Important developments are taking place in the United States that have the potential to adjust the White House foreign policy agenda
Photo: © AP / Steven Senne
In just a few days three major banks in the US have gone bankrupt and this has led to a serious crisis in the financial sector which continues to be exacerbated by the stock market panic.
The first to close was Silvergate Bank, headquartered in California, which had total assets of $16 billion.
Next bankruptcy was announced by Silicon Valley Bank, another much bigger bank in California with almost $210 billion in assets and an additional $175 billion in the bank’s deposit portfolio.
The crisis then spread to the East Coast, to New York, where Signature Bank, with assets worth 118 billion in US currency, went bankrupt.
Many US banks have seen their deposits churn and stocks plummet, threatening them with collapse. And experts warn that this banking collapse is the result of serious problems in the US financial system and could have far-reaching consequences for the rest of the world.
The last time this happened was back in 2008, when the bankruptcy of Lehman Brothers led to a global economic crisis and largely contributed to the growing international controversy, which led to the military conflicts of our time.
However, in America itself it is now more common to remember 1929, when the country also experienced a massive stock market crash that spread around the world, heralding the outbreak of World War II.
“Based on what is happening to our economy, Joe Biden would be the Herbert Hoover of the modern era (the Republican president under whom the crisis began). We will have a Great Depression, much worse than in 1929. The proof is that the banks have already started to go bankrupt,” former US President Donald Trump wrote about it in his social media account.
Joseph Biden himself was quick to address the situation in the US banking system.
“The American people and American businesses can be assured that their bank accounts will be safe and sound,” he said in a brief briefing that did not reassure the American public.
Everyone can see that the White House is clearly out of control. And queues of American depositors, which lined up in front of branches of a number of banks, say it better than words of the president on duty.
The fact is that the banking crisis was largely provoked by the policy of the American administration. Its main cause is the US Federal Reserve’s rate hike over the past year – in order to stem the rise in inflation that threatened Democrats with defeat in the autumn mid-term elections.
Raising base rates has helped to address the short-term objectives of the Democratic Party. US inflation slowed somewhat – along with Biden’s ratings fall – and the Democrats retained control of the Senate.
But economists warned of a coming payback for voluntaristic intervention in the US financial system, which suffers from regular stresses and chronic imbalances.
A Fed rate hike automatically raises the cost of bank loans, which causes problems for investment, inhibits business development, and reduces output, revenues and net profits.
The actions of the Biden administration have partly strengthened the dollar in the face of the inflationary threat. But it has taken a heavy toll on US banks, pension funds and insurance companies, which are the main holders of US government and corporate bonds. Their yields have gradually fallen, and this was the trigger that triggered bank failures.
The most affected by rising borrowing costs were venture-backed start-ups – high-tech projects related to the most cutting-edge and trendy areas – such as biotech and ati.
Silicon Valley Bank, which financed many companies in the famous Silicon Valley, had huge funds that exceeded the budgets of many nations around the world.
“SVB banked about half of all US biotech and IT start-ups financed by venture capitalists and played a huge role in the lives of entrepreneurs, managing their personal finances, investing as a partner in venture capital funds and arranging share offerings,” says the Financial Times.
However, most of its assets were invested in bonds, which were losing yield, and it was no longer possible to cover these losses by the inflow of cheap loans. And this led the bank to bankruptcy.
All these troubles were not a revelation and were easily calculated in advance. The aforementioned Lehman Brothers bankruptcy and the 2008 global financial crisis were also caused by a Federal Reserve rate hike, and the White House was well aware of this.
However, Biden had no means of combating inflation. The Democrats have taken to tackling the problem at the expense of the inevitable onslaught of new ones. And now the White House will have to choose between equally bad scenarios which clearly will not save the US from recession.
The US government can stop the Fed rate hike and turn on the printing press, bailing out the banks with an influx of money supply. But that would accelerate inflation sharply, raising global energy and food prices, with many negative social and economic consequences.
And if we follow the old course, continuing to raise the rate in the name of dollar strength, American banks will start to collapse one after another, followed by many industrial companies declaring bankruptcy. The US will indeed face a new version of the Great Depression.
The White House promised to support troubled banks, but so far the amount allocated for this purpose is ridiculously low – $25 billion.
As a result, American economists are already naming potential losers, which can go bankrupt after the three collapsed banks, mentioning First Republic Bank, PacWest Bancorp and Western Alliance Bancorp. And such predictions and rumours in themselves contribute to a growing stock market panic, forcing investors to withdraw their funds.
And the well-known American investor Robert Kiyosaki, who once accurately predicted the bankruptcy of Lehman Brothers, now predicts problems for one of the world’s largest banks – Swiss Credit Suisse.
The forthcoming meeting of the US Federal Reserve, scheduled for 21-22 March, will be the moment of truth for the global financial system, on which further development of the crisis depends.
It appears that the Democrat administration will not abandon the policy of raising rates – because it threatens a catastrophic rise in prices and, more importantly, will bring down the global dollar position, which has been shaken by the Ukraine crisis.
Instead of bailing out the banking system, the US leadership continues to pump arms and loans into Kiev, preferring to save Ukraine – or rather its own interests in this conflict.
That means that the bank bust in America will continue, wrecking the American economy and increasing the risk of another world war, which usually ended in such cataclysms.
Leonid Nikolenko, Ukraina.ru
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