John M Hyre III

I am presenting an advanced workshop on taxation & asset protection for REI, live, in Ft Worth on October 25th & 26th. There shall be lots of time for Q&A off-the-clock (instead of $1,000 per hour) during the meeting. Seating is limited to 50 to maintain “flow”.

The room block expires on October 1. If you intend to use it, I’d sign up now.

For more details on the content, location, etc., please see

Register for October 25-26 2023 Workshop Real Estate Professional Status. Worth Millions in tax savings to some of you, the IRS is auditing it a lot. How the IRS nails people who think “I got it”. So many REI think they qualify – and fail. Hint “RE is all I do, I qualify as a matter of common sense, done!” is NOT good enough.

Enablers: Looking to get as many of the Elijah Craig Barrel Proof, Version C923 ("ECBP C923) as I can get at $80 or less. This sounds like an epic bottle and very well-priced for what it is. Happy to reimburse via Venmo, etc. It'll fly off the shelves. It'll also be available at the Heaven Hill gift shop in Bardstown and the Evan Williams one in Louisville.

The 2024 Advanced Strategies Conference shall be on Saturday & Sunday, January 20th & 21st, at the Atlanta Airport Marriott. Please mark your calendars!

I shall send out a summary of the content in a day or two, still mulling over a few of the topics. If you desire a certain topic, now is the time to mention it!

This class shall be in-person only & neither recorded nor virtual.

Reminder: I am presenting an Advanced Taxation of RE Class in Ft Worth this October 25th & 26th (right after Mike Hambright’s Investor Fuel Mastermind). There shall be LOTS of Q&A and open discussion, in addition to my presentation of the listed topics. This class is limited to 50 seats to ensure “flow” of discussion. For more information please see the link in the first comment.

Had a little trivial fun.

A bourbon/rye buddy of mine spends some time online looking for deals to scoop. He found one in Greenville, SC. Two Whistepig Piggy Banks for $220 each (you can Google what they sell for at FMV). He knows I have Enablers for my Bad Habit everywhere, so he let me know about the find. I had the good fortune of having an Enabler in Greenville, and quite close to the store - I don't like to cause much hassle for people who are Enabling and getting little other than perverse satisfaction in return. Well, that, and I'm more likely to take them as paying clients should they need me. I take very few these days, what with limited bandwidth & all. I tend to favor Inner Circle members & Enablers in that regard.

So Enabler #1 picks up the 2 bottles. Another noble Enabler happened to be driving through. So now the bottles are in Atlanta, the 1st step in the logistics chain To The North.
I normally buy to drink (alone and with friends, got enough for at least a decade of that). Sometimes I buy to trade - bourbon bottles are like inebriating, ingestible baseball (Pokemon?) cards. I rarely buy anything I won't drink, even to trade.

This was my first buy to sell. The rye in the bottle is not worth $220, much less what it'll sell for. So Enablers will slowly cart or fly it northward, ultimately to Chicago, with stops likely in TN, KY, OH & IN. It'll go to auction in Chicago, the first time for that as well. It's not about the $$$ - if that were the case, I'd have billed for 15 minutes or so and achieved a better & more efficient economic result.

Such are hobbies. Fun!

My buddy who found them bought one of the two. He is happy. Happy buddies - and especially happy bourbon buddies who help find nice bottles - are a good thing.

Other Enablers have entered various lotteries on my behalf. Got a few nice bottles that way, especially in OH, KY, and AL.

Just plain fun. That, and I have some very nice sips. Generally 2 oz neat in a Glencairn at 4 pm. Yum!

Silly thing, I know. And what a wonderful (quite small in the scheme of) thing(s) to be grateful for, the ability to seriously engage in trivia. Totally a First World Benefit.

