Is The Federal Reserve Trying To Cause An Economic Depression?
By Michael Snyder
They actually did it. Even though banks are collapsing, the commercial real-estate market is imploding, home sales are plunging, and large companies are laying off workers all over America, the Federal Reserve just decided to raise interest rates even higher. This is nothing less than economic malpractice. They know that higher rates are crushing the economy, but they apparently believe that more pain is needed. Officials at the Fed just hiked rates another 25 basis points, and they are now the highest that they have been since August 2007…
The Federal Reserve on Wednesday raised its benchmark interest rate by a quarter of a point, but opened the door to a long-awaited pause in the most aggressive tightening campaign since the 1980s.
The unanimous decision puts the key benchmark federal funds rate at a range of 5% to 5.25%, the highest since August 2007, from near zero a little more than one year ago. It marks the 10th consecutive rate increase aimed at combating high inflation.
When the Fed raised rates that high in 2007, it didn’t exactly work out so well, did it?
The next year we plunged into the worst economic downturn since the Great Depression.
Now a new economic crisis has begun, and even CNN is admitting that higher rates will make things even worse…
Meanwhile, investors are still coming to terms with the rapid run-up in rates, which sparked a huge sell-off in US government bonds and stocks last year.
Banks that failed to adequately prepare have been hammered. The shifting landscape paved the way for the collapse of Silicon Valley Bank in March and First Republic Bank this week.
More pain could be on the way. The commercial real estate sector, which is very sensitive to high interest rates, looks particularly vulnerable — its problems made worse by a glut of empty office buildings in the wake of the pandemic.
In particular, higher rates will put even more pressure on hundreds of banks that are already teetering on the brink of insolvency.
And when banks are struggling to survive, they get really tight with their money, and that is why we are now facing a big time credit crunch…
“The data suggest a credit crunch has started,” Morgan Stanley analyst Mike Wilson said during a recent episode of the firm’s “Thoughts on the Market” podcast.
During a credit crunch, banks significantly raise their lending standards, making it difficult to acquire a loan. Borrowers may have to agree to more stringent terms like high interest rates as banks try to reduce the financial risk on their end. Fewer loans, in turn, would lead to less big-ticket spending by consumers and businesses.