by Ok_Good_4099
Mark to market for bonds is what got us into this current mess. These bonds were purchased at extremely low rates from all of the money that flowed into the banks in 2020, almost 3 trillion in new deposits.
Deposits, All Commercial Banks (DPSACBW027SBOG) | FRED | St. Louis Fed (stlouisfed.org)
Mark to market for mortgages is something that they conveniently haven’t mentioned. Currently 99% of mortgages are under 6%. Most of these mortgages are for 30 years. Even if banks didn’t buy bonds when they were flush with new deposits, they had to do something with the cash, and it likely had something to do with mortgages.
Higher Mortgage Rates Lead to Strong Lock-In Effect – CoreLogic®
By keeping rates so low for so long and then raising them so sharply, the Fed really messed stuff up. The government is partly to blame with the influx of cash and the shutdown of the country. With the new funding program, the Fed is like a surgeon that hit an artery and is temporarily stemming the blood loss to buy time. Powell is between a rock and a hard place; if he lowers rates, he’ll help stem the blood loss; if he lowers rates, he’ll boost inflation even more.
These bonds, and worse, mortgages, are for much longer than a year. I don’t know for sure, but my prediction is if people’s confidence isn’t high, or if we go into a recession at the end of this year/beginning of next, when this program is up, shit’s really gonna hit the fan. Banks will not have the liquidity to cover their depositors, and Yellen already said not all depositors will be covered, only depositors at the big banks. These bank runs could just be a small taste of what’s to come.
www.federalreserve.gov/monetarypolicy/bank-term-funding-program.htm