Taggart, and one of his guests made a painful but accurate observation: “The United States has become like a poor borrower at a payday loan store. Why would you lend them money?” Time and time again, our politicians have proven that they cannot manage either spending or our deficit.
Two specific events triggered the more rapid de-dollarization. First was Congress’ uncontrolled spending during and after COVID. Second was President Biden’s decision to seize Russian assets. We are now the payday borrowers, and the BRICS nations are becoming the loan sharks.
Wealth Bifurcation in Our Society
The media and politicians are fond of pointing out the bifurcation within our society regarding wealth. They are fond of vilifying successful people. Wealth divergence has always existed, and extreme wealth has come and gone with the rise and fall of innovation. That divergence is good for politicians and the Marxists but is a nit.
There are but a handful of ultra-wealthy individuals with billions in assets. These fortunes will pass into the hands of heirs in coming years, and descendants can rarely hold on to or enhance the wealth they are given. The wealth then recycles in our economy into the hands of new innovators, illustrating the cycle of wealth that capitalism affords.
The Fords, Carnegies, Morgans, and Hughes have had their day, and their wealth has been diluted. The Waltons, Gates, Bezos, and Jobs families are now spending their accumulated wealth and will fade. Elon Musk and a new group of AI-related entrepreneurs will rise and fade as new, more innovative ideas and products come to market.
However, there has been and is a different bifurcation within our society, and we will discuss that in the coming weeks. A new ruling class flies under the radar and is the key to solving our financial and legislative nightmares.
FED Fight for Survival
The most visible face in this fight is Jerome Powell, who makes weekly pronouncements on the economy and shows how the FED is watching out for everyone. The FED is fighting for its survival and relevance. Congress and the President have made such disastrous financial decisions since the pandemic that fiscal and monetary control now lies outside the FED’s sphere of influence.
The FED will probably lower interest rates once or twice before the election, which clearly illustrates where their allegiances lie. They are not looking out for anyone but themselves. The Democrats will likely retain them; the Republicans will likely flush the toilet at the Treasury and the FED.
Voting is Our Only Answer
We will all have a chance to vote in November and must hope that we can replace as many Democrats as possible. We need new, younger politicians with ideas aimed at preserving not just our political system but also our financial system. We are at a juncture where maintaining the status quo is no longer a viable alternative.
Resources
Beneath the Skin of CPI Inflation: Historic Plunge in Durable Goods Prices, Plunge in Gasoline, and Outliers in Services, By Wolf Richter, Wolfstreet, wolfstreet.com, July 11, 2024.
Board of Governors of the Federal Reserve System: Dodd-Frank Act Stress Test Publications, Exploratory Analysis of Risks to the Banking System – February 2024, Federal Reserve, federalreserve.gov, February 21, 2024.
FDIC Changes Deposit Insurance For Trust Accounts, By Bob Carson, Forbes, forbes.com, May 27, 2024.
FDIC Notes More ‘Problem’ Banks; Sparks Debate Over Deposit Insurance, By PYMNTS, PYMNTS, pymnts.com, June 3, 2024.
FDIC Presentation: New Trust Account Rule (April 2024) Deposit Insurance Seminar For Bankers, fdic.gov, January 2022.
FDIC Quarterly Banking Profile First Quarter 2024, FDIC, fdic.gov, May 29, 2024.
FDIC: 2024 Risk Review, FDIC, fdic.gov, May 22, 2024.
FDIC: Number of Problem Banks Increased in Q1 2024, by Calculated Risk, calculatedriskblog.com, May 29, 2024.
Financial Regulator’s Report Highlights Mounting Risks In The Banking Sector: FDIC, By Danielle Shockley, Tampa Free Press, msn.com, June 6, 2024.
Some of the rules that protect wealthy savers’ bank deposits just changed. Here’s what to know, By Lorie Konish, CNBC, cnbc.com, April 9, 2024.
Thoughtful Money, By Adam Taggart, YouTube Channel, YouTube.com, Last accessed July 23, 2024.
When Will the Fed Start Cutting Interest Rates?, By Preston Caldwell, Morningstar, morningstar.com, May 2, 2024.
