Continuously postponing the timing of interest rate cuts has led to increasingly acute contradictions in the U.S. economy, namely high inflation, debt ceiling, and banking crisis. Indeed, after more than two years of interest rate hikes, the U.S. has encountered significant issues. Not only does inflation continue to rise, but the largest domestic investment bank in the U.S. is also facing a margin call crisis. This is different from small banks like Silicon Valley Bank. What exactly is going on?

Is Little J.P. Morgan facing a margin call crisis?

Recently, we have been hearing the Federal Reserve frequently hinting that they are unlikely to cut interest rates easily this year. But do you really think they are absolutely certain about this?

In the past, although the American public may appear calm, if that large investment bank really collapses, it is estimated that the Biden administration would have to step down immediately, and those at the Federal Reserve would likely suffer as well. The severity of this event is much worse than the bankruptcy of Lehman Brothers in 2008.

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On the second anniversary of the U.S. dollar's interest rate hike, a super shocking piece of news finally came: the world's largest investment bank is facing the risk of collapse!

Recently, J.P. Morgan has been hit one after another and may be on the verge of not being able to hold on.

J.P. Morgan, often referred to as Little J.P. Morgan, and Morgan Stanley, often referred to as Big Morgan Stanley, what is the difference between the two?

Although J.P. Morgan and Morgan Stanley have similar names, they are actually two independent financial institutions with their own histories, strengths, and target customer groups.JPMorgan Chase & Co., also known as Little Morgan, is the largest bank in the United States, established through the merger of Chase Manhattan Bank and J.P. Morgan & Co. in 2000.

JPMorgan Chase's business scope includes investment banking, financial transaction processing, investment management, commercial financial services, personal banking, and more. The bank has established several new subsidiaries, such as Morgan Social Development Company, Morgan Futures Company, J.P. Morgan Securities Company, etc.

Morgan Stanley, also known as Big Morgan, is a leading global investment bank providing capital advisory, raising, trading, management, and allocation services to governments, institutions, and individual clients.

Morgan Stanley has extensive experience and achievements in cash equity, equity derivatives, hedge fund brokerage, electronic trading, commodity trading, macro products, global credit products, investment management, private debt and equity businesses, real estate business, global liquidity management business, and global fixed income business.

In summary, JPMorgan Chase is a comprehensive bank offering a wide range of financial services, while Morgan Stanley is a financial institution specializing in investment banking.

There are certain differences between the two banks in terms of business scope, market position, and customer base.

On April 12th, JPMorgan Chase released its financial report for the first quarter, with a net profit of $13.4 billion, which was lower than market expectations. Despite the Federal Reserve's guarantee of receiving the failed First Republic Bank, the net profit only increased by 1%, far below market expectations.

Moreover, with such high interest rates in the United States, this level of growth was achieved. Once the United States lowers interest rates, Little Morgan's profits are likely to plummet.

The capital market generally focuses on growth expectations, and the release of this financial report undoubtedly "killed" the possibility of Little Morgan's profits continuing to grow.

In addition, with the U.S. stock market currently at a high level and various asset returns having basically reached their peaks, the market naturally does not buy into such performance.Once this financial report was released, JPMorgan Chase's stock price plummeted by 6.5%, marking the largest single-day drop since June 2020.

This is not just a problem for a small bank, but for the largest investment bank in the United States, with a scale reaching trillions.

By the way, the decrease in interest income is not a phenomenon unique to JPMorgan Chase; many other banks in the United States have also experienced similar situations, such as Wells Fargo's net interest income falling by 8% year-on-year in the first quarter.

This actually indicates that more and more Americans can't wait for the dollar to cut interest rates; the money in their hands just can't stay in the bank, and capital is beginning to flee on a large scale.

Just imagine, if the dollar were to suddenly cut interest rates at this time, wouldn't that trigger an unprecedented storm of capital flight?

Recently, there have been rampant rumors in the market that JPMorgan Chase has failed in its short position in the gold market and has even fallen into difficulty, becoming a victim of the United States' national fortune.

This is not a baseless rumor; Stephen Lieb, Chairman and CEO of Libre Capital Management, personally confirmed this point.

