Surprise! All that money circled back to the government.
Check out the charts below:
Money supply and deposit curve both jump by $5T in roughly the same time frame.
So, where did all that stimulus for the people end up? In banks.
It does make sense, considering most people keep their money in banks.
BUT, this put a MASSIVE strain on banks’ balance sheets.
$5T of demand deposits – but no one’s borrowing. So what do banks do?
Buy bonds, invest in residential housing through government agencies, and essentially – loan the cash back to the government.
Then the government raised rates, and the tide pulled back, revealing which banks were swimming naked.
In times like these, banks need diligence more than ever.
Do your due diligence. Don’t get caught with your pants down.
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Digging deep on banks is what I do.
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