The following is a copy of remarks delivered by Scott K.H. Bessent at the Toward a New Supply-Side: The Future of Free Enterprise in the United States conference.

The Fallacy of Bidenomics: A Return to Central Planning

June 6th, 2024

…To that end, the Trump administration pursued a policy of preserving productive capacity in the economy so as to enable a resumption of economic activity once the underlying public health emergency had passed. The economic data in January 2021 suggested that for the most part, that policy succeeded. The arrival of vaccines in December 2020, as a result of Operation Warp Speed, meant that the worst of the public health emergency was over. A careful appraisal of the economy would have led sensible policy makers to conclude that all that was needed for a return to the pre-Covid economy was for the government to get out of the way.

Upon assuming office, the Biden administration cast aside risk management and made irresponsible choices to pursue a set of policies designed to deliver the managed economy it desired. Unfortunately, the goal was not a return to economic growth and real wage gains, but social and political engineering under a classic central planning paradigm. The Biden administration also seriously misjudged the economic consequences of its approach, particularly with respect to inflation, triggering a surge in prices in excess of anything seen in four decades.

So doctrinaire was this administration in its social goals, that its members failed to recall a foreboding, famous conversation between President John F. Kennedy and James Tobin, a Yale economics professor, advisor to the Treasury Department, and Janet Yellen’s mentor. In the early 1960s, JFK asked “…but is there any economic limit on the size of debt in relation to income? There isn’t, is there?” The future Nobel laureate replied, “The limit is inflation.” JFK ended, “That’s right, isn’t it? The deficit can be any size, provided it doesn’t cause inflation.

Everything else is just talk.” Indeed, as Biden and his economic team take to the airwaves today to defend their ideological, inflation-inducing policies, all they have left is “just talk.”

https://manhattan.institute/article/the-fallacy-of-bidenomics-a-return-to-central-planning

U.S. banks on brink of collapse? $517 billion losses threaten 63 banks

Jun 4, 2024

Unrealized losses on the rise among the U.S. banks

Banks’ unrealized losses have increased significantly, reaching $517 billion. These losses stem primarily from their holdings in residential mortgage-backed securities.

When interest rates rise, the value of these securities falls. While these losses are realized once the securities are sold, they can become a significant burden if banks need to raise cash quickly.

This marks the ninth consecutive quarter of high unrealized losses, coinciding with the Federal Reserve’s interest rate hikes that began in early 2022.

Increased number of problem banks in the U.S.

The FDIC also reported a rise in the number of banks on its Problem Bank List. These banks are at risk of insolvency due to various financial weaknesses. However, the FDIC emphasizes that the number of problem banks remains within the historical range observed during non-crisis periods.

Federal agency assures that the US banking system isn’t in immediate danger. However, it acknowledges ongoing challenges posed by inflation, volatile stock markets, and geopolitical tensions. These factors could impact banks’ ability to lend, generate profits, and maintain sufficient liquidity.

Additionally, specific loan portfolios, such as those for office properties and credit cards, require close monitoring due to potential deterioration. The FDIC will continue to supervise these issues along with funding pressures and shrinking profit margins.

https://finbold.com/u-s-banks-on-brink-of-collapse-517-billion-losses-threaten-63-banks/

$517,000,000,000 in Unrealized Losses Hit US Banking System, FDIC Says 63 Lenders on ‘Problem List’

June 2, 2024

Unrealized losses in the US banking system are once again on the rise, according to new numbers from the Federal Deposit Insurance Corporation (FDIC).

In its Quarterly Banking Profile report, the FDIC says banks are now saddled with more than half a trillion dollars in paper losses on their balance sheets, due largely to exposure to the residential real estate market.

Unrealized losses represent the difference between the price banks paid for securities and the current market value of those assets.

Although banks can hold securities until they mature without marking them to market on their balance sheets, unrealized losses can become an extreme liability when banks need liquidity.

“Unrealized losses on available-for-sale and held-to-maturity securities increased by $39 billion to $517 billion in the first quarter. Higher unrealized losses on residential mortgage-backed securities, resulting from higher mortgage rates in the first quarter, drove the overall increase. This is the ninth straight quarter of unusually high unrealized losses since the Federal Reserve began to raise interest rates in first quarter 2022.”

The FDIC also says that the number of lenders on its Problem Bank List rose last quarter. According to the agency, these banks are on the brink of insolvency due to financial, operational, or managerial weakness or a combination of such issues.

“The number of banks on the Problem Bank List, those with a CAMELS composite rating of ‘4’ or ‘5’ increased from 52 in fourth quarter 2023 to 63 in first quarter 2024. The number of problem banks represented 1.4% of total banks, which was within the normal range for non-crisis periods of 1% to 2% of all banks. Total assets held by problem banks increased $15.8 billion to $82.1 billion during the quarter.”

https://dailyhodl.com/2024/06/02/517000000000-in-unrealized-losses-hit-us-banking-system-as-fdic-warns-63-lenders-on-brink-of-insolvency/