Giving the government even more money to spend will not solve the problem.

“With additional information now available, I am writing to note that we still estimate that Treasury will likely no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” she wrote.

Meanwhile...

Total consumer debt hit a fresh new high in the first quarter of 2023, pushing past $17 trillion even amid a sharp pullback in home borrowing.

 

The total for borrowing across all categories hit $17.05 trillion, an increase of nearly $150 billion, or 0.9% during the January-to-March period, the New York Federal Reserve reported Monday. That took total indebtedness up about $2.9 trillion from the pre-Covid period ended in 2019.

That increase came even though new mortgage originations, including refinancings, totaled just $323.5 billion, the lowest level since the second quarter of 2014. The total was 35% lower than in the fourth quarter of 2022 and 62% below the same period a year ago.

They are making it worse. Much worse.

LondonCNN — 

The US Federal Reserve and several other major central banks announced a coordinated effort Sunday night to boost the flow of US dollars through the global financial system with the aim of keeping credit flowing to households and businesses.

“The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing US dollar liquidity swap line arrangements,” the central banks said in a joint statement.

[…]

The swap line between US Federal Reserve and the ECB, for example, enables the ECB to receive US dollars in exchange for an equivalent amount of euros. The ECB can then distribute those dollars to commercial banks in the 20 countries that use the euro.

The agreements can be an important tool for preserving financial stability and preventing market tension from affecting the economy, according to the ECB. During the global financial crisis of 2008 following the collapse of Lehman Brothers, funding markets dried up because of an extreme aversion to risk. Under these circumstances it became difficult for euro area banks to obtain US dollars.

From Monday through at least the end of April, the Fed and other central banks will make dollars available on a daily basis, rather than weekly.

Rut rho.

U.S. regulators on Sunday shut down New York-based Signature Bank, a big lender in the crypto industry, in a bid to prevent the spreading banking crisis.

 

“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority,” Treasury, Federal Reserve, and FDIC said in a joint statement Sunday evening.

 

[…]

 

Signature is one of the main banks to the cryptocurrency industry, the biggest one next to Silvergate, which announced its impending liquidation last week. It had a market value of $4.4 billion as of Friday after a 40% sell-off this year, according to FactSet.

 

As of Dec. 31, Signature had $110.4 billion in total assets and $88.6 billion in total deposits, according to a securities filing.

Decisions will be made soon.

Silicon Valley Bank was aptly named: It held the funds of hundreds of U.S. tech companies and was a crucial player in the valley’s economy. But on Friday, it became the second largest bank failure in U.S. history after a rapid run on its deposits. Some $175 billion in customer accounts were taken over by the Federal Deposit Insurance Corporation (FDIC), which is now tasked with returning money to the bank’s customers.

 

But more than 85% of the bank’s deposits were uninsured, according to estimates in a recent regulatory filing. That’s because FDIC deposit insurance is meant for everyday bank customers and maxes out at $250,000. Many Silicon Valley startups had millions, or even hundreds of millions of dollars deposited at the bank—money they used to run their companies and pay employees. Right now, nobody’s sure how much of that cash is left.

 

The tech sector was already wading through a harsh macroeconomic climate, with layoffs abounding and stock prices sinking precipitously. Silicon Valley Bank’s downfall is likely to exacerbate those problems—and could threaten the wider economy. “It’s like a Lehman Brothers moment for Silicon Valley,” says one Silicon Valley startup founder whose company has millions of dollars tied up in SVB. “It feels like something that never should have happened, because it’s such a trustworthy entity.” The person spoke on the condition of anonymity because they are worried about losing customers over their ties to SVB.

Insured to $250k means exactly that. The taxpayers should not be on the hook for anything above that. Does it suck for the depositors? Absolutely. Is it tragic for the people who won’t get paid next week because the money is gone? I can’t imagine the stress. It sucks. It all sucks.

But terms are terms and contracts are contracts. We have to stop the madness of thinking that the American taxpayers will ride to the rescue every time bad things happen in the private sector. There is too much money in the economy chasing too few goods. Hence, inflation. While it sucks, the evaporation of billions of dollars out of the economy is a necessary evil to stymie the larger evil of inflation. I continue to contend that the best thing would be for the federal government to cancel much of the inflationary spending, but absent the political will to do that, the private sector will have to contract to let the air out of the inflationary bubble.

Warning to all. If you have more than $250k in a bank, you should spread your money into multiple banks or accept the risk.

The Fed’s efforts to deflate the economy to stem inflation is working. Sort of. The problem is that there will be unforeseen consequences. A better way to cool inflation would be for the federal government to pull back hundreds and hundreds of billions of dollars that are committed, but not yet spent, as part of the various spending sprees of the past five years.

Regulators shuttered SVB Friday and seized its deposits in the largest U.S. banking failure since the 2008 financial crisis and the second-largest ever. The company’s downward spiral began late Wednesday, when it surprised investors with news that it needed to raise $2.25 billion to shore up its balance sheet. What followed was the rapid collapse of a highly-respected bank that had grown alongside its technology clients.

 

Even now, as the dust begins to settle on the second bank wind-down announced this week, members of the VC community are lamenting the role that other investors played in SVB’s demise.

 

“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor of Restive Ventures, told CNBC. “This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.”

 

The episode is the latest fallout from the Federal Reserve’s actions to stem inflation with its most aggressive rate hiking campaign in four decades. The ramifications could be far-reaching, with concerns that startups may be unable to pay employees in coming days, venture investors may struggle to raise funds, and an already-battered sector could face a deeper malaise.

 

The roots of SVB’s collapse stem from dislocations spurred by higher rates. As startup clients withdrew deposits to keep their companies afloat in a chilly environment for IPOs and private fundraising, SVB found itself short on capital. It had been forced to sell all of its available-for-sale bonds at a $1.8 billion loss, the bank said late Wednesday.