‘Expect More Bank Cracks,’ aka, Bankruptcies, Says Dow Jones

Sept. 28, 2023, (EIRNS)—A MarketWatch article Sept. 27 was headlined, “Global Insurers Overseeing $29 Trillion in Assets Expect More Cracks at Banks.” For “cracks,” read bankruptcies, failures of banks. What are these bank cracks? As soon as President Joe Biden on June 3 signed the legislation raising the U.S. federal debt ceiling, it was evident—and EIR reported it immediately—that the avalanche of new federal borrowing required after the Federal Reserve/Treasury $9 trillion money-printing bonanza of 2019-2022 would drive Treasury interest rates up rapidly and reignite the bank crisis. In the four months since then, each maturity of Treasury securities, from 6-month bills to 30-year bonds, has risen in yield by more than 1%; and that upward push seems only now to be gathering its real momentum.

Warnings are now being given that the bank crisis is being reignited. In a related Sept. 27 article by Vivien Lou Chen released by Dow Jones (which also produces MarketWatch), TD Securities analysts “said a persistent selloff in bonds ‘increases the risk of “breaks” similar to’ those seen during the U.K.’s liability-driven investment crisis of last year and this year's collapse of Silicon Valley Bank,” in which the “crisis of last year” refers to the British Gilts Crisis in September-October 2022.

In addition, of course, the Federal Reserve’s rate spikes are driving U.S. federal debt interest costs to $1 trillion/year and rising fast; and have triggered the process of downgrades of U.S. Treasury debt—the “money” of the international floating-rate monetary system, which is being dumped by a number of major central banks, including those of China, Brazil, Türkiye, Saudi Arabia, and, of course, Russia.

There is still liquidity left in the Federal Reserve System from the incredible QE printing wave from September 2019 to June 2022; it’s in what is called the Federal Reserve’s Reverse Repo Facility (RRF)—unused reserves created by the Fed for the banks. That had $2.5 trillion in it a year ago, which it has been pouring out to buy the waves of new Treasury debt being issued. But rates are rising more quickly as the RRF empties out; and the “bank cracks” are coming closer.