Hey guys, it's Ashley. The US Federal Reserve has just increased rates by another 25 basis points to a target range of 5 to 5.25 This completely unnecessary rate increase means that the Fed rate is now higher than the rate of inflation which dropped to five percent in March. Four banks have already collapsed in the last couple of months, with a combined size that is already bigger than the sum of all the banks that collapsed in the 2008 financial crash. and the news that the FED will keep increasing rates regardless of whether there is any actual factual database.

need to do so means two more banks are on the precipice of collapse this week, with Pacques Bancorp losing 28 of their share price yesterday and Western Alliance dumping 15. You probably haven't heard of these two latest Banks because they are relatively small with a combined 110 billion dollars in assets, placing them as their 37th and the 42nd largest banks in the United States. But don't bother learning their names because sometime this coming Sunday or maybe the following Sunday they will probably be taken over by the FDIC and handed over at a massive discount to JP Morgan. Now, the reasons these banks are collapsing are slightly different to what happened with Silicon Valley In First Republic, you see Silicon Valley Bank and First Republic specialized in banking with startups and Venture Capital which meant that they had a very narrow pool of customers and they didn't do any sort of risk management because it was way cooler to give Mark Zuckerberg a six million loan to buy a home at one percent interest back in 2011 when their going rate was three times higher then I don't know.

Doing proper due diligence and doing Bank things the average mortgage size of a customer at First Republic Bank before it collapsed was apparently 1.2 million dollars. Which is of course, exactly the sort of home that a typical startup founder with no money should purchase the 20 years old after dropping out of college because running your starter from your parents garage or being Frugal you know, crazy kind of concept until you have actually made it is not cool anymore. So of course, as a startup founder, you need to collect some sweet sweet Adventure Capital money to go buy yourself that 1.2 million dollar home. Where was I uh oh yeah? Silicon Valley Bank and First Republic Bank collapsed because they were busy catering to this very narrow niche of customers which completely screwed up the bag's balance sheets, threw everything out of proportion and the moment that interest rates crept up, the game was over.

But those Banks were collapsing last week. This week, we have two different banks. Their problem seems to lie in commercial real estate. I Talked about this problem in some depth back in March I'll put a link in the description to that video and since I made that video, it suddenly became very popular in the media.

Warren Buffett Talked about this problem on CNBC Charlie Munger Talked about this problem with the financial Times because these mid-sized Regional Banks carry a lot of commercial real estate in their books that was purchased when everything was booming and exploding at near zero percent interest rates. And according to Morgan Stanley a third of all commercial real estate debt in the US, about one and a half trillion dollars of it is coming up for refining dancing by 2025. And because the Fed was sleeping at the wheel in 2021 instead of you know, doing their actual job, interest rates only started going up in March 2022, letting inflation go all the way over nine percent last year, and now we are in a situation where interest rates have gone from zero pretty much to 5.25 as of today in the space of just over a year. At the same time companies are letting leases expire, they're downsizing.

They don't need the huge offices that they once did covert, and the rise of remote working mean that Big Shiny officers in the middle of the city are not as in demand as they were before and now the finance payments on those offices are going to Skyrocket because commercial loans in the US are different to retail mortgages and they're often fixed for much shorter periods like five to ten years for example, where the loan amortization period is much longer 30 years or more. and if you are refinancing a commercial real estate loan that for example has 30 years to run if for example, you got the original loan not 0.5 above the Fed rate, so your initial loan was at 0.75 and now you're renewing and your new rate will also be 0.5 So at 5.75 the debt repayments on that loan will go up by 88. So you can see how the FED sitting there increasing rates is causing investors in these Banks to panic rightfully so. But these banks are not the only problem.

The problem with the FED is that they are so removed from understanding the lives of regular people. their perception of the world is massively warped. In an interview a few weeks ago, Jerome Powell struggled to remember what his salary was, which is, of course, completely normal behavior. And this is the guy whose decisions mean that people struggling to make ends meet will have to pay more for their credit.

