Author: Don Yocham

Right up to that point, stubborn inflation and an economy still showing signs of life were expected to force the Fed to continue its inflation fight. But then something broke.

Each successive crisis or government imperative doubles the cost of bailing out the economy. And each bailout creates more dependence and fragility. It allows unavoidable risks to fester and grow.

This is the setup for the hyperinflationary crack up boom – skyrocketing stock prices alongside skyrocketing inflation – I’ve viewed as inevitable ever since the Federal Reserve abandoned any and all constraints on money supply back in 2008.

Sell those bonds when the price is down, however, and mark-to-market losses eat into the bank’s equity. And given that bank equity typically runs at about 10% of bank assets, equity can get wiped out pretty quick. All it takes is a 10% drop in bond prices to wipe a bank’s equity ledger clean.