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Prioritizing Your Long-Term Retirement Savings

Jake takes the opportunity to walk through the first of a two-part series on how to structure and prioritize your long-term retirement savings.

Prioritizing Your Long-Term Retirement Savings


  1. Equity Markets – rose this week with U.S. stocks (S&P 500) up 1.46% while international stocks (EAFE) gained 2.44%

  2. Fixed Income Markets – also saw gains this week with investment grade bonds (AGG) up 0.66% and high yield bonds (JNK) returning 0.37%

  3. Fed Continues Hike – Despite speculation that the Federal Reserve would pause their rate hike path on the heels of recent banking sector uncertainty, they announced a 0.25% increase this week. While Fed Chair Powell assured that regulators’ actions meant “all depositors’ savings are safe”, Treasury Secretary Yellen implied that regulators are not looking to provide “blanket” deposit insurance. With these comments investors are now pricing in any type of monetary easing not occurring until 2024.

  4. FDIC Insurance – U.S. officials, at the urge of regional banks nation-wide, are currently exploring options for a temporary expansion of the Federal Deposit Insurance Corp. (FDIC) coverage beyond the current limit of $250,000. While the Treasury Department has stressed that they do not see this as a necessary action, they are reviewing if Federal Regulators have the ability to assume emergency authority without formal consent from a divided Congress.

  5. Key Insight – [VIDEO] Jake takes the opportunity to walk through the first of a two-part series on how to structure and prioritize your long-term retirement savings. [ARTICLE] We highlight an article written this week by Chief Economist Brian Wesbury of First Trust discussing both the Fed and regulators roles in the financial system at large.



As we move into the third week of concerns over the perceived/real, overstated/underreported banking crisis, one thing is clear. The Federal Reserve, lawmakers and regulators are certainly playing an even greater role in the Banking system at large, and the implications have been far reaching. We are using an article written this week by the Chief Economist of First Trust, Brian Wesbury and his counterpart, Deputy Chief Economist, Robert Stein. Below they will walk you through the history of the government’s role in our financial system and how that has played out over time in the banking sector.

Have a great weekend,

Jake and the team at TEN Capital


Heading Toward a National Bank?

Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist

Date: 3/20/2023

The late great Supreme Court Justice Antonin Scalia was often in dissent in key legal cases during his long career. Almost thirty years ago, he wrote that “Day by day, case by case, the Supreme Court is busy designing a Constitution for a country I do not recognize.” This quote comes to mind because it seems that crisis by crisis – the Federal Reserve, lawmakers, and regulators – are busy designing a financial system that looks a great deal like a national bank.

We aren’t calling this a hidden political conspiracy, nor do we believe there are some sort of puppet-masters pulling the strings behind the scenes. We are not wearing tin foil hats. What we are asserting is that the more the government tries to take risk out of the financial system, the more they are moving the country in the direction of a national bank, whether intentionally or not.

After the absolutely awful monetary policy of the 1970s, and the Fed’s fight against the inflation that it caused, S&L’s and banks failed across the country. One regulatory response to this mess was risk-based capital rules. Different loans or bonds had different capital requirements based on “riskiness.” Included with this was a much lower capital requirement on Treasury debt. This worked fine as long as interest rates were falling, but clearly doesn’t make sense when rates are rising. Banks had an incentive to hold more Treasury debt, which subsidized government borrowing and encouraged more spending.

Then came the bailout of Long-Term Capital Management (LTCM) in the late 1990s, which showed that policymakers considered some financial firms, whether regulated or not, too big or too intertwined with other institutions to be allowed to fail without government intervention.

Then the Financial Panic of 2008 caused massive changes in our monetary and banking system. These changes included a huge increase in the size of the Fed, the Fed paying banks interest on reserves, extremely low short-term interest rates for an extraordinary period of time, and even more stringent regulations on banks.

Few people talk about the extent of these changes, or even focus on them. But, before the Panic of 2008 the Fed had total assets of about $875 billion; that’s “billion”, with a “B.” As of Wednesday last week, its assets were around $8.6 trillion; that’s “trillion,” with a “T.” The Fed increased its balance sheet by buying Treasury debt, which allowed government spending to soar. The Fed also held interest rates artificially low, making that increased spending cost less.

Meanwhile, the Fed started paying banks interest on reserves. At first, this policy didn’t mean much; after all, banks were only earning 0.25% per year on the reserves. But now that banks are earnings 4.65%, it’s a much bigger deal. In fact, given the increase in short-term rates in the past fifteen months, the Fed is now paying banks more in interest than it earns on its bonds.

Banks own about $3 trillion in reserves on which the Fed pays interest. So, if short-term rates reach 5%, banks could earn about $150 billion per year. And what do the banks have to do to earn that money? Nothing; literally, nothing. Just sit around, keep the reserves on their books, and collect “rent.” Think how the public and lawmakers will react when that becomes more widely understood.

And now think about the implications of the recent failures and rescues of Silicon Valley Bank, Signature, and First Republic. In spite of all the new bank regulations, and a massive Fed balance sheet that supposedly protects the system, banks are failing.

Now the government has stepped in and, in effect, guaranteed all FDIC-insured deposit accounts no matter the size. Adding to the perverse incentives, the Fed is valuing government sector debt at par value for collateral, even when that debt is trading at a discount. The same treatment is not being extended to private debt, another special for public sector entities. And as depositors now know they’re protected, they will seek the highest deposit rates no matter the riskiness of their bank, while the banks’ managers generate outsized earnings until they go bust, at which time they’ll get rescued if they play the political game of supporting the right causes. And if banks instead remain unsafe, deposits will flee to the very largest institutions, deemed “too big to fail.”

But that system is not sustainable. If taxpayers are losing money, many of them will want the government to have more control, not less. And if capital is already being allocated for political reasons, there will be calls to just cut out the “private sector” middlemen.

There is time to short-circuit this process and change direction. But, if there’s one thing true about government, they never let a crisis go to waste. Unfortunately, with each new crisis, the window of opportunity to act grows narrower.


Data points this week included:

  • U.S. Jobless Claims – initial claims fell by 1,000 last week for a total of 191,000 and 7,000 below expectations. Continuing claims rose by 10,000 for a total of 1.694 million.

  • U.S. New Home Sales – rose 1.1% in February to an annualized rate of 640,000, the highest level since August but below expectations. The median sale price came in at $438,200 with the average sale price at $498,700.

  • U.S. Existing Home Sales – rose 14.5% in February to an annualized rate of 4.58 million and snapping 12 consecutive months of decline. This marks the largest monthly increase since July 2020.

  • U.K. Retail Sales – saw an unexpected surge of +1.2% in February and an upward revision to January’s figure. Retail sales for the country have no returned to February 2020 pre-coronavirus pandemic levels.

  • U.S. Durable Goods Orders – fell by 1% in February despite expectations for a 0.6% increase. Transportation equipment had the largest impact on the decline, down 2.8% for the month.

  • U.S. Composite PMI – expanded to 53.3 in March for the fastest expansion in private-sector activity since May. This now marks four consecutive months of growth.

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