by Joe Hoft at www.thegatewaypundit.com
The Biden Administration doesn’t appear to have a clue what it’s doing according to Dr. Peter Navarro.
The Biden gang crushed the economy with massive spending that led to inflation that led to interest rate hikes that have ignited a banking crisis.
Now the Biden gang is allowing banks whose assets are 30 cents on the dollar to exchange these government bonds for FED cash (a deal that the banks would never do themselves) and taking on more debt which will cause more inflation and the circle goes round and round. What a mess.
Dr. Navarro shared the following at his substack channel.
Read: One Way To Keep Your Family Fed In A Crisis
Fed Chair Powell is keeping Joe Biden’s bailout promise in two ways: one by opening the Fed’s discount window and two through something called the Bank Term Funding Program. Distressed banks can take out 90 day loans from the Fed through the discount window and up to a year through the new program. And here is the kicker:
In the past, the Fed’s discount window has fulfilled the Fed’s function as “lender of last resort,” but in the past if a bank needed to borrow money, it had to provide collateral, typically in the form of government bonds. But, to ensure that it would get paid back, the Fed would discount how much it would actually give back in the same way that a pawnshop will take a valuable item from you and give you cash but not enough cash to cover the full value of the item in case you don’t come back for it.
In this case, however, the Fed is providing not just the full value of the bonds but the face value of the bonds. Remember here that the banking system is in crisis because in a period of rising interest rates and therefore falling bond prices, their bond holdings have lost value. Therefore they have what’s called “unrealized losses.” If they can hold the bonds to maturity, they do not have to accept the loss; but with depositors leaving their banks in droves, many had been forced to liquidate and that is the cause the ensuing credit crunch and crisis.
So, what the Fed is offering again is not just the value of the bond at this point in time with its unrealized losses but rather the full face value of the bond; and any bank in this country no matter how minor or severe the crisis would be a fool not to go to the discount window and get rid of any bonds they need to. That’s right, that’s exactly what is happening. They are not going there for loans. They’re going there simply to dump the bonds off, default on the bonds, and leave the Fed holding that bag on its balance sheet.