Advanced Taxation & Asset Protection Seminar for Real Estate Investors in Ft. Worth, TX, October 25 - 26. LOTS of Q&A and open discussion.
This is the time to ask questions at "Not $1,000/hour".
50 seats to keep the discussion manageable.
Please see the first comment for details. Please share! Those of you who know me understand just how much $$$ I can save for REI. My job is to aggressively & legally help you keep what's yours.
https://taxreduction.kartra.com/page/E4Z1227?fbclid=IwAR2tKpVCs72aYjmqQzuOMpFZqdBrq-5xECcCk3hq8B15NxfXvevi8dwRXp0

Register for October 25-26 2023 Workshop Real Estate Professional Status. Worth Millions in tax savings to some of you, the IRS is auditing it a lot. How the IRS nails people who think “I got it”. So many REI think they qualify – and fail. Hint “RE is all I do, I qualify as a matter of common sense, done!” is NOT good enough.

US Media & Schools: Dear Soviets, hold my beer.

"Half of writing history is hiding the truth." — Malcolm Reynolds

An excellent Mauldin article on inflation, up-to-date.

A Skip, Not a Stop A year ago, the US Consumer Price Index was rising at an almost 9% annual rate. The Federal Reserve was trying to change that trend with tighter policy. But it wasn’t just the Fed. All of us—businesses, consumers, everyone—responded to the pain.

I am not a huge Trump fan (Yes, yes, I know. He did some great things. Sorry, but he's his own worst enemy - and that's saying something given the collection of enemies he's amassed).

But.

He certainly has gotten the press, the Establishment, and wannabe dictators to show their true colors. From TGIF (Bari Weiss):

"Biden had made a promise about Trump in 2022: “[W]e just have to demonstrate that he will not take power by—if we—if he does run. I’m making sure he, under legitimate efforts of our Constitution, does not become the next President again.” That quote is going viral again now, and the press is freaking out adding fact checks (it’s FALSE, the AP says, because Biden said that last year!), but he definitely said it."

That there is wannabe dictator stuff. I'm not much of a Tucker Carlson fan. But he NAILED it on his 4th new episode. Actions speak louder than words (the endless & unprecedented persecution of Trump, passing law mostly "not through the legislature", etc.) but Biden, among others, even gave us the words. I believe him (this time).

Dictator wannabe.

A brilliant, brilliant article.

Why Intellectuals Hate Al Czervik "Power, by which I mean political power, is always zero-sum: if the intellectual elite has it, you and I don’t have it." ~ Michael Munger

From Abe Greenwald and spot on:

"Everyone lies now. Sorry, but it's true. Trump ushered in, or hastened, an age of bipartisan, institutional, cross-cultural fabrication. And we're talking whoppers here. Public-health officials lied about the necessity of school closures and the efficacy of masks (two opposite mask lies at different times). The bureaucratic and media elite lied about the likely origins of Covid 19. The press lied about the "peaceful" nature of BLM riots. Twitter lied about its policies. The entire medical and psychological establishment lies about the differences between male and female.

It's not just the establishment that lies. In response to these "official" lies, anti-establishment types tell lies of their own. They lie about the safety of vaccines. They lie about Russian and Ukrainian deaths in Putin's war. They lie about January 6 being an inside job.

And we can't forget Joe Biden, who lies when he whispers and lies when he shouts. The president lies about everything from his policy record to his relationship with his son to his academic credentials. Biden has told three different lies about being arrested. In one, it was for civil-rights activism. In another, it was for trying to see Nelson Mandela. In yet another, it was for sneaking into a women's dorm.

Lying isn't special. It's the default mode of public debate in the 21st century. If Trump does it more than anyone else - and he does - it shows how well-suited he is to his time and place."

I'll add: Manners also matter a great deal. They are in dramatic decline, to say the least.

Soddom, Gomorrah, eat your amateur hearts out.

Surprise, surprise.

IRS Supervisor Claims Hunter Biden Investigation Is Being Mishandled, Requests Whistleblower Protection | National Review The agent purportedly can ‘contradict sworn testimony to Congress by a senior political appointee.’

