As the Fed tightens monetary policy, a banking crisis is historically the first evidence that something is breaking. As noted recently in “Not QE,”
Last week, amid a rash of bank insolvencies, government agencies took action to stem a potential banking crisis. The FDIC, the Treasury, and the Fed issued a Bank Term Lending Program with a $25 billion loan backstop to protect uninsured depositors from the Silicon Valley Bank failure. An orchestrated $30 billion uninsured deposit by eleven major banks into First Republic Bank followed. I suggest those deposits would not occur without Federal Reserve and Treasury assurances.
Banks quickly tapped the program, as shown by the $152 billion surge in borrowings from the Federal Reserve. It is the most significant borrowing in one week since the depths of the Financial Crisis.”
Since last week, that number has surged to almost $300 billion.
Since then, UBS entered into a “shotgun marriage” with Credit Suisse, and the Federal Reserve reopened its dollar swap lines to provide liquidity to foreign banks.
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank announced on March 19 “a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.”
To improve the swap lines’ effectiveness in providing U.S. dollar funding, the central banks currently offering U.S. dollar operations have agreed to increase the frequency of 7-day maturity operations from weekly to daily. These daily operations began on March 20 and will continue at least through the end of April.
Historically, once the Fed opens dollar swap lines, further monetary accommodations follow from rate cuts to “quantitative easing” and other liquidity operations. Of course, such is always in response to a banking crisis, credit-related event, recession, or a combination.
While the “pavlovian response” to a reversal of monetary tightening is to buy risk assets, investors may want to take some caution as recessions tend to follow a banking crisis.
Banking Crisis Cause Recessions
An obvious consequence of a banking crisis is a tightening of lending standards. Given the “lifeblood” of the economy is credit, both consumer and business, the tightening of lending standards reduces that economic flow.
Not surprisingly, when banks tighten lending standards on loans to small, medium, and large firms, liquidity constriction ultimately results in a recessionary drag. Many businesses rely on lines of credit or other facilities to bridge the gap between manufacturing a product or service and collecting revenue.
For example, my investment advisory business provides services to clients for a fee of which we collect one-fourth of the annual fee during each quarterly billing cycle. However, we must meet payroll, rent, and all other expenses daily or weekly. When unexpected expenses arise, we may need to tap a line of credit until the next billing cycle. Such is the case for many firms where there is a delay between the sale of a product or service and the billing cycle and collection.
If lines of credit are withdrawn, businesses must lay off workers, cut expenses, and take other necessary actions. The economic drag intensifies as consumers cut spending, further impacting businesses due to reduced demand. This cycle repeats until the economy slips into a recession.
Currently, liquidity is getting extracted across all forms of credit, from mortgages to auto loans to consumer credit. The current banking crisis is likely the first warning sign of a worsening economic situation.
The last time we saw lending standards contract this much was during the pandemic-driven economic shutdown.
Many investors hope a Fed “pivot” to loosen monetary policy to combat recession risks will be bullish for equities.
Those hopes may be disappointed as recessions initially cause “repricing risk.”
Recessions Cause Repricing Risk
As noted, the bullish expectation is that when the Fed makes a “policy pivot,” such will end the bear market. While that expectation is not wrong, it may not occur as quickly as the bulls expect. When the Fed historically cuts interest rates, such is not the end of equity “bear markets,” but rather the beginning.
Notably, most “bear markets” occur AFTER the Fed’s “policy pivot.”
The reason is that the policy pivot comes with the recognition that something has broken either economically (aka “recession”) or financially (aka “credit event”). When that event occurs, and the Fed initially takes action, the market reprices for lower economic and earnings growth rates.
Forward estimates for earnings remain elevated well above the long-term growth trend. During recessions or other financial or economic events, earnings regularly revert below the long-term growth trend.
A better way to understand this is by looking at the long-term exponential growth trend of earnings. Historically, earnings grow roughly 6 percent from one peak earnings cycle to the next. Deviations above the long-term exponential growth trend are corrected during the economic downturn. That 6 percent peak-to-peak growth rate is derived from the roughly 6 percent annual economic growth. As we showed just recently, and of no surprise, the yearly earnings change is highly correlated to economic growth.
Given that earnings are a function of economic activity, current estimates into year-end are unsustainable if the economy contracts. That deviation above the long-term growth trend is unsustainable in a recessionary environment.
Therefore, given that earnings are a function of economic activity, valuations are an assumption of future earnings. Therefore, asset prices must reprice lower for earnings risk, particularly during a banking crisis.
There are two certainties facing investors.
- The Fed’s rate hikes started a banking crisis that will end in a recession as lending contracts.
- Such will force the Fed to eventually cut rates and restart the next “Quantitative Easing” program.
As noted, the first cut in rates will be the recognition of the recession.
The last rate cut will be the one to buy.
Article cross-posted from The Epoch Times.
Safeguarding Your American Dream: Discover the Power of America First Healthcare
In today’s economy, healthcare costs remain one of the biggest threats to financial stability and family security. Americans work hard to build a better life, yet rising medical expenses can quickly erode savings, force tough trade-offs, and even push families toward debt or bankruptcy. Medical bills continue to rank as the leading cause of personal bankruptcy in the United States, with millions facing underinsurance or unexpected out-of-pocket burdens that no one plans for. Many turn to government-run marketplace plans under the Affordable Care Act, hoping for relief, only to discover that what appears affordable on paper often delivers higher long-term costs, limited real protection, and coverage that may not align with personal values or family needs.
