Lyn Alden Profile picture
Aug 3, 2021 8 tweets 4 min read Read on X
Regulators have historically had a tough time predicting systemic bank risk ahead of time.

Bank capital ratios, for example, were not predictive of the 1929 or 2008 financial crises. Risk-weighted and raw charts:
Capital ratios are of course critical for analyzing the health of a specific bank balance sheet, but historically failed to detect system issues in the bank lending sector.

That's why they were reformed post-GFC, to make them more granular.
Historically some combination of private debt as a % of GDP, monetary base as a % of total bank loans, and the percentage of bank assets held in nominally risk-free assets, has been more predictive.
For example, the monetary base as a percentage of bank loans was historically low leading into the 1929 and 2008 deflationary debt crises.
However, it also helps to check bank Treasury levels, which were also low in both periods.

These charts for example shows the % of US bank assets held in cash and Treasuries/Agencies leading into 2008.
Reserve requirements are there to prevent bank runs. Capital requirements are there to reduce the risk of bank insolvency.

However when looking at macro data sets, low bank reserves and Treasuries combined as a % of assets tend to occur prior to banking failures.
Private debt as a % of GDP and M2 were key aspects as well.

Unsurprisingly, high private leverage in an economy AND banks having low total allocations to risk-free assets, are a dangerous combination.
Basically, the 2020s banking system continues to look like the 1940s, meaning banks are stuffed full of cash and Treasuries, and rapid money supply growth is coming from fiscal deficit spending, not bank lending.
lynalden.com/may-2021-newsl…

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More from @LynAldenContact

Jan 5
A lot of individual facts that the bears were saying in 2023 and 2024 were correct, but those facts were dwarfed by fiscal dominance. Image
For example, net bank loan creation was sluggish at just $300B over the past year.

But banks also bought $400B net in Treasuries. Image
Healthcare spending, DoD spending, Social Security spending, and interest expense just kept rolling. Image
Read 4 tweets
Nov 13, 2024
I keep seeing the chart float around of 23 million government employees, as though that's directly cuttable by the new Department of Government Efficiency.

Keep in mind that 3 million of those are listed as federal and the other 20+ million are state/local.

A thread. 🧵 Image
Image
Now, quantifying the actual federal workforce is actually nontrivial.
-Are we talking civilian, or military too (1.3M)?
-Are we including postal workers (550k)?

This WH report says 4.3 million federal workers with all of this, with breakdowns.
whitehouse.gov/wp-content/upl…
But wait, there's more. There are also somewhere in the ballpark of 4 million federal contractors. The number fluctuates.

In 2023, $759 billion was committed to them.
gao.gov/blog/snapshot-…
Read 6 tweets
Nov 7, 2024
Along with Steve Lee @moneyball and Ren @0xren_cf, I co-authored a paper that analyzes the process and risks of how Bitcoin upgrades its consensus rules over time, from a technical & economic perspective.

Here's a 🧵

You can check it out here:
github.com/bitcoin-cap/bc…
Here's the v1.0 PDF version:
github.com/bitcoin-cap/bc…
Bitcoin is hard to change by design, and the methods of how it changes have evolved as the network has grown.

In the paper, we analyze what consensus is, and how different types of entities have different incentives and powers during the course of a potential consensus change.
Read 7 tweets
Dec 12, 2023
CPI for November came in this morning. Headline numbers continue to bounce around above 3%, while core continues to gradually decrease. 🧵
Image
Image
Some people assume that the end of inflation means prices go down, but instead it just means the rate of change of prices decreases to the target rate.

There's permanently more money in the system, and prices in aggregate are permanently higher. Image
Currently, China has weak domestic consumption but strong production/exports, the United States has decent consumption but weak production, and Europe's domestic consumption *and* production are weak.

This weakness weighs on energy prices and other materials.
Read 4 tweets
Dec 9, 2023
Since the start of 2020, the United States has taken on $10.7 trillion in new public debt (i.e. accumulated deficits).

That's about $80k per household in four years.

Has your household received that much in deficit spending? Some did, but likely not yours. Image
Some households received hundreds of thousands or even millions in stimulus.

And a sizable chunk of them were wealthy law firm or investment firm owners, or and various rather large business owners (100s of employees) that were not even disrupted by the pandemic/lockdowns. Image
Some households received indirect deficit expenditure. For example, if your employer received it, it may have positively affected your job.

But most analysis (e.g. see above tweet) showed that most of the money didn't go to that. It instead pooled near the top.
Read 6 tweets
Dec 7, 2023
Four monies, personified:

-The Golden Monarch
-Lord "Uncle" Sam
-The Dragon Emperor
-Archmage Nakamoto
🧵 Image
The Golden Monarch economically defeated all opposition and reigned supreme for thousands of years. Now ancient and wise, and having seen the entirety of history, he contemplates his diminishing role in the modern world and wonders if he could have done anything differently. Image
Lord Sam, usurper of gold, known merely as “the Uncle” to many, sits at the Cantillon Source and wields the mighty dollar. Liberating in his youth, now oppressive in his age. His monetary power reigns supreme but shows increasing signs of decadence, decay, and defiance. Image
Read 6 tweets

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