Posted on 03/13/2023 5:17:22 AM PDT by FarCenter
To understand the Silicon Valley Bank (SVB) collapse spooking markets, look no further than events in Jakarta.
The Indonesian rupiah’s 3.2% drop since February 1 demonstrates how quickly Asia has resigned itself to the fact that the US Federal Reserve isn’t done tightening. Another batch of too-strong-for-Fed-comfort US employment figures in February only increased the risk.
Episodes of extreme dollar strength tend to hit Southeast Asia particularly hard. And while Indonesia’s financial system is far healthier than it was amid the Asian financial crisis 25 years ago, vulnerabilities abound. Not surprisingly, the region’s dollar-centric economies tend to see another potential 1997-like crisis around every corner.
Case in point: the Fed’s most aggressive tightening cycle since the mid-1990s, an episode that still haunts leaders from Jakarta to Tokyo. As the Fed doubled short-term rates in just 12 months between 1994 and 1995, the collateral damage really started to rack up.
Victims included Mexico, which plunged into the peso’s “tequila crisis.” Orange County, California veered into bankruptcy. Wall Street securities giant Kidder, Peabody & Co went extinct. Then the most spectacular pileup of all: Asia.
As the dollar skyrocketed, currency pegs became impossible to defend in Bangkok, Jakarta and Seoul. Fallout from the barrage of devaluations paved the way for the late 1997 collapse of the 100-year-old Yamaichi Securities, one of Japan’s fabled big-four brokerages.
Yamaichi’s demise panicked officials in Washington. Both the US Treasury Department and the International Monetary Fund worried not that Japan was too big to fail. They worried it was too big to save.
China, too. In 1997 and 1998, US officials all but begged Beijing not to devalue the yuan. That, they feared, would spark a new wave of competitive currency devaluations and drag Malaysia and the Philippines, two nations that hadn’t devalued, into the fray.
All this explains why the SVB collapse is triggering Asia’s post-traumatic stress disorder over Fed austerity from the late 1990s. That PTSD was on display back in 2013 amid the Fed “taper tantrum.” Back then, Morgan Stanley included India and Indonesia in its “Fragile Five” list of economies on the brink along with Brazil, South Africa and Turkey.
At the time, Bank of America strategist Michael Hartnett warned of a “repeat of the 1994 moment.” Then-Goldman Sachs CEO Lloyd Blankfein admitted that “I worry now as I look out of the corner of my eye to the 1994 period.”
This is the minefield that Fed Chairman Jerome Powell is struggling to navigate.
The combination of too big fiscal stimulus along with foreign policies disrupting supply chains from Russia and China is a huge blunder. It has caused dollar inflation that cannot be controlled without great damage to countries linked to the dollar financial system.
Ha ha ha ha!
The sad, sorry fact is that the Fed can only compensate for the Uniparty’s criminal fiscal policies by crushing the private sector. And it may not be enough, at that.
The problems at Silicon Valley Bank, namely a huge bond portfolio that has lost a lot of value due to much higher interest rates, exists at many other banks too, we are told.
So if true, the Federal Reserve continuing to raise rates will only make this problem worse.
yeah
so does the FED leave interest rates where they are, or lower then and let inflation rage worse, what a house of cards
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