The failure of First Republic bank exposes the vulnerability of the FDIC and highlights the troubles faced by regional banks due to fast rate hikes and bond crashes.
The ongoing debt ceiling showdown in the US could result in significant spending cuts and potential consequences for the economy, although a proposal to raise the debt ceiling in exchange for reduced federal spending is unlikely to pass.
Deep dives
Key Points: Bank Failures and FDIC Coverage
The podcast discusses the recent bank failures in the United States, focusing on the second largest bank failure in history, First Republic, which was sold to JP Morgan. The FDIC sweetened the deal by providing $13 billion in shared losses and $50 billion in fresh financing. The FDIC's coverage is already thin, and the failure of First Republic further exposes its vulnerability. The podcast mentions that many other regional banks are also in trouble due to the fastest rate hikes in 50 years, which have led to bond crashes and loan impairments.
Key Points: Debt Ceiling Showdown
The podcast delves into the ongoing debt ceiling showdown in the US, highlighting the potential consequences of surpassing the debt ceiling. Treasury Secretary Janet Yellen warns that the debt ceiling could be reached within four weeks, which would require trimming about 22.5% of the federal government's annual spending. The podcast mentions a proposal by House Republicans to raise the debt ceiling in exchange for reducing federal spending by $4.5 trillion over the next 10 years, including imposing a 1% annual spending cap and eliminating certain programs. However, the podcast notes that this proposal is unlikely to pass due to opposition in the Senate.
Key Points: Fed Hiking Rates and Economic Outlook
The podcast analyzes the Federal Reserve's decision to hike rates and its impact on the economy. Fed Chairman Jerome Powell is expected to raise rates to 5%, but it is suggested that further rate cuts may be on the horizon. The podcast explores different theories behind the Fed's flip-flopping approach, including rapid inflation decline, a worsening economy leading to panic cuts, and the Fed's desire to boost the economy for the 2024 election. The podcast also discusses the risks faced by the US banking system, with regional banks in dire shape due to bond crashes and the freeze in business lending. Additionally, the podcast highlights the potential threat facing European banks, which could experience similar problems to US banks as a result of the European Central Bank's similar policy choices.
- First Republic Bailout Comes to $63 Billion - Yellen: Debt Ceiling Could Hit in 4 Weeks - Fed Hikes to Worsen Bank Crisis - 2023 Bank Crisis Now Bigger than 2008 - Inflation Ties Fed’s Hands in the Next Recession - Is it 1929 Yet? - MMT Made this Crisis, and it’s Not Done Yet
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