Hey guys, it's Sasha The U.S Federal Reserve is now expecting a recession to hit the Us later this year. Yesterday the minutes of the Fed's March meeting came out and according to those minutes, the FED now thinks that the U.S economy is going to plunge into a recession because of the banking crisis because in the last few weeks we have been seeing a Slowdown in economic activity and that slowdown is not repeat. Not because the FED is over tightening and raising rates for no good reason. No, of course a Slowdown is nothing to do with the FED.

It is all to do with Silicon Valley Bank the latest culprit and the bad bad banksters who did a big boo-boo According to the minutes at the meeting last month, staff from the Federal Reserve made a presentation to the Fomc the committee members which said that the Silicon Valley Bank collapse in March is now going to have bad, major repercussions which will lead to a recession. The problem is that Silicon Valley Bank collapsed because of two reasons: Reason number one is because the FED up and reason number two is because the FED up. So let's start with reason number one: The FED failed in their basic function as the regulatory body in charge of oversight of U.S Banks Passing the bug over to the banksters is all good and well, but the Federal Reserve has the ultimate authority to set review and assess key performance parameters of all banks sitting under their jurisdiction. the bank run The Silicon Valley Bank experienced is not a scenario the FED would ever reasonably be expected to pick up because it is impossible to regulate for a potential 40 percent Bank Run in one day or whatever exactly happened with Silicon Valley Bank.

But over the three years before that happened, the FED did have the ability to see silicon, Valley's Banning Street and data that is not public, which is more granular which was incredibly unbalanced on a yield and maturity of the assets the bank held in bonds. and yet yet through astounding level of incompetence by the FED, they did exactly nothing about it. And reason number two is the only cause of the value of the bonds held by Silicon Valley Bank Crashing so hard so fast that it caused a bank run in the first place is because of the FED screwing up back in 2021. the FED let inflation increase from 1.4 in January 2021 to 7.9 in February 2022 before any action was taken.

This is negligent at best and points to a huge colossal failures by the FED at doing their job. But hey, let's blame the greedy bankers at Silicon Valley Bank. It's so convenient right that this happened because now you can just pass it all over there. The FED did not completely screw up and the problem did not come about because the FED screwed up the legislation that was born in the aftermath of the 2008 financial crisis.

most notably Dodd-Frank focused on taming banks by instituting New Capital require requirements and conducting stress tests. but a fully panicked Federal Reserve had also dropped rates to basically Zero by the end of 2008, hoping cheap money flooding the economy would supercharge their recovery. That new legislation also prompted a wave of Bank consolidation. In 2007, there were 7 290 banks ensured by the FDIC according to the agency's own data.

By 2012, there were just 6089, and out of the 1201 banks that shut up shop in that period, only 22 merged into other Banks. The process of regional Banks dying out continued, and by 2021, there were only 4237 Banks left in the US. And one of the big problems is that for the most part, two generations of Americans knew only a world of ultra low rates that came in from 2008 and now even the FED itself and the banks that the FED regulates seem to have completely forgotten how to actually manage a bank. in a normal scenario where interest rates do not sit at zero percent in perpetuity.

and of course, you would know this already if you were subscribed to today's sponsor, the Daily Upside. The Daily Upside is a completely free newsletter that gets you amazing, really good. Financial Insight from industry professionals that summarizes all the key financial news that you need to know and throws in an appropriate dose of sarcasm, which I personally particularly appreciate. All you have to do to sign up is click my link in the description And give them your email address.

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There's no free me more upsell, and for whatever reason you don't like it as much as I do. You can always unsubscribe. so please go and click the link in the description and sign up to the Daily upside. So we now have a situation where the FED has been going around giving speeches about how badass they are at regulating stuff.

You know we are so cool. We're gonna keep increasing rates until inflation is dead, and in the process they have now backed themselves into a corner. If you read the minutes of the Fomc meeting. It is bizarre how even though the FED screwed up so badly in 2021 about completely missing what was happening right in front of their face, it appears that absolutely no lessons were learned whatsoever.

It was extremely obvious back in 2021 that inflation is a major problem because you could see the trajectory. it was not transitory, it was never transitory, and you can see that all the underlying factors were clearly telling you that inflation will continue going up at the time and will be a big issue. But the FED chose to ignore all the data and said that inflation is transitory in these new minutes. It says with inflation still well above the committee's longer run goal of two percent, participants agreed that inflation was unacceptably high.

Participants commented that recent inflation data indicated slower than expected progress on disinflation. In particular, they noted that revisions to the price data had indicated less disinflation at the end of last year than had been previously reported and that inflation was still quite elevated. Then there is this sentence further down regarding prices for Core Services excluding housing. Participants agreed that there was little evidence pointing to disinflation in this component.