From today's WSJ, from a student surveyed about the job market:

"Forty-one percent of the construction industry will retire before 2031, and the resulting scarcity will produce untoward wages for new workers. A union carpenter in the Midwest can expect to be compensated around $55 an hour once he becomes a journeyman. This is significantly higher than the $28 an hour I will make as a public defender when I leave law school.

I worked construction before and during college, and I do not believe I am above manual work. But the facts are nonetheless remarkable. The median starting salary of those with a bachelor’s degree is generally around $55,000. That is more or less what you would make the second you step into the union. By the time you’re a journeyman, you would make nearly six figures—far more than your peers with bachelor’s degrees. The job market isn’t weak. The privileged class surrounding our nation’s universities is weak. Shuffle down to the union hall, preppy."

Last for Call for SDIRA/401k Class + 2 Days Off in Sunny Puerto Rico.

Just a reminder and a link in the first comment, that is all.

And yes, you would be shocked at how many people do sign up at the last minute!

From an article in today's Wall Street Journal:

"If we are losing [our civilization and against the likes of China], it is because we are losing our soul, our sense of purpose as a society, our identity as a civilization. We in the West are in the grip of an ideology that disowns our genius, denounces our success, disdains merit, elevates victimhood, embraces societal self-loathing and enforces it all in a web of exclusionary and authoritarian rules, large and small."

The title of the article: If Western Civilization Dies, Put It Down as a Su***de.

Question: If I were to do a bookkeeping series for REI....is there interest? It'd be Zoom with Charts of Accounts and the ability to ask quesions. What should I cover besides:

- Rentals
- Depreciation (including Cost Seg style)
- Buy-Sell
- Assignments
- Sub2
- Lease Option
- Master/Lease aka Sandwich Lease
- Sale on note

What platform? QuickBooks presumably? Others?

Thinking of doing it as a Zoom series split into parts, perhaps 10 one-hour installments, once per week, recorded.

Feedback welcome.

Flights to beautiful San Juan, Puerto Rico are nice & cheap right now (see photos for some prices).

Come in Thursday, April 20th. Relax.

Learn all about Self-Directed IRA/401k/HAS/CESA accounts all day Friday 21st. With lots of Q&A at “not $1,000 per hour”.

Take the weekend off, enjoy the island – tax deductible.

More Self-Directed IRA/401k learning & Q&A all day Monday 24th.

Return home to and act on what you have learned to save massive tax dollars.

https://taxreduction.kartra.com/page/PR-SDIRA-Apr2023

Alan Bragg's goal is for Trump to be the Republican nominee.

Because he's the only candidate Democrats can beat as they demonstrated in 2020 and again in 2022 (via his proxies).

Just as the Left has its Trump Derangement Syndrome, the Trump fanatics fail to see Trump for what he is. Both phenomena are driven by raw, seething anger.

Raw, seething anger has always struck me as an excellent & recommended tool for decision-making, especially for really important decisions. That was sarcasm for the oblivious sorts out there.

Trumpies: Whine all you want about stolen elections that you cannot prove were stolen. Trump could have easily won (even with cheating by Democrats) and chose not to do so - it was more important for "Trump to be Trump", the ultimate egoist. His people lost again in 2022. And he will almost certainly lose in 2024.

Doesn't matter. You are ANGRY.

Just like the TDS people.

PS to the non-Trump Republicans: You won't show up for the primaries. Have to work another hour, get your hair done, do some yoga, whatever. Then you'll wonder how Trump won the nomination. Perhaps you need a bit more energy, if not anger.

Curious.
How many of my FB friends are pretty seriously into bourbon?

It is a fun hobby.

Wisconsin Department of Revenue Audit, Help Needed.

I know someone who is being audited by WI DoR. Hiring me would not make sense. Does anyone know an attorney or CPA who is good at dealing with WI DOR? From what I can tell the auditor is highly unreasonable.

I post this information repeatedly. I hope you are paying attention.

