I found this letter in the AFR from Wednesday this week in letters to the Editor.
Only crazy people would believe the USA banking system is OK. According to letter the US banking system nearly had a major melt down in mid-December even when the Fed was supporting banks via its Bank Term Funding Program (BTFP) which it started in March 2023 when a few mid sized banks failed.
While the author notes the Fed's BTFP program ceases in March 2024, given the state of the banking system problems (see my earlier post) from losses on bonds, commercial property loans, falling deposits and low liquidity in the interbank funding market, the Fed will have no choice but to extent this program.
If it does not extent the BTFP watch out for problems unless the Fed reduces interest rates, abandons QT and resumes QE. Taking those steps will only fuel inflation. I sort of understand why some USA experts are predicting the Fed will start rates cuts in March 2024.
I cannot see any of this being negative for POG, rather it should be positive. The US Fed does face some tough decisions. If they do extent the BTFP they may be just kicking the can down the road.
