- The biggest bank failures in the U.S. since the 2008 Great Financial Crisis have revealed just how fragile financial markets are as the world comes to grips with years of cheap money abruptly halted by the Federal Reserve's aggressive monetary policy stance.
Merk added that even if there is no new contagion from the failure of Silicon Valley Bank and Signature Bank, the Federal Reserve can't afford to continue down its aggressive path. He added that while the broader financial market might be resilient for now, other threats are looming on the horizon. Along with the Federal Reserve ending its aggressive rate hikes, Merk noted that the world has entered a new quantitative easing cycle as the government now looks to protect all bank deposits.
Merk added that the government guarantee of all deposits could be one of the reasons why the banking crisis is now spilling into the European system. Investors and consumers continue to move their money out of banks and into higher-yielding assets. This week, the U.S. government has given consumers another reason to move their money, draining more liquidity from the system.
Wednesday, shares of Credit Suisse — a Swiss bank with extensive U.S. and global operations — tumbled 31% before paring back declines to 20%. This was the biggest one-day selloff on record. With investors moving their low-yielding bank deposits into bonds, banks are forced to sell their treasuries at a loss to make sure they have enough cash on hand to meet their customer's withdrawal requests.