They'll have to pay more for their car loans. After this, yet another pointless increase, people who are already stretched in will struggle to put food on the table. all because during power, looked at the inflation date and said well, five percent is still more than two percent. Therefore, we should keep increasing rates once again until inflation is at two percent.

but after this latest increase, we will probably not do any more increases. Why? Why is it the FED decided to stop now and not three months ago before collapsing the banking sector and needlessly screwing people's livelihoods. You know Why? Because four months ago Jerome Powell was busy giving speeches right left and Center saying that the FED will keep increasing rates because it made him sound buff. We're definitely going to do two more rate increases Then inflation data came in and smacked your own power right in his smug face.

with inflation collapsing by a whopping one percent from six percent to five percent in March. And all the projections and all key indicators are showing that they're trending down irrespective of what the FED does today. So what does the FED do? Does the FED base their decision on data based on actual analysis, based on the best estimates of what is happening with the economy, what the likely projections are, Or Does the FED base their decision on what they said in a Black Tie event four months ago? Because you know you would otherwise come across as a complete idiot? At least in this way, you are somewhat consistent in being an idiot. The FED likes being fashionably late to every party because being on time involves doing your actual job, and who wants to do your actual job with? instead, you can just around and do nothing instead.

So in April and May 2021, when inflation began going haywire and the FED should have started increasing rates. Instead, the FED sat around sucking their thumbs and they were 11 months late with the First Rate hike in March the following year. Now that inflation is on the way down and the rate hikes are the economy. Instead of solving inflation, the FED should have paused rate hikes in November or December when inflation data began showing conclusive downward Trends.

But here we are in May. Seven months later and only now is the Fed indicating that maybe rate hikes are over in any other job. Being so incredible incompetent would lead to being fired for being really at your job. But if you're the Federal Reserve you can do whatever you want and have zero accountability because nobody can fire you.

So what if millions of people are put in financial difficulty? Nobody cares. What if the people's wages that didn't keep up with inflation for the last two years and now on top of things like food costing 25 more now their monthly credit bill is going to go up again. After the Fed was way too late to act on inflation the first place, inflation ran away way higher than it should have been if they properly managed it in the first place. Now the FED is over tightening and we're seeing the negative effect of that coming through in the economy and we'll continue seeing them.

In the next few months, banks are going to get more stressed, maybe a few more are going to class, but who cares, it doesn't matter. We now have a risk of consumer demand that is already waning, can begin falling off a cliff in. Q2 The clowns that sit there voting on a Flmc will keep saying that inflation is a above that two percent goal. Therefore, rates have to continue going up.

I Hear this. Mantra All the time. It's a very clear case where the idiots in powerful jobs don't understand the basic dynamics of Economics or momentum. Imagine you're driving a car and you're going 91 miles an hour.

You think that 91 miles an hour is way too fast and you would prefer to maybe go 20 miles an hour. So you apply the brakes. You first have the brake pedal, then you press it a little more firmly and your speed starts reducing down to 85 miles an hour, then 83 miles an hour, then 82 miles an hour, and so on. Eventually your speed begins decelerating faster.

It's almost half. it's 50 miles an hour and your foot is still on the brake. You look at your windscreen and all the indicators are telling you that you are continuing to slow down. But you know what? You are going 50 miles an hour and you want to be going 20..

So according to the Fed the mighty wisdom, the correct course of action is to push the brake pedal all the way to the floor, then pull the handbrake while while you're at it, because that will slow you down to 20 miles per hour faster. The slight problem with this dimwit strategy is of course that you will probably destroy your brakes so that they will completely stop working. You'll probably shred your tires and the car might flip a few times before coming to rest on its roof and then blow the up. and at that point you will be going below 20 miles per hour because you will not be going anywhere at all.

And I guess at that point the FED will be sitting there upside down strapped in the burning car, trying to press the gas pedal to speed up a little bit so that maybe they can get back to their 20 mile per hour. Target If you're watching this video soon after I posted, you might be wondering: hey, Sasha how did you write film, export, and upload a 10 minute video about the 25 basis point hike about 10 seconds after that rate hike was first announced? Well, the answer is I made this whole video before the rate increased and the reason I was able to do that is because I knew there was no way the FED would actually make a decision based on data. I Knew those suckers would ignore everything happening around. ignore Banks collapsing while left and Center ignore the plight of the people and instead they would stick to the dumbass plan of making the 25 basis point hike no matter what.

Shame. If you found this video useful, please don't forget to smash the like button for the YouTube algorithm. Thank you so much for watching and I'll see you later Foreign.