US Federal Reserve “smoking in a dynamite shed”
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The fire in the US financial market has spread to Europe. In the near future, another 50 American and European banks may go bankrupt. Many private investors fear a domino effect that will lead to the collapse of other credit institutions and cause a large-scale global crisis. What tools will help the Russians save their savings during the impending storm, MK figured it out.
The collapse of the American Silicon Valley Bank (SVB), Silvergate Bank and Signature Bank caused a panic in the financial markets. Particularly painful was the bankruptcy of SVB, which was a shareholder of the US Federal Reserve. Understandably, the Fed, under a plausible pretext, quickly found a rescuer in the person of First Citizens Bank. The emergence of problems with collapsed banks was a matter of time, Timur Nigmatullin, an investment consultant at FG Finam, believes: “One bank took short deposits and invested them in long-term loans (government bonds). The second focused on cryptocurrencies, which are one continuous pyramid.
An interesting point: all three “drowned” banks were actively working with crypto assets. This circumstance gave rise to the version that the American regulator staged a demonstrative flogging for supporting crypto projects that threaten the hegemony of the dollar. Actually it is not.
According to the chief analyst of Sovcombank, Mikhail Vasiliev, the main cause of problems in the financial structures of the United States (and not only the United States) is the fastest cycle of tightening the Fed’s monetary policy in 40 years. Over the past year, in order to combat record inflation, the Fed has sharply raised its key dollar rate from 0.25% to 5%! But the Fed’s new course caused a side effect on the US debt market – government bond yields plummeted there. As a result, when depositors ran to take money, banks were forced to sell securities at a loss to replenish liquidity.
Of course, the “diseases” of the affected banks focused on financial digital assets worsened after the collapse of crypto exchanges and crypto companies. “The problems of the crypto industry are also due to the rapid tightening of financial conditions, as many business models are built to work at near-zero rates and cheap credit,” Vasiliev added.
The turmoil in the US banking sector is not over yet, according to Moody’s. At the end of March, in just one week, Americans withdrew almost $100 billion from deposits, CNBC reports. The main volume fell on small banks. According to CNN, the volume of unrealized unprofitable assets in the American banking system is $ 620 billion. “Most of the US banks are on the verge of insolvency, and hundreds are already completely bankrupt,” famous economist Nouriel Roubini, who predicted the global crisis in 2008, is sure. “US Fed Chairman Jerome Powell is lying about the health of regional banks in the US or does not know what he is doing as part of the regulator’s policy of tightening monetary policy,” said Lawrence McDonald, former vice president of Lehman Brothers Corporation. According to him, the Fed “is like smoking in a shed with dynamite.”
A number of analysts believe that the West is facing not a banking but a structural crisis. And how to save the financial system from the growing tsunami is still unclear. Nevertheless, politicians and regulators in the US and the EU demonstratively exude optimism.
Although there is nothing to be happy about. The storm that started in the US has already spread to Europe. In just a few days, the famous Swiss bank Credit Suisse fell into a tailspin. Last week, quotes of the largest EU banks collapsed. Storm clouds have gathered over the largest credit institutions in Germany (Deutsche Bank, Commerzbank) and Italy (Monte dei Paschi di Siena). It is known that Deutsche Bank is the largest holder of bonds in Italy and Spain. If suddenly, in order to solve their financial problems, the bank decides to sell all these securities, then the risk of default will already face these states. In addition, despite the anti-crisis measures, inflation in most EU countries is not going to give up.
“The way to “defeat” inflation has been known for a long time – you need to radically raise interest rates, as Fed chief Paul Volcker did in 1981,” said Sergey Khestanov, adviser on macroeconomics to the CEO of Otkritie Investments. Yes, there will be a recession, a surge in unemployment, a cloud of dissatisfied, but when the dust settles, inflation will fall. Our Central Bank did the same in 2015, 2020, 2022. But it is a very bitter medicine. And it takes courage to take such an unpopular step.
According to Khestanov, the current Western banking crisis does not directly threaten the Russian Federation: “Now direct ties with Russian financial institutions from developed countries have been greatly reduced. But there is another trouble – a recession in the global economy will lead to lower prices for raw materials. Let me remind you that at the end of last year our budget was more than 40% dependent on oil and gas revenues.”
In addition to the source of filling the state budget, many citizens are also interested in the question – how to save savings in the face of a new global threat? “It is safe to keep the amount of money intended for use during the year in rubles. For ordinary citizens, deposits are suitable, for advanced investors – ordinary OFZs, where profitability and liquidity are often higher, ”advises Khestanov. If the task is to keep savings for a period of more than a year, then, according to the analyst, it is better to focus on the currency: “But there are risks here. In my opinion, the end of Western sanctions against the Russian Federation is still far away. And if something serious happens, it is possible that foreign currency deposits will be issued to depositors in rubles at the state rate. If it is close to the exchange, then it’s okay. What if it’s different?”
At the moment, the Russians should take a closer look at the yuan, which has less political risks. “We are not used to the Chinese currency yet. Although deposits and bonds in yuan have already appeared on the market. Many Russian companies work closely with China and they need this currency. In addition, over the past 10 years, the yuan has looked peppy. For long-term investment purposes, the yuan now looks preferable to the ruble,” the expert concluded.
Newspaper headline:
The Fed is ‘smoking in the dynamite shed’
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