Regulators Close New York’s Signature Bank
cnbc.com
cnbc.com
It is clear as day now that Crypto/stablecoins cannot bank in regular US banks and needs its own bank. Crypto is essentially a DDOS attack on a regular bank due to bank liquidity rules in the US. Normal banks are designed to hold a large spread of small accounts and thus keep a limited % of liquidity to cover withdrawal needs which are relatively low % for that type of customer. The rest of the cash is invested and produces a return.
Crypto has huge liquidity demands on small timeframes, especially when there are runs on exchanges. If normal banks are designed to move slowly and carefully to remain good stuarts of their depositors, crypto essentially trips that infrastructure with big swings.
If they used bigger banks, this would less likely be a problem... Or a much bigger problem.
These banks have less than 250 billion, while Chase has 3.5 trillion.
Taxation is the burn. They print/mint money through lending and remove/burn it from circulation by taxation.
Which is why MM theory is all about all government spending coming from the creation side, and that taxation never leads to spending.
Contagion spreading to non-mega banks because the federal government told them to buy “risk free” treasuries and mortgage backed securities. Rates go up and suddenly if they need cash the bonds must be sold at a loss.
To blame a problem caused by central banking on crypto is absurdity to the highest level.
> 10 AM: some suggest getting the money out of SVB for safety. Only upside. No downside.
https://twitter.com/torrenegra/status/1634573234187407369
Anecdote to be sure but it's fascinating to read the account of people organising a bank run.
SVB had just recently reported that they had no liquidity issues and did not foresee any need to sell any of their assets at a loss.
Then Thursday morning the announced that they had, in fact, liquidated some of their assets at a loss.
Your bank is supposed to be zero risk and essentially as good as cash. Any sign that your bank might have liquidity problems significantly raises that risk from 0. In that case it is beyond prudent to try to move out of that bank fast.
I love a good conspiracy theory as much as the next, and wouldn't be surprised if there were ill intentions behind some of those meetings. However this bank run was rational and does not need to be explained away by any conspiracy to organize a bank run.
Yield chasing blows up overleveraged entity, nothing new here really, except usually people rightfully criticize the yield chasers/overleveragers for being greedy; this time people are acting like SVB was a victim of the Fed instead of their own extreme incompetence.
Had Silvergate not collapsed, SVB's balance sheet weakness may not have prompted a run.
Or would. They lost only <2B so far, maybe they could earn it back, same way as banks make money. It's not like they were married to their bonds assets, they could do a lot of things with those.
good stewards?
That is how USDC works. You can redeem USDC for USD 1:1 from any CENTRE Consortium member (Currently Circle and Coinbase).
A "regular" bank moves more money a day than the whole cryptocurrencies market is worth. It'sa too tiny blip on their radar to DDOS them.
(The Visa number is from 2020, I couldn't quickly find a more recent number)
It's a bunch of bros moaning "arbitraaaaaaaage" while trying to rip each other off.
The amount of crypto used for actual goods and services probably amounts to about $3.50 per day.
$3.50 is much less than $34 billion
If I make a new cryptocurrency today and announce it is worth 50 trillion-trillion volume and start trading with myself, that doesn't DDoS no bank.
https://slate.com/news-and-politics/2018/05/barney-frank-was...
But in fact, USDT and Binance are kicking while USDC and US Banks are starting to wobble. And it has to do with the irresponsibility of the central planners HERE in the USA (the Fed raising interest rates from 0.38% to 5% in a year!)
https://www.investing.com/news/cryptocurrency-news/binance-c...
Seriously, my theory is (different from the Austrians) that the Fed creates the problems and depressions mostly by raising interest rates. Instead, keep them at zero and let the market figure things out. I am fine with printing money as long as you raise taxes to remove it from the system. Raising interest rates is far worse and a depression is far worse than any inflation.
https://www.bostonglobe.com/2022/09/21/opinion/fed-wants-you...
Well, I guess somehow the reputation of USA of being an "economically free" country versus China lets them get away with central planning and soon the CBDCs and the national IDs for everyone. Not that I like that in China either!
In 1923 the exchange rate has reached 1 trillion DM for 1USD. We all know how it had ended.