This is categorically false I Explained in full detail in yesterday's video: Make sure you go and check it out later if you want to. Why this is false and why all key indicators that are available are strongly pointing to core inflation except for housing reducing in the coming months Because unlike the FED I chose to look at data I choose to look at the underlying Trends I Choose to look at causation and try to understand why things are moving and where they are moving. So the FED is sitting there building a narrative to justify these increases. even if that narrative is based on outright lies.

And the worst thing is that they don't seem to care where the trend is going. It doesn't matter because the policy is not based on the data. They say inflation is above two percent. therefore bad.

That's it. How come inflation at five percent right now that is reducing fast is bad because it is above the two percent Mark in March 2023. But inflation at 6.8 percent and increasing in November 2021 is not bad and does not require interest rates to go up from zero percent. In a run-up to that meeting recently, I explained the risks of the FED increasing rates further and the potential ramifications.

We are now in an unusual situation where the FED increasing rates is now the biggest threat to the US economy. Rate increases are meant to be a cure, but they have now somehow magically become the problem. And it sounds like at the meeting, a few of the members had some doubts. Several participants noted that in their policy deliberations, they considered whether it would be appropriate to hold the target range steady At this meeting: I.E no increase.

They noted that doing so would allow more time to assess the financial and economic effects of recent banking sector developments and of the cumulative tightening of monetary policy. This would have been the right decision. However, these participants also observed that the actions taken by the Federal Reserve in coordination with other government agencies helped calm conditions in the banking sector and lessened the near-term risks to the economic activity and inflation. Consequently, these participants judged it appropriate to increase the target range 25 basis points because of elevated inflation, the strength of the recent economic data, and their commitment to bring down inflation to the committee's two percent longer run goal.

So a bunch of these guys apparently actually thought that pausing increases was the right move. But then they turned up to this meeting and something magically happened instead of actually voicing their actual opinion, be it put on record that they thought that not in minutes, but in the actual vote because that's the actual job. Instead, they listen to what the White House and Jerome Powell wanted them to do and change their mind to vote for an increase instead. There's no reason why they all have to vote in unison.

Disagreement is exactly why committees like this exist. What is the point in having a committee if the lower ranking committee members are basically just pressured into doing exactly what is told to them into voting in a specific way. What is the point of having these 18 people in the room if they all have to vote unanimously anyway for whatever the party dictat policy is, Why did the vote not have several participants as per this paragraph, both against the increase? What happens if the FED crashes the economy? Who is going to be responsible? Because if we do have a recession as the FED is now indicating, the culprit is not covered and the culprit is no longer inflation, Is the Fed being way too slow to react again because they are too busy playing politics? The situation we have right now is a bit like this: Imagine you're driving a car, you are going 70 miles an hour and you want to stop 100 meters down the road. That is your goal and objective.

If you stop too early, it's no good. and if you overshoot and stop way too late, that's also no bueno. So you know that if you applied the brakes immediately, you're probably going to come to a Halton I don't know, Maybe 60 meters. So you're going to start way short.

and that's not the right thing to do. And you also know that if you just take a foot of the accelerator, let the car coast and stop. Wherever it happens to stop, you'll probably go way over the 100 meters, so that's no good either. The correct answer is you take your foot off the accelerator and then you slowly start applying the brakes more and more as you approach your goal, until eventually you stop.

Bang on exactly where you need to stop. You know basic rules of physics and momentum, explain how you do it, and most people are able to do it, but according to the FED they this is not the right answer. According to the Fed, this is the correct solution. You are going 70 miles an hour and you need to stop in 100 meters.

so you should slam down the accelerator so that you are going 100 miles an hour so that you can get to the 100 meter Mark more quickly. That makes perfect sense, right? The 100 meter Mark here is the proxy for two percent inflation rate and the speed is the Fed's interest rate. So you Accelerate from 70 to 100 because that makes totally perfect sense. Maybe to 120 because I will get you there even faster.

And then once you hit the 100 meter Mark Only then you slam down the brakes. You pull the handbrake at the same time you're still going to overshoot and you will look like a complete imbecile. But at least you're going to do it in style. You will destroy your brakes.

You'll probably break the handbrake the car May Well roll a few times. The passengers might die. you don't know. But hey, your policy was to hit the 100 meter mug and you achieve your policy and then did an emergency stop because that is way more effective as a way of doing it.

And the longer the FED is playing stupid games, the higher the chance that the car will eventually roll and it won't roll because the ground isn't even and it won't roll because the weather is bad. It will roll because the idiot the boy racer driving the car accelerated from 70 to 100 because they don't understand the most basic dynamics of how momentum works. I Guess eventually the FED will be forced to do U-turn If that happens soon, we may still have enough time to stop in the right place. but every month that the fed dallies and continue playing dumb, the risk of overshooting becomes higher.

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