Saturday 13 February 2021

June 30, 2021 - Bye, Bye, Bond Market.

So, there you have it. That's likely the day that the stock market crashes following the lead of the bond market. And why, you may ask? Quite simply, because another round of The Federal Reserve's stress tests are mandated for most of the largest money-centre banks. Others, are not required to go ahead but do have an option to opt-in.

It's my understanding that the stress-tests will be conducted between April and June and to put it mildly, I'm not an optimistic sort of fellow. Just think back to 2008 when most of the largest banks in the United States were technically insolvent. Thanks to large cash infusions from The Fed, they were brought back to life thereby avoiding a massive bank failure panic almost across the board.

This round of stress-tests will measure bank liquidity in the wake of a computerized algo of a 55% stock market failure -- as some of you already know, Trump got The Fed following intense banking industry lobbying to abolish during this crisis the 10% fractional-banking reserve requirement. For those of you who don't read Fed-Speak or Bank-Speak, that means that up until last March when most of the financial crisis hit, in the wake of COVID-19, financial institutions no longer must have on hand one dollar for every ten dollars on deposit. 

It's doesn't take a genius to tell you where that's going to lead: sudden and unexpected bank holidays where commercial banks, savings and loans and other institutions such as credit unions abruptly close for days or weeks on end due to a lack of cash. And the topper? Either the ATMs don't work or they only dispense $100.00  per day to their customers. That's when bank panics set in with depositors lining up to get their money, on the faint hope that they can.

So, forewarned is forearmed. Keep as little cash as possible in your saving and chequing accounts and don't count on the FDIC in America or CDIC in Canada. And best of luck to all of you.


No comments:

Post a Comment