Rising Rates Are Putting Banks & The FED Into A Corner.

Here is what we will be getting into today:

1. Rising Rates Cause Decrease in Bank Deposits and Rise in Money Market Funds.

2. US Treasury and Federal Reserve announce bailout of uninsured depositors

3. Reflecting on the Challenges and Progress of the Tumultuous 2000s in America

4. Large Farms Keep Growing

Let's Dive In!

Newsletter: Exorbitant Privilege

Title: Which fire will the Fed fight? Link: https://exorbitantprivilege.substack.com/p/which-fire-will-the-fed-fight

Here are the key highlights:

• The recent news of SVB's demise in California has highlighted the challenges posed by an inverted yield curve, which has resulted in problems in maturity transformation. Deposit funding for banks is at risk, and even Fed models assumed a steeper yield curve in times of stress.

• The rise in rates is also affecting banks' securities portfolios, and total deposits in the US banking system have decreased. Money market funds have reached an all-time high, and the orderly decline in ONRRP expected by the Fed is not happening.

• The only major FED liability that can absorb rises in money-market fund holdings is bank system reserves. However, the Federal Reserve's ability to contain losses on its balance sheet is undermined if reserves remain high. The balance sheet configuration of the largest bank in the US suggests that its senior managers have planned for such developments for a while. To avoid the risk of an increased repo rate, the Fed's interest-bearing liabilities must decline by approximately 40%.

• The easiest way to decrease interest-bearing liabilities may be to reduce the interest rate paid by the ONRRP, which could be achieved by rationing the facility. However, this would force repo rates lower than the Fed's Lower Bound and imply that the central bank is no longer in control of interest rates. Therefore, it may be better to publicly declare victory over inflation and consider cutting rates.

Website: Wolf Street

Title: Silicon Valley Banks Uninsured Depositors Bailed Out. Crypto Signature Bank Shut Down, All Depositors Bailed Out. Senior Execs Fired. All Shareholders, Some Bondholders Bailed InLink: https://wolfstreet.com/2023/03/12/silicon-valley-banks-uninsured-depositors-bailed-out-crypto-signature-bank-shut-down-all-depositors-bailed-out-senior-execs-fired-all-shareholders-some-bondholders-bailed-in/

Here are the key highlights:

• The bailout of uninsured depositors has arrived, as officially announced by US Secretary of the Treasury Janet Yellen, Fed Chair Jerome Powell, and FDIC Chairman Martin Gruenberg. The joint announcement comes after the shut down of Silicon Valley Bank and Signature Bank, where all depositors, including uninsured ones, will be made whole without any burden on the taxpayer.

• The FDIC will charge other banks for those losses it incurred from bailing out the uninsured depositors. The Fed will pay for it at first, and the FDIC will later sell the assets of the banks, which takes some time. Shareholders and some unsecured bondholders of both banks will not be protected. Senior management of both banks have also been removed.

• In another statement, the Fed said that additional funding for other banks will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to eligible depository institutions. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to sell those securities in times of stress. With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. Banks may also borrow against a wide range of collateral through the discount window, which remains open and available.

Newsletter: Noahpinion

Title: Conceiving the 2000s. Link: https://noahpinion.substack.com/p/conceiving-the-2000s

Here are the key highlights:

• The 2000s were a challenging and tumultuous decade for America. Despite the productivity slowdown that hit the economy in the mid-2000s, there were still opportunities for growth and innovation, particularly in the field of technology. As we reflect on the decade, it is important to recognize both the challenges and progress made towards building a better future for Americans.

• Although the sudden entry of China into the global economy partially deindustrialized the US, the 2000s saw a significant decrease in teenage loneliness, peak in overall happiness, a multi-decade drop in teen pregnancy and violence, and a low rate of teen drug use. The pre-social media internet was a place to relax and take a break from the stress of in-person interaction. Despite America's leaders' failure to address emerging threats, the Pause Decade was an almost uniquely peaceful time marked by optimism and love.

• In the midst of disasters and challenges, the US emerged a stronger and more informed nation. By learning from our mistakes, we were able to make significant strides in various areas such as foreign policy, disaster response, and technology. We shifted our focus to helping other countries resist bullying, responded to natural disasters and economic shocks with government assistance and a strong push for vaccinations, and recognized the importance of maintaining the integrity of our electoral system.

Newsletter: Commodity Report

Title: US Large-Sized Farms Increase - Due to Input Cost Pressure // The Fall of The Petrodollar. Link: https://commodityreport.substack.com/p/us-large-sized-farms-increase-due

Here are the key highlights:

• Large farms in the US has been trending up in recent years. According to a report by USDA, farms with sales of $1 million or more operate almost 26% of the country's farmland. This growth can be attributed to the pressures faced by farmers due to input costs. By increasing the size of their premises, these farmers can achieve economies of scale and remain profitable. The fact that only 9% of farms in the US belong to this sales class is proof that small and medium-sized farms are still a significant part of the agriculture industry.

• Despite the challenges posed by input costs, farming remains a viable long-term investment, and Barrons issued a cover story highlighting the bright future of farming. Looming issues such as currency movements, trade wars, and commodity pricing remain a significant concern. The BRICK organization, comprising of major commodity producers, could become a better version of the EU. As such, it is essential to prepare accordingly for the shift that may occur in the global market.

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