It is increasingly common for IRS examiners (especially younger ones) to demand EVERY single receipt AND bank statement for EVERY single dollar of expenses AND Cost of Goods Sold or disallow ALL expenses & CoGS on your return.

It's bu****it. Unfortunately, it's also legal.

1) Pay for EVERYTHING via credit card, debit card, etc. NOT CASH. Download and store those statements in multiple places. Make sure they match your Quick Books or other accounting software.

2) Keep EVERY single receipt electronically & backed up multiple times. Have ALL receipts emailed to ONE email address. In the few cases where the receipt is not emailable, take a picture and store it electronically in multiple places. Don't take the time to sort them. In the event of an audit, pay a foreign VA to do that.

This phenomenon strikes me as a combination of "We have power", "we are lazy & unfireable but can make you work", and "we are Woke and do not like people whom we think have money". Be ready for it.

I have seen it with multiple clients in & since 2022, especially if the IRS examiner is on the younger side. And I'm hearing the same thing from other tax pros.

“Expert” Promotor of Gold to IRAs & 401ks Needs to Do Some Homework

Goldline heavily markets precious metals to IRAs & 401ks. I’d say their marketing is better than their awareness of the rules, especially really important rules such as Prohibited Transactions. They are not alone. Which means YOU need to know the rules, cold. Or suffer disaster.

Here’s a promotional email they sent:

“RECEIVE 6% IN PROMOTIONAL GOLD AND/OR SILVER AT NO CHARGE delivered directly to you with a qualifying IRA purchase for your self-directed IRA. Funds from a qualified retirement account such as an old 401k, Traditional or Roth IRA may be used to diversify with precious metals. A popular form of retirement protection is done through self-directed precious metals IRA's. Call Goldline for information to see if diversifying up to 20% of your retirement portfolio in precious metals may be a wise and prudent choice for you. You may qualify for the promotional metals whether you are adding to your existing IRA account or opening a new one.”

Prohibited Transactions cause penalties in retirement accounts, up to and including the destruction of the account. That’s some serious pain! One type of Prohibited Transaction, paraphrased by moi for ease of understanding: If you use retirement account assets for your own personal benefit (no matter how small or indirect the personal benefit), you have a Prohibited Transaction.

Is buying gold with your retirement account and getting some “free” gold sent *directly to you personally* (their words, not mine) a “personal benefit” generated from the use of retirement plan assets?

Um, Jaaaaaaaa. No brainer. Past "Naughty". Bad. Very Bad.

And not surprising. After all, it was a gold company that advised “Hold your IRA’s gold in your basement, no problem” in spite of lots of tax pros saying “Major problem!”. The result? The McNulty case that has caused major issues in almost all IRA-owned “checkbook LLCs”. Thanks, gold promotors!

So Goldline is probably causing PT’s without knowing it. I’m being generous and applying Hanlon’s Razor here…

PS: They wrote “Call Goldline for information to see if diversifying up to 20% of your retirement portfolio in precious metals may be a wise and prudent choice for you”. Anyone wanna take bets as to their answer to that question when you call in?

PPS: I prefer that you hold gold outside of your retirement accounts. The usual idea with physical gold is to preserve wealth in case of extreme events. Best to have it physically in hand and portable. And best to use the IRA for what it’s good at: Sheltering actual income. That’s an “in general” observation, YMMV.

PPPS: Most “Checkbook LLC” creators/promotors are no better than gold promotors when it comes to “We value getting your money over not screwing up your retirement account”.

PPPS: I am teaching a detailed class SDIRA/401k in sunny Puerto Rico Friday, April 21 & Monday, April 24. The weekend is yours to enjoy, nice & tax-deductible. The class covers these sorts of rules in detail. And includes LOTS of Q&A time, off-the-clock, instead of at my usual $1,000 per hour. See you there? Because if you do not know these rules….”they” won’t either.

Invest $100k in the taxable world, end up with $1M after 20 years.