In the case of Weimar Germany, there was the little matter of THE VERSAILLES TREATY that required them to endlessly pay war reparations and punitive payments in gold. Britain told France to cut it out, but France was mad enough at the Germans that they continued. This led to the rise of the Nazis and WW2.
https://www.history.com/news/treaty-of-versailles-world-war-...
You should read more economic viewpoints, such as Walter Mosler on hyperinflations:
https://moslereconomics.com/wp-content/uploads/2020/11/Weima...
Oh, and meanwhile there was a "free money miracle" going on in nearby Austria, and clearly did not lead to hyperinflation, quite the opposite: everyone paid off their taxes due to the demurrage of the free money... keep in mind this was while all around them there was a growing depression... even Mises institute grudgingly agrees!
Oh I know that. My argument was rather pedantic.
Now since you've mentioned it I wonder if the situation with Russia might to the same outcome eventually.
The most notable different policy prescription (job guarantee) is odd because it's originally a right-wing program they just decided is left-wing.
Their description of how government issued currency, coercion, and tax act as a tool to capture services from the economy (as opposed to filling up a treasury for the government to spend) is extremely underrated in mainstream economics.
> right-wing program they just decided is left-wing.
Why would MMT be limited to traditionally left/right boundaries?
Yes it does, it makes it not an economic theory but a political one.
> Their description of how government issued currency, coercion, and tax act as a tool to capture services from the economy (as opposed to filling up a treasury for the government to spend) is extremely underrated in mainstream economics.
It is Abba Lerner's functional finance and it essentially only applies to the US federal government, as noone else is big enough. But they also like to extend it to "banks don't lend out deposits", which isn't true. And the idea that you can raise taxes to control inflation doesn't appear to be true either.
> Why would MMT be limited to traditionally left/right boundaries?
Cuz they're only trying to sell it to left-wing politicians.
Describing the job guarantee/transition job as equivalent to "workfare" reveals a fundamental misunderstanding of the JG. Two ways in which it differs significantly (but not the only ways):
1/ it pays a living wage / socially inclusive wage, unlike most current (un)employment insurance programs
2/ it is non-coercive. You have the promise of that job, not a mandate to perform it. Other social programs remain available for those unable for for a variety of reasons.
No, it pays minimum wage. (Mosler calls it "non-disruptive wage" because it's not enough to compete with other jobs.) The trick is the marketing just assumes minimum wage will be raised, so they quote that number instead. And of course it never gets raised and you can never be promoted.
> 2/ it is non-coercive. You have the promise of that job, not a mandate to perform it. Other social programs remain available for those unable for for a variety of reasons.
It's coercive to regular workers because their boss can fire them at any point, safe in the knowledge they'll get a minimum wage job the next day.
https://en.wikipedia.org/wiki/Treaty_of_Versailles#Historica...
https://www.youtube.com/watch?v=YygQ0Wq0wDA
It argues quite convincingly that war reparations had almost nothing to do with the hyperinflation and that the seeds were sown way before ww1 and then watered during WW1 when germany essentially became a command economy and finally harvested by the first Weimar government's managment.
So my working assumption is that many of those people are going to try to cash out Monday morning.
Wow, this is scary. It reminds me of the history of monetary economics in the US during the 19th century, a period known for "wild cat" banks and a system where any bank could print their own private currency. In that system, currency was discounted the further away it was physically from the bank which issued it. The system was divided between "city banks" and "country banks." The more remote the location, the less up-to-date information was available about the health of distant banks, and so the more distant currencies were discounted more heavily.
The modern crypto wild west version of this is going to end in a result of going from "getting $0.99+ on the dollar is probably good enough for a lot of people" can turn into "getting 0.01+ on the dollar is as good as it gets" within minutes, if and when there is a run on crypto stablecoins.
The main point I was trying to make was that people trying to make a buck off of the USDC depeg didn't need to wait until Monday morning. So I didn't think Monday morning would be particularly significant in that particular regard.
https://blog.kraken.com/post/6241/kraken-wyoming-first-digit...
https://support.kraken.com/hc/en-us/articles/360055126131-Wh...
So for all these non-disclosing multi-paragraph posts, they might as well just say "it'll be fine, trust me bro" from my point of view.
2023