America First Healthcare stands out as a private insurance agency dedicated to helping conservatives and families secure better coverage and better rates through customized, values-aligned options. By conducting free insurance reviews, the agency uncovers hidden gaps in existing policies and connects clients with private alternatives that emphasize personal responsibility, small-government principles, and genuine affordability—often delivering up to 20% savings while providing stronger protection for the American Dream.
The allure of marketplace plans is easy to understand: open enrollment periods, premium tax credits for many households, and the promise of “comprehensive” benefits mandated by law. Yet recent data reveals a different reality, especially after the expiration of enhanced premium subsidies at the end of 2025. Enrollment for 2026 dropped by more than one million people compared to the prior year, with many shifting to lower-tier bronze plans to keep monthly premiums manageable.
These plans feature significantly higher deductibles—averaging around $7,500 nationally—and greater cost-sharing requirements. Families who once paid modest amounts after subsidies now face average premium increases of $65 or more per month, even as they accept plans that leave them responsible for thousands in upfront costs before meaningful coverage kicks in.
High deductibles create a dangerous barrier to care. Studies show that people in such plans are less likely to seek timely treatment for chronic conditions, attend preventive screenings, or fill necessary prescriptions. A seemingly minor illness or injury can balloon into major expenses when patients delay care until problems worsen. For a family of four, a single hospitalization, cancer diagnosis, or unexpected surgery can easily exceed the deductible, triggering coinsurance and out-of-pocket maximums that still leave substantial bills. One recent analysis noted that some proposed changes could push family deductibles toward $31,000 in future years, further exposing households to financial risk.
Beyond the numbers, marketplace plans often carry structural limitations. Coverage for certain critical services may include waiting periods or narrower networks that restrict access to preferred doctors and specialists. Preventive care is required to be covered without cost-sharing, but everything else—lab work, imaging, specialist visits, or ongoing treatment—typically waits until the deductible is met. This reactive model contrasts sharply with the proactive, holistic approach many families prefer, especially those focused on wellness, early intervention, and maintaining health to enjoy life rather than merely reacting to illness.
Values alignment represents another growing concern. Government-influenced plans operate within a framework shaped by federal mandates and political priorities that may not reflect conservative principles of limited government, personal freedom, and ethical stewardship. Families who want to direct their healthcare dollars toward providers and benefits that honor traditional values sometimes find marketplace options feel misaligned, forcing a compromise between affordability and conviction.
Private alternatives, by contrast, offer year-round flexibility without the restrictions of open enrollment windows. Independent agents can shop across a wider range of carriers to design plans tailored to specific family needs—whether that means lower deductibles for frequent medical users, broader provider networks, or add-ons that support wellness and preventive services from day one. Clients frequently report more stable premiums that do not automatically escalate each year, along with genuine cost savings once the full picture of deductibles, copays, and coverage depth is considered.
Take the experience of real families who made the switch. Amanda C. shared that her new plan felt “way better” than what she had through the marketplace. Johnny Y. noted his previous coverage kept increasing annually until he found a more stable private option. Sofia S. expressed delight with her plan and began recommending it to others. These stories echo a common theme: when families move beyond one-size-fits-all government marketplaces, they often discover customized protection that better safeguards both health and finances.
Founder Jordan Sarmiento’s own journey underscores the stakes. In 2021, a six-day hospitalization generated a $95,000 bill. Under a well-structured private “Conservative Care Coverage” plan, his out-of-pocket responsibility would have been just $500. That stark difference illustrates how thoughtful planning and private options can prevent a medical event from becoming a financial catastrophe.
Practical steps exist for anyone questioning their current coverage. Start with a no-obligation review of your existing policy to identify gaps—high deductibles, limited critical-care benefits, or escalating premiums. Compare total projected costs (premiums plus potential out-of-pocket expenses) rather than monthly premiums alone. Consider family health history, anticipated needs, and lifestyle priorities. Private agencies can present side-by-side options that include stronger wellness incentives, broader access, and plans built on shared values of self-reliance and freedom.
In an era when healthcare inflation continues to outpace general cost-of-living increases, relying solely on marketplace solutions carries growing risk. Families who proactively explore private alternatives frequently achieve meaningful savings while gaining peace of mind that their coverage truly works when needed most.
America First Healthcare makes this exploration straightforward through its free review process. Families and individuals receive personalized guidance to close coverage holes, reduce unnecessary expenses, and secure plans that align with conservative principles—protecting wallets, health, and the American Dream without government overreach. Many who complete a review discover they can enjoy better benefits for less, often saving up to 20% while gaining the customization and stability that marketplace plans struggle to deliver.
Ultimately, protecting your family’s future requires looking beyond the marketing of “affordable” government options. By understanding the long-term costs hidden in high deductibles, shifting coverage tiers, and values mismatches, Americans can make empowered choices. Private, values-driven insurance offers a smarter path—one that rewards diligence, supports wellness, and delivers real security. For those ready to move beyond the limitations of traditional marketplace plans, a simple review can reveal options designed to serve families, not bureaucracies. The American Dream thrives when individuals and families retain control over their healthcare decisions, and thoughtful private coverage plays a vital role in making that possible.