The world financial crisis season is open – 03/15/2023 – Vinicius Torres Freire

We are in a financial crisis, a global crisis, of uncertain duration and size. The roll will have some or a lot of influence, from its application in the bank to the government’s economic policy, passing through the Central Bank, to mention only homegrown issues.

It’s stage one of the crisis: Officials say the problems are localized and the system is solid. They put out the fires they see. There may be fire elsewhere.

Prognosis would now, more than ever, be an uninformed guess. The extent of certain damage is unknown. Some markets are obscure (no public data, quotes or quantities). Experts make even wilder assessments.

Frankly, hardly anyone should even know the extent of what is going on.

A week ago, there was no sign of an earthquake or hardly anyone paid attention to the harbingers of trouble.

Until Wednesday of last week, people in the markets were debating whether the US benchmark interest rate would INCREASE by 0.25 or 0.5 percentage point. Until then, the interest rates that define the government’s cost of funding RISE. They started falling on Thursday and have been falling since Monday.

This Wednesday, it was speculated, in words and deeds, whether the Fed, the BC of the USA, will raise the basic rate next Wednesday and how much it will LOWER IT by the end of this 2023.

You can’t trust much even the information that comes from the US interest rate market. According to reports from some banks and reports from the American financial media, business with government bonds is somewhat stuck, choked, due to lack of liquidity (there are not enough offers to buy and sell). And? When there is little money in the market, a few deals can cause large price variations.

There are those who compare this choking now to that of early 2020, which got much worse with the epidemic. It was one of the reasons why the US Central Bank returned to adopt the extreme and heterodox measures that had become common since 2008. In practice, but indirectly, the Fed began to finance the government and certain sectors of the economy.

So far, nothing like that has been done. The US Credit Guarantee Fund saved fat SVB account holders; the Fed offered loans so that banks don’t have to sell their bonds at a sell-off price. But it stopped there, an attempt to circumscribe the crisis of the country’s medium banks. In Europe, Switzerland says it will hold the ends of Credit Suisse, bugs and with a capybara, record run, bad.

The Fed’s decision on next week’s rate is complicated. Inflation is still high, higher than in Brazil. According to the manual, central banks would do their best to contain what, it is said, would be just a liquidity crisis (regular access to funding) and panics. Other agencies would save those who were run over, the crisis would subside and the definition of the basic interest rate would be guided by the inflationary problem.

“Help” will come. Interest rate hikes and credit cycle endings, with more or less bad speculation or bubbles, are always a problem. Without “help”, the system does not stand still, as has been known since at least 1929.

But it’s easy talk to say that the policy of the Fed or the BC of Brazil will be insulated, protected from the roll. All these questions intertwine. What is the effect of even higher interest rates on banks? Is the current panic going to cause crashes, a standstill in the so-called real economy?

The BC of Brazil, which decides what to do with the Selic next week, will face a similar problem, on a different scale. Perhaps it will have the help of the Ministry of Finance, which can present a good plan for expenses and debt, which would be a relief for the crisis here in this corner of the world.

We didn’t need this anymore.

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