Key Points

  • Ex-Coinbase executive Balaji Srinivasan has called out the US Federal Reserve for lying that the US banking system still stands strong.
  • Balaji is motivated by the fact that the US Federal Reserve claimed it would only use around $25B for Exchange Stabilization Fund, only to have spent over $102.7 billion by this week.

The US Federal Reserve is under fire again for lying about the general outlook of the US banking system to ‘assure’ investors and citizens that there are no risks. However, the data that is coming forward isn’t all merry. Observers have noticed that the authority is spending more money than previously projected to bail out financial institutions.

EX Coinbase Exec. Balaji calls out US Federal Reserve for lying publicly

The US banking system has been shaken after a recent series of collapses started by the Silicon Valley Bank. Since then, the authorities in charge, like the US Federal Reserve and President Biden, have come out to defend, saying that the banking system stands strong and will weather the misfortunes it has been facing. 

They assured investors that all is good and minimal risks are associated with the banking system. However, the word from these agencies and authorities does not match market data and the efforts they put behind the curtains. For instance, the U.S. has been facing high inflation rates; though the US Federal Reserve has managed to gain a bit of control in the battle, more still needs to be done.

It has raised interest rates to 5 to 5.25%, the highest hike since the 2008 financial sector meltdown. Though US Federal Reserve Chair Jerome Powell paused June 2023’s rates hike, he says it is still necessary to raise it at least twice this year. As such, we can see that more needs to be done to harmonize the US financial sector.

In other news, the US is only weeks away from passing the Fiscal Responsibility Act, a bill passed to ‘save’ the US from unfathomable financial consequences as it could have defaulted on its debt. It had breached its debt ceiling as its spending continually eclipses its earning. If it defaulted, over 8 million people would go jobless, with thousands of stocks trading in the red and making huge losses.

This was evaded by only lifting the debt ceiling, which shows that the financial problem still lies underneath. Financial Analyst Joe Consorti has noticed that the risk-taking across US markets is rising as more liquidity is drawn from the US Federal Reserve emergency loan program. 

“As liquidity is drawn from the Fed’s emergency loan program, risk-taking rises across markets. There’s a near 1:1 correlation between the usage of BTFP (seen in the BTFP interest rate rising) and the S&P 500:.”

The bank Term Funding Program (BTFP) is a new lending facility launched in March in response to the Silicon Valley Bank. It has risen above the $100B mark while the US Federal Reserve sat back and ‘assured’ citizens that it would only range around $25B. Its immense growth shows that the US banking system is contracting. Wildly, it is projected to continue growing.

Keep watching Fintech Express for more macro-finance updates and other Fintech-related developments.