I feel like we’re watching The Big Short in real time…

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by recklessSPY

The Fed was on track to keep raising rates to stop inflation. Unemployment still hot and retail still spending. No reason to abate – maintain rates.

Some banks f’d up and didn’t hedge their interest rate risk. Runs on regional banks showed how fragile the system is. Fed comes in to plug what would have been an absolute devastation. People don’t realize how close we came to utter meltdown in the banking system. But the liquidity doesn’t help the withdrawals. Banking still in the shitter even if everyone wants to bail it out.

Credit Suisse is maybe unique, but is so liquid and above the regulatory minimum that it immediately sucks up the $57 billion lifeline. Again, just like the US banks, it won’t help bring back customers. But all it takes is some doubt to bring down an entire sector.

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Now, less than a week later, half of all the balance sheet that shrunk during the start of the quantitative tightening is back in the economy. What will the fed do? If the fed stops raising rates to quell the bank’s interest rate issue then it does nothing to stop inflation. If the fed raises rates then more money may enter the economy through government liquidity to banks.

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So where are we now? US regional banks still fragile, Credit Suisse still in shambles, inflation still red hot, fed caught in an interest rate catch-22, and Biden in his 3rd year in office who will do anything to keep people employed. How is this not one of the worst case scenario in front of our eyes?

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