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Are more Bank Failures on the horizon in the Biden Economy????
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03-12-2023, 07:17 AM
(This post was last modified: 03-12-2023, 07:21 AM by The Real Marty. Edited 2 times in total.)
(03-10-2023, 06:57 PM)The Drifter Wrote: The Second Largest Bank Failure in U.S. History Has Many Worried From the article: "...some large banks that had scooped up expensive Treasuries and other bonds when interest rates were very low, are sitting on losses as borrowing costs have risen and bond prices have gone down.... Banks heavily exposed to the tech sector, like SVB, are particularly at risk as cash-hungry startups withdraw their deposits..." The Fed has raised interest rates in order to raise the cost of borrowing money, and slow down the economy. When interest rates go up, the value of bonds goes down. As the economy slows, and borrowing costs rise, business start to draw down their deposits in banks in order to pay their bills. This means the banks have to sell the bonds they hold in order to pay out customer deposits. They have to sell them at a loss because the market value of those bonds has gone down because of rising interest rates. Suddenly the bank doesn't