Gold World News reported on this matter with the headline "JPMorgan Chase's large short position in gold derivatives may be more than all their money."

If we delve into the details, you might want to know that the number of gold short positions represented by JPMorgan Chase is quite large. However, in the face of the recent sharp rise in gold prices, if this situation really occurs, JPMorgan Chase may have to use all the bank's funds to pay for the gold of these short positions.

So, what exactly is the story behind this short position?In simple terms, JPMorgan Chase anticipated a decline in gold prices, so they borrowed gold from the market and sold it at a higher price. When the gold prices actually fell, they bought it back at a cheaper price, thus earning the difference in the middle.

However, this year, gold prices suddenly skyrocketed, forcing JPMorgan Chase to buy gold out of their own pocket to repay the previous loans.

Some people might think this is a bit exaggerated, right? But in reality, this is not a baseless claim but is determined by the current global environment.

Since the outbreak of the conflict between Russia and Ukraine in 2022, the global political landscape has undergone significant changes, and the trend of de-dollarization has become increasingly apparent. Central banks of various countries have also started to buy a large amount of physical gold.

Such a large-scale purchase of physical gold will undoubtedly exert tremendous pressure on "naked short sellers" like JPMorgan Chase.

Harvesting China backfires

We need to understand that in the US banking system, investment banks play a dominant role, such as the big and small Morgans we mentioned earlier.

As a result, when facing significant risks like the Federal Reserve's substantial increase in the benchmark interest rate, their resistance is relatively weaker compared to commercial banks.

What is the reason for this?This is because the main revenue of investment banks does not come from the interest difference between absorbing deposits and granting loans; they rely more on earning commissions from the buying and selling of stocks and bonds, as well as fees from managing pools of assets, and so on.

In other words, these banks may have a large hoard of stocks, bonds, and various other types of assets. When the Federal Reserve begins to raise interest rates, the market value of these assets is likely to plummet significantly.

Take U.S. Treasury bonds as an example. Theoretically speaking, as long as the government does not default, they are absolutely safe assets.

However, when the Federal Reserve raises interest rates substantially, the yield on U.S. Treasury bonds will also rise accordingly. With the increase in Treasury rates, the price of Treasury bonds will naturally fall.

Suppose an American investment bank holds a large amount of U.S. Treasury bonds. Then, after the Federal Reserve raises interest rates, the market value of these Treasury bonds will shrink due to the decline in price.

Although the shrinkage of the market value of Treasury bonds does not mean that the bank will incur losses, as long as the Treasury bonds mature, the bank can still recover the principal.

For ordinary people who deposit money in banks, they may not think this way. Because after the benchmark interest rate is raised, the market will emerge with a large number of investment products that can provide higher returns.

For example, the interest rate on new U.S. Treasury bonds will rise due to the increase in the benchmark interest rate.

However, if you still hold old Treasury bonds, the interest you receive will not increase due to the rise in interest rates. At this time, investors may choose to sell old Treasury bonds and buy new ones.

Therefore, for those who deposit money in banks, due to the large amount of old Treasury bonds held by banks that cannot bring them more returns, they may choose to withdraw their money from the banks and look for other investment opportunities.When an increasing number of depositors choose to withdraw their money from banks, banks may be forced to sell the government bonds they hold that have not yet matured to meet the withdrawal demands of depositors. This could lead to a deterioration of the bank's financial condition, further loss of confidence in the bank by depositors, and an acceleration of the rate of deposit outflow.

For a bank, short-term losses are not a major problem. What is truly terrifying is if a crisis of trust occurs, leading to a massive outflow of deposits in a short period of time, which would be a fatal blow.

Almost every bank fears the phenomenon of a bank run. As long as people are willing to deposit money, even if the bank is losing money, it will not go bankrupt. This is because as long as there are sufficient cash reserves, coupled with the trust of the public, there is no need to worry about a bank run.

The probability of our country's banks encountering such problems is very small, which is determined by the nature of banks in China and the United States. Now, J.P. Morgan not only has to face the difficulties caused by rising interest rates but also has to face losses in gold investments.

The United States has been trying to raise interest rates to harvest China, but it has not expected to harvest itself first. This also shows the foresight of our financial policies and the resilience of our country's economy from another perspective.