What’s the difference between giving money away or loaning money with no intention of getting it back?

There isn’t.

Here’s how it works at the government level:

The Treasury “borrows” money by selling Treasury Bonds to the market. The Federal Reserve bank buys these Treasuries – with printed money – from banks that purchased the Treasuries on the market. The Fed then returns the interest of the bonds to the U.S. Treasury.

This is sold to us as being something other than just printing money. It’s not and it’s just as inflationary.

With Silicon Valley Bank (SVB), they put a new twist on it.

SVB had billions of older Treasury bonds that were losing money in a big way. For instance, a 10-year bond from 2019 only yields about 1% interest. A new bond will give you about 4%. No one in their right mind would pay full value for an old bond.

Except the Federal Reserve Bank.

When the bank got in trouble, the Fed offered to lend money to SVB against the full value of the bonds they held to help the bank.

They basically gave full-price for something worth a fraction as much. SVB had 57% of their investment in old Treasuries. When they got a bank run, they tried to sell the Treasuries on the market, but they couldn’t get much for them.

Fed to the rescue.

When the Fed was involved with the highly inflationary QE in 2020, it was buying hundreds of billions of Treasuries and Mortgage Backed Securities. When Inflation was running rampant, not before, they stopped.

Now we get a word salad about the Fed temporarily loaning against the full value of old Treasury notes that banks have on the books. If the notes were marked to market, they wouldn’t get squat.

There’s no difference between lending with no intention of paying back and giving away money. Both are highly inflationary policies.

The system is FUBAR

Ron