The Banking System’s Stability at Risk with 4% Interest Rates

by | Apr 17, 2023 | Fidelity IRA | 32 comments




The Banking System Will Break at 4% Rates
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The banking system is a complex network of financial institutions that provide various types of financial services to individuals and businesses. However, the banking system is not perfect and is susceptible to failures when exposed to certain conditions. One of those conditions is the increase in interest rates. Experts predict that the banking system will break at a 4% rate.

The banking system operates by collecting money from depositors and lending it to borrowers. The interest rates charged by banks are usually dependent on the interest rates set by the central bank. When the interest rates are low, banks can borrow money from the central bank at a relatively low rate and lend it to borrowers at a higher rate, making a profit. However, when the interest rates increase, the cost of borrowing from the central bank increases, making lending less profitable for the banks.

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At a 4% interest rate, the cost of borrowing from the central bank becomes high, and the banks will not find it profitable to lend money to borrowers. The banks will, therefore, reduce their lending, which will reduce the amount of money in circulation. The reduction in the money supply will lead to a decrease in economic activity, which will result in a recession.

A recession will lead to a decrease in the demand for loans by individuals and businesses, which will further reduce the amount of money in circulation. As a result, the banking system will enter a vicious cycle of reducing lending, reducing economic activity, and reducing the money supply. At this stage, the banking system will be unable to function, and individuals and businesses will not be able to access credit.

The banking system breaking down at a 4% rate is, therefore, a real possibility. However, there are measures that can be taken to prevent this from happening. Governments can implement policies aimed at reducing the cost of borrowing from the central bank, such as reducing the reserve requirements for banks. Governments can also provide support to banks that are experiencing difficulties in order to prevent a systemic collapse.

In conclusion, the banking system is a vital component of the financial services sector. However, it is not invincible, and it is susceptible to failures when exposed to certain conditions like a high-interest rate of 4%. It is, therefore, essential that governments take measures to prevent a systemic collapse of the banking system, as it can have far-reaching consequences on the economy and the financial well-being of individuals and businesses.

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32 Comments

  1. Moore

    Several of the biggest market experts have been voicing their opinions on exactly how awful they think the next downturn would be, and how far equities may have to go, as recession draws closer and inflation continues well above the Fed's 2% objective. I'm trying to build a portfolio of at least $850k by the time I'm 60, therefore I need suggestions on what investments to make.

  2. charles suarez

    SF fed knew about svb back in nov '21. like they didn't know

  3. LoreMerlu

    The FED has failed more than just twice in the past two years. One to add. Waiting to raise rates even when they were finally starting to acknowledge inflation. I truly believe everything they have done or have not done since even before the GFC has been calculated. If it wasn't then they have proven themselves to be the most incompetent powerful entity on the planet (besides government). Either way the FED is a failed experiment, if it be due to incompetence or crude and nefarious economic engineering practices. I think they want to own it all. Much like central banks have 90% of third world nations in their pockets already.

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    In and out burgers starting wage $19.00-$22.00 in CO and TX.

  5. Chetan Ghasava

    Jeremy your take on battered US Banking stocks will be highly appreciated. Thanks.

  6. Hapa Boy

    Buy one get one free? I never even bought one. Am I a criminal???

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    The Fed and the Government do Not have a Clue what is happening in the Real World. They cater to the upper 10% and Themselves. They always have. Sticking their noses in everything trying to control it.
    End the Fed. Get some Honest people in government and let the Free Market sort things out.

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