Heroes , Superpowers , War and Unlimited printing: The Story Of Why The Banks Are Collapsing

The banking system is officially overrun by FUD. Deutsche Bank is on the brink of collapse.

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Despite being the 24th biggest bank in the world with around 1.7 trillion dollars of assets under management, it is still collapsing, and many wonder why the banking system is failing. Of course, there are obvious reasons such as mismanagement, years of scandals, big paychecks to their golden boys without much results, but the main problem is the rate hikes. So, let's take it from the beginning.

We are in the year 2019, and we have the first Covid-19 infections. Fast forward to the beginning of 2020, and we are now starting to hear that Covid-19 is becoming a big problem, and we now call it an epidemic. Fast forward again, and Covid-19 becomes a pandemic, and the whole planet is being locked down to combat the deadly disease. While large parts of the economies around the world are stopping, people are starting to fear that they will run out of money.

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The stock market and crypto crash, and then here comes the savior, Jerome Powell. Powell has a superpower; he is the only man on the planet controlling the greatest weapon, the Fed's printing machine. When the US economy is starting to get into a recession, Powell unleashes his weapon and starts printing money. In 2020, the Fed printed 3 trillion dollars out of thin air. That move sent the stock and crypto market into a rally. This move also stabilized the US economy and brought hope to the people that were not working, that the government is helping them. But the Covid-19 pandemic wasn't over, and a second deadlier wave came, and we were on lockdowns again. But this time around, banks and people were sweetened by the initial money printing and wanted more, and then Powell once again came to the rescue and turned on his printer. This time he printed 10 trillion dollars for 2021. So, the banks had more money that they could loan. They started buying back stocks and more importantly, government bonds, and the party was on. Everyone thought that this was the time of unlimited borrowing with 0% interest rates.

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Then inflation came. 0% interest rates, along with supply problems and a war between Russia and Ukraine, skyrocketed the prices of oil and gas, making energy more costly. Along with energy, everything went up, and because people had money from all the printing the Fed did, they just kept on spending, and the inflation kept on rising. Then Powell stepped in again. He put his super weapon aside and stopped printing, but he also used one more of his superpowers; he started raising the interest rates to stop the inflation from going up. But that started to show how badly the mismanagement of the money was, and for that, he became the villain. But he kept on raising the rates because the inflation was sticky. Fast forward again to 2023, and banks start to fall. The reason, aside from mismanagement, is the bonds. You see, banks were buying bonds when the interest rates were at 0%. So, in every rate hike, new bonds are being issued with a higher return for investors. Therefore, the old bonds not only return less, but because they are being sold like crazy, because people want the new bonds with the higher returns, they are now worth less. Let me give you an example. Say you buy a bond for 10,000 dollars with a paying coupon of 3%, a good investment for you. Then comes the FED and raises rates to 4%, so the new bonds that are being issued are paying a coupon of 4%. Then holders of the old bond sell it to buy the new bond, it tanks the price of the old bonds to $9,250, which not only gives less return but also devalues it from what they paid for it. So if a bank needed money and sold it, it would have a loss of $750, without taking into account inflation. This is what is happening to the banks - they bought a lot of bonds that are now almost worthless, and when bank runs occur, they have to realize their losses to give customers their savings. But because the losses are huge, the banks run out of money and collapse.

So that was a story of war, great riches, superheroes, villains, and how the economic system just fucked up.

P.S. Of course, the problem runs much deeper and is much more complex than I can understand, but my takeaway is that the whole financial system is rotten to the core. There is no fixing it; we are just shifting the problem to future generations to solve. It's a ticking time bomb, and it will eventually explode someday.

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