More Banks will likely Fail
First Republic bank just failed. And more banks will likely fail in the future as the Fed continues to pull money out of the US Economy.
The M2 Money Supply just contracted for the first time in 90+ years since the Great Depression. This declining money supply is what is ultimately resulting in banks failing. And what’s scary is that every other time the money supply has contracted in the US going back to 1850, there was an associated banking crisis and DEPRESSION.
Why would a contracting money supply cause a depression (or bad recession)? Because of Economics 101 – the formula MV = PQ describes how the money supply directly relates to GDP. When the money supply goes up, GDP goes up (often due to inflation). And when the money supply goes down, so does GDP (in this case due to deflation).
Now – some people think that JP Morgan’s purchase of First Republic Bank will resolve the banking crisis. JP Morgan’s CEO Jamie Dimon said as much. However, that is unlikely since the core problems with the financial system are still in tact. So long as Jerome Powell and the Federal Reserve keep contracting the money supply through quantitative tightening, while banks stop lending through the credit crunch.
Credit to : Reventure Consulting