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Financial Markets at Risk: Impending Giant Credit Crunch Threatens Investor Confidence

Financial Markets at Risk: Impending Giant Credit Crunch Threatens Investor Confidence

During a recent On the Margin podcast, Julian Brigden, co-founder of Macro Intelligence 2 Partners, drew parallels between the current financial situation and a fictional character's overconfidence.

He points out that the belief in a ‘no landing’ or ‘soft landing’ is reminiscent of the character’s overconfidence in his survival.

Brigden’s Warning about Complacency in Financial Markets

Brigden believes people have become complacent, citing the 400 basis points of rate hikes, a strong equity market, and robust business earnings that made people feel invincible.

However, Brigden warns that monetary policy works with a lag and will soon take effect.

Brigden predicts that the markets have not yet felt the full impact of the collapse of SVB and subsequent contagion.

The impact of the collapse of SVB on the crypto banking sector

Banks that were supportive of cryptocurrencies, such as SVB, Silvergate, and Signature, experienced a significant downturn partly due to the sudden increase in Federal Reserve interest rates, resulting in a massive imbalance in their financial statements.

Brigden believes the credit crunch issue is not limited to the crypto banking sector but has affected all market segments. This has put the crypto banking industry in a vulnerable position. It remains to be seen next month whether the true extent of the situation will be revealed.

READ MORE: Bitcoin’s Potential as a Safe Haven Asset: Bloomberg Analyst Shares his Perspective

He says that credit cycles lead the economic cycle and that the idea of not having a credit cycle was ridiculous. Despite the Federal Reserve’s efforts to avoid an impact, Brigden argues that the boost is pumping inflation, and there is no greater proof that fundamentals do not count when it comes to asset prices than COVID.

Brigden’s View on Credit Cycles and the Banking System

Brigden argues that the banking system operates deceptively by lending out more money than it has on hand to repay depositors. When the central bank raises short-term interest rates, and the yield curve flattens, banks struggle to lend money profitably, which decreases their profit margin.

This, in turn, triggers a credit cycle that tightens credit and can lead to a freeze in lending. Banks are deterred from taking on the risk due to insufficient reward, thus tightening the credit cycle.

Brigden believes that the collapse of SVB was already happening before it occurred and that there were leading indicators that predicted it. He warns that it’s still coming.

Alexander Stefanov

Reporter at CoinsPress

Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.

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