The banking crisis is like a brick thrown into our economic pond. Busted banks don’t just sink silently to the bottom, never to be heard of again. Their plunge sends ripples out across the entire surface that wash into every financial inlet of our lives.
If you think this has nothing to do with you because you didn’t invest in Silicon Valley Bank or keep an account there, think again. The spreading circles of its demise will splash you if you merely feel the pinch of high interest rates or buy groceries.
Thanks, President Joe Biden!
Why? Because his policies are to blame.
Start with the most egregious and characteristic thing the Biden gang did in response to SVB, which was to exceed its authority and what the law prescribes or allows (as it did, also, forgiving over $500 billion of student loans). Biden and Treasury Secretary Janet Yellen ignored the $250,000 upper limit on secured deposits and, to “stop the contagion,” implicitly guaranteed all $17.6 trillion deposited at U.S. banks. This put Washington on the hook for twice as much as the Federal Reserve actually has.
It means, as has been noted, that depositors are freed from market discipline — they can’t lose their stash — so they needn’t be careful where they put their money. They’ll go to banks that offer big rewards by taking big risks. This is a short-term rescue at the cost of long-term instability.
The damage reaches wider. With no upper limit on the number of dollars that might need printing, the greenback will weaken, inflation will persist, and the Fed will have to make dollar assets more attractive with higher interest rates for a longer time, which makes recession more likely.
That’s in our future, and it’s coming fast. What about the past? What led to SVB’s collapse was years of negative interest rates and $5 trillion of overspending by Biden’s Democrats on their socialist wish list. That’s what ignited inflation and boosted interest rates, demolishing SVB’s “safe” bets on U.S. Treasury bonds and other traded IOUs.
There are many lessons that should be taken from this debacle, but some politicians — hello, Sens. Bernie Sanders (I-VT) and Elizabeth Warren (D-MA) — are racing to reassure us that they’ll learn nothing. The most important lesson of all makes the case for limited government; it is that every action Washington takes sets off a chain reaction of consequences. These ripple through our lives, usually inflicting more harm than good. Build a dam in one place and you get a flood elsewhere. No policy change takes place in a vacuum.
The Left doesn’t want to know that if you raise taxes and spend $750 billion on new subsidies for green energy and healthcare benefits, as Biden did with 2022’s misnamed Inflation Reduction Act, it doesn’t deliver a free lunch to the supposed beneficiaries. They eventually get sent the bill.
The bill is a weakening dollar eroding their earnings and savings, interest rates climbing higher and making their home more expensive, tremors rattling more banks, turbulence in financial markets, and a growing threat of global recession.