Thread by @CoinbitsApp

The Federal Reserve was created in 1913 to "promote greater financial stability and avoid banking panics..."

But how**?
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🤔
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1/

**hypothetically speaking; everyone, except them apparently, knows they do the exact opposite of that stated objective😪

2/
first, here's how the fed defines financial stability:
"when financial institutions and markets are able to provide to communities and businesses products they need to invest, grow and participate in a well-functioning economy."

in other words; no one goes belly up. cool cool

3/
In this definition, they are referring to financial intermediaries of all shapes and sizes:

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They also state that "any disruption to the functioning of these intermediaries between borrowers and lenders can carry a very high price".

In other words, the Fed would be negligent in promoting stability if, say, ppl stopped borrowing while needing capital. Ring a bell?

🧐

4a/
As a matter of fact this exact situation is happening not just at the institution level, but at the country level; check out @jameslavish 's thread on nation state debt spirals if you haven't seen it yet:

5/
So how do they <think (since we know they don't actually)> do this?

They look at 4 components:

1. Asset valuation and risk appetite
2. Financial System Leverage
3. Funding risk
4. Borrowing by businesses and households

Let's look deeper at each one:

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(1)Asset valuation rising "constitutes vulnerability because unwinding of high prices can be destabilizing to the economy, especially if assets are widely held and values supported by excessive leverage or risk opacity"

sooo like the stock and housing and everything bubble?🤔

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(2) financial system leverage refers to when banks, insurance companies, hedge funds, and other financial institutions have significantly more debt than equity.

is this happening anywhere right now? in the world? anybody know? Asking for a friend...

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(3) Funding risk refers to the potential for banks to experience a "run" by investors.

If you missed our breakdown of the bank runs of the 1930s, and their parallels to today, read this to see why we're RIPE for this exact situation today:

8a/
(3) more evidence of funding risk today:

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(4) borrowing by businesses and households:
"if credit exposure in households and non-financial* businesses is high, borrowers often curtain spending and disengage from economic activity..."

*b/c you know, financial biz's CAN NEVER have too much debt... see why later.

9a/
how's our credit exposure going today? oh. good.

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so now that we've covered the things they "look for" (read: actually cause to break), let's see what their proposed responses are.

TDLR: BRRRRRRRRRR (2020 version of brrr was 3 R's).

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The Fed has the authority during times of crisis to provide liquidity and "is empowered to be the lender of last resort (LOLR) [seriously, that's their acronym for it... they mock us] and uses different tools to fulfill this role."

How does the Fed act as LOLR?

CTRL+P

12/
Their entire premise is summarized in this statement (again their words, not ours)
"when a major shock occurs that severely stresses the financial system, people need access to money and credit. Indeed, having liquidity available can restore calm to markets..."

😪

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To summarize: The Fed, through monetary policy, create the conditions for the things they list as the MAIN RISKS TO INSTABILITY,

then to fix the problem <checks notes>

does MORE of the activities that caused those issues in the first place
🤡🤦‍♂️

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The result: mass chaos in markets, no true way for any business to measure the true cost of capital and conduct economic calculation, and business cycles that only exist because... the Fed exists.

h/t @saifedean

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But don't take our word for it... listen to the 2nd largest US Bank on current state of financial stability today; THE VERY THING the Fed is "watching for"...

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End the Fed, end the problem the Fed causes and then attempts to solve.

#bitcoin fixes this.

🚫 lender of last resort
🚫management of monetary policy that causes more of the thing that you're to get rid of in the first place
🚫 meetings in Jackson Hole
✅Code and Math.

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