Invest the same $100k via any Roth-Style Account (401k, IRA, HSA, etc.) in EXACTLY the same manner and end up with $4M after 20 years. AND the income on the $4M is tax-free, unlike the income on the $1M above.

Functional result: 5x the income from changing one variable, which is Investing via Roth vs. "not Roth".

Of course, people complain that "I can only put $6,000 or $20,000 or whatever per year into a Roth". So not true. There are many legitimate (and illegitimate!) ways to stuff a Roth.

I put an XL (you can fiddle with the numbers if you do not like mine) on my website showing exactly how & why a Roth results in 5x results. There's also a 12-minute video for those who are not too ADHD to watch it all (which will rule out a lot of entrepreneurs).

When presenting, I have found that the XL nicely demonstrates the massive power of Roths and gets people motivated to learn how to use them - which is admittedly more complicated than rational beings would like.

Great results require a certain amount of work.

Once you are on the website, scroll down a notch and there's the video & the XL.

John Hyre

I have a client in Corpus Christi, TX.

She is self-employed and recently moved to the US after a long while in Canada. She is looking to acquire a personal residence and has one picked, so there is a need for speed.

Does anyone know a bank/loan broker/etc who works with self-employed individuals in that geographic area? She has been frustrated with regular banks and the "How can you not have W-2s" issues, along with the likely effect of a lack of US presence for some time (e.g., no US credit?).

Basically need a lender who can do something other than follow a template. She is a hard-money lender and is interested in single-digit rates (e.g., from a bank) and not private money/HML rates.

Thanks!

Hillarious. The more things change....

Robin Williams' Wall Street Jokes Make Charlie Rose Laugh Hysterically Aug. 12 (Bloomberg) -- Actor Robin Williams died Tuesday at age 63 of suspected su***de. This is a clip of Charlie Rose's interview with Williams from 2009 w...

John Mauldin wrote an outstanding article on regulatory incompetence. In this case about the Fed, the arrogant fools.

The same people who are raising interest rates also say that low-rate treasuries are the "safest" assets for banks to hold - and did not reconcile the two. This is the *same* organization!

Some key quotes taken from this article, some of which were in turn taken from the WSJ.

“Even if midsize banks had been subjected to the same scrutiny as large banks, it isn’t clear that stress testing them would have led to changes that would have prevented failure. Why? Because the tests asked the wrong questions."

Incompetence.

Here's the key: "A reasonable observer would expect FOMC’s policy objectives to have been embedded in the 2023 Stress Test Scenarios. But by February 2023 [!!!!], the Fed still hadn’t changed its regulations to match its monetary policy."

The same organization that changed the game (raising rates on Treasuries) didn't change its regulation of banks (Treasuries are the safest assets for banks) to reflect the game it changed!

"Do the Fed’s bank regulators not at least talk with or read about what their monetary policy brethren are doing?"

Clearly not. That would require competence.

"Rates have been rising for a year! The regulatory executives who somehow overlooked this should be asked to polish their resumes and seek other pastures."

There are *never* consequence for these people. They cannot be and never are fired. That is a major, major problem in our society at all levels: Lack of accontability.

"Passing more regulations and laws doesn’t help if regulators are incompetent."

Count on Democrats and perhaps some on the populist Right to propose exactly that. Let's do more of the same thing and hope for different results! Where's Einstein when you need him?

"There were more than enough laws to have prevented this. Seriously, firing senior management at the failed banks is just a start in cleaning house."

Indeed. Also not gonna happen. They call the Deep State "Deep" for a reason.

Mauldin makes the point that small community banks probably will not get the same bailout - not "too big to fail", you see. And that's in spite of those banks serving certain essential needs that larger banks avoid, as he also points out.

He does make a good point: What sort of sane person keep so much in cash at one place? Haven't they heard on money market accounts that can be quickly converted to cash?

Finally: Spare me the populist right/Trumpy/QAnon/Russian disinfo (more of which in another post, it is quite real and evidently quite popular in some quarters, partcularly where the word "Ukraine" comes up; no, it did not sway the 2016 election, and no, Trump was not a Russian stooge [unlike say, Hillary Clinton] - but it has been a real thing for a long time and remains so now) conspiracy theories.

A helpful guide for conspiracy theorists & cranks:

Assume incompetence where malice is not clearly proved (Hanlon's Razor).

To understand the bureaucrats, the "experts", and their consistent failures, read Friedrich Hayek & The Fatal Conceit - it explains the Fed and its many, many predecessors in all areas of "regulation" and "planning".

Add a touch of Lord Acton ("Power corrupts, absolute power corrupts absolutely") add it all makes sense. Awful sense, but sense nonetheless.

All without the need for elaborate, improbable fantasies & theories.

Mauldin's article is in the first comment.

Posted by friend Sean King. Spot on, in detail. Worth reading slowly & carefully.

I mean, if our Masters are going to be our Masters on the theory that we are too stupid/evil/etc. to run our own lives, they could at least be good at the whole Master thing.

What Sean wrote:

Banking Crisis Primer

How we got here:

1. The Fed printed insane and historically unprecedented levels of money during the COVID-19 crisis, and kept interest rates near zero, all while *repeatedly* insisting that doing so would not create inflation.

2. All that sudden liquidity had to go somewhere, and much of it ended up in banks. Said another way, bank deposits skyrocketed. In the case of Silicon Valley Bank, they *doubled* over the course of about a year.

3. Deposits rose so quickly that many banks couldn’t loan out the money quickly enough. So what did they do with the excess? They chased yields and bought billions and billions and billions of mid-to-long term bonds. In short, they engaged in a “carry trade”.

4. The Fed actively encouraged this bond buying by repeatedly promising banks and the markets (via its formal guidance) that it wouldn’t start raising rates until at least 2024 (rising rates are bad for bondholders, so this promise was a material inducement for banks to buy bonds). Powell even said explicitly that rising inflation alone wouldn’t be sufficient to cause the Fed to raise rates in this environment.

5. But then (and rather predictably) all that money printing combined with totally predictable supply chain disruptions caused inflation to spike to levels *higher* than the 1980s (when measured as we did back then). Shocker! 🙄.

6. Panicking, the Dems successfully persuaded the Fed in early 2022 to go “all in” to reduce inflation before the elections. So the Fed broke its promise and started draining liquidity (money) out of the system, fully two years before it promised.

7. But not only did it drain money out of the system, it did so at the *fastest rate in history* via a combination of (1) selling billions and billions of its assets for cash (which it then took out of circulation) and (2) raising interest rates at the fastest pace in history.

8. And in a total about face, the Fed promised that it would not *stop* raising rates until inflation was tamed.
9. Rates rising at the fastest pace in history had a devastating effect on bondholders who had previously relied on the Fed’s guidance, most especially the banks who were induced to purchase all those bonds. Bond market losses in 2022 were the worst in history! Worse than any single year of the Great Depression. Worse than any single year of the Great Inflation of the 70s/80s.

10. The losses were staggering. If banks had reported those losses in their earnings, they would have in many cases wiped out *years* worth of prior earnings. Their stocks would have collapsed. Collapsing stock prices would have triggered insolvency concerns.

11. So, many banks simply recharacterized a large part of their bond portfolios from marketable securities to securities intended to be “held to maturity”. Under somewhat arcane accounting rules, this allowed the banks to avoid booking the losses unless/until they actually *sold* the underlying bond. So long as they held them to maturity, no loss would have to be booked. This accounting gimmick kept banks looking wildly profitable even though they were actually (in some cases) taking *huge* losses.

12. The banks looked wildly profitable because, in addition to not having to book all those massive losses on their bond portfolios, they were earning interest rates on their bond and loan porfolios that were many percentage points higher than what they were paying on deposits, one of the widest spreads in history. The system was flooded with so much liquidity for so long that banks didn’t have to compete (by raising rates) to gain huge deposits inflows. They were (for a while) being fed with a fire hose while still offering zero interest. So while banks continued to pay essentially zero on most deposits (despite the rapidly rising rates), they were investing in bonds yielding many percentage points above that, making them look wildly profitable.

13. And then a couple things happened. First, big money started moving money out of banks (which refused to raise their rates and in some cases couldn’t afford to) and into money market accounts or other instruments that offered significantly higher yields. This outflow was large and growing. So large, in fact, that many banks had to sell some their bond porfolios to cover these outflows.

14. But under the accounting rules, selling the bonds triggers recognition of any previously disguised/ignored/unrecognized losses. So as banks were forced to sell a lot of these bonds to cover the outflows of their clients moving money to places offering better yields, their earnings started taking massive hits. In the case of Silicon Valley Bank, for example, the losses it sustained over just a few weeks wiped out *years* worth of profits.

15. Because these losses were being officially recognized for accounting purposes as bonds were being sold, the stock market reacted. Prices of bank stocks began to collapse.

16. The only way for banks (especially regional ones) to stem the outflow and stop the bleeding is to raise the rates they are presently paying on deposits to something more competitive with current money market rates. But doing that would *also* destroy their profitability (and jeopardize their stock values further) because it would reduce (or in some cases eliminate) the spread between what they were earning on their bonds/loans and what they were now paying on their deposits. At a minimum this greatly reduces their profits. At worst it puts some of them deeply into the red. Either way, it’s not an acceptable alternative.

17. Late last week, Big Money finally recognized what I just said in the last paragraph. It recognized that the Fed had entirely destroyed the business model of these regional banks. Money would (and will) continue to flow out of them, especially regional ones, and into higher yielding products unless/until (1) banks raise their rates on deposits (which destroys profitability and risks their solvency), (2) the banks go defunct (as a result of enduring massive losses on their bond portfolios) to cover these persistent outflows, or (3) the Fed cries “uncle”, agrees to backstop the banks (via explicit or implicit money printing) and gets rates low enough that money markets, etc. stop syphoning off bank deposits.

18. Once it became obvious that the business model of regional banks had been destroyed by the Fed (and could only maybe be saved by a Fed pivot), Big Money decided to call the Feds bluff. Fearing that these regional banks might fail and uninsured depositors would love everything, they began moving their money away from these banks at a faster and faster rate.

19. This of course led to banks selling more and more bonds to cover these outflows, triggering more losses which triggered more panic which triggered more outflows which triggered more losses. A classic bank run ensued.

20. Over this past weekend, the Fed blinked. It agreed to allow banks to borrow money (indirectly) from the Fed by posting their bond porfolios as collateral for the loan. However the Fed agreed to value those porfolios at *par* (their original face value) and *not* at their current (much lower) market value.

21. This effectively means that the Fed agreed for the first time in history to make *unsecured* loans to banks so that they can cover these outflows without having to sell their bond porfolios and trigger loss recognition. And that effectively means that the Fed has resumed money printing (though in a back door way).

22. Many thought that would be enough to end concerns that bank would fail and so end the bank runs. But yesterday bank stock were way down again even *despite* this new “promise” from the Fed.

23. Why? Because the Fed’s promise to provide liquidity (if it can even be trusted to do so at this point) does nothing to fix the underlying problem that customers can earn more money by placing their cash in money market funds or other vehicles rather than with banks. And until that problem is resolved, outflows will continue relentless (though perhaps at a less panicked pace). Many regional banks won’t be able to survive sustained outflows like that.

24. Which means that the only real solution is for the Fed to give up on trying to tame inflation by steepening the yield curve (letting short term rates fall, and by a lot).

25. Which means…more inflation is likely coming. Like…much more. It’s either that or else let the whole financial structure of our country fall to the ground in a deflationary collapse. I just don’t think the Fed will intentionally do that latter (though it may well unintentionally cause it with its arrogance and stupidity).