Soft Landing For The US Economy?

 

Soft landing for the US economy will hardly be achieved, according to Wolfteam Ltd.'s macroeconomic forecasts.

Actually what Wall Street macroeconomic research analysts see as soft landing currently is basically the Federal Reserve and the US Treasury postponing the inevitable new Great Recession after a systematically important bank or several mid-sized banks are forced by higher interest rates to become almost insolvent.

Wall Street research analysts seem to be convinced that we will witness the first episode in history where higher than 3 % interest rates levels driven by the Federal Funds Rate targeted by the Federal Reserve will not bring financial calamity. This is highly unlikely in Wolfteam Ltd.'s view. What the Federal Reserve is trying to engineer is actually cause a 'manageable recession', which is virtually impossible. In historic terms, at least.

Joseph Schumpeter's proverbial creative destruction will come into play. Wolfteam Ltd.'s corporate view is that either Deutsche Bank or Citigroup or another large Wall Street bank will face liquidity problems and the US Treasury will be again forced to step in with US taxpayers' money aided by money creation from the side of the Federal Reserve. No matter the higher capital base of banks, banking is still a fractional reserve business, which means it hinges on consumer trust. And if Wall Street investment banks and corporate banks get overextended into risky lending their capital buffers will not save them from a crisis. And if one raises capital requirements too high for banks, then banking will stop being such a lucrative business on one hand and on the other hand stop doing its necessary social function of providing mortgage, automobile, consumer loans, large corporate loans and the very vital for every world economy small and medium businesses credit lines.

What Wall Street research analysts currently see as soft landing is simply the Federal Reserve, aided by US Treasury's deficits postponing the inevitable bursting of the current technology driven real estate bubble we are in. Indeed, when technology companies, especially the 'Magnificent Seven' Apple, Microsoft, Alphabet, Amazon, Meta, Tesla, NVIDIA and many other large, medium and small sized technology companies get into financial difficulties along with their employees this will hit first the credit lines to these firms and then real estate loans to their employees given out by banks. The falling real estate prices will hit Mortgage Backed Securities held by banks and asset managers all over the world, which will translate into even more trouble for US and global banks via financial distress and the world will slip into the long postponed, overdue deep recession is Wolfteam Ltd.'s macroeconomic and financial forecast. Much as during the last Great Recession.

Silicon Valley Bank and First Republic Bank's bankruptcies were only a precursor of the pending crisis. The only way such a crisis can be mellowed is by the Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan etc. gradually making banks report and list on their balance sheet their off balance sheet, usually packaged into opaque securities, bad loans and make them gradually report the mark to market losses from the US Treasuries, German Bunds, UK Gilts, Japanese Government Bonds held onto their balance sheets. Not like during the Great Recession when the Federal Reserve abruptly made banks report on their balance sheets their previously off balance sheet, 'toxic' Mortgage Backed, Securities, Collateralized Loan Obligations, Commercial Mortgage Backed Securities and other opaque securities, full of bad loans.

Since the current both real estate and technology bubble is arguably the largest in history, global central banks have to thread very carefully, which they are doing. And Wall Street investment banks' research analysts are 'seeing' soft landing into the slow bursting of the global financial bubble by the Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan etc. and US Government, the governments of UK, Germany, Japan, France etc.

This is the largest monetary experiment in history. It will end badly, in tears of course,  but much of the technology and real estate built, created during blowing of the bubble will remain. And the new AI, Artificial Intelligence giants will rise from the ashes. We are all just spectators of Joseph Schumpeter's 'Creative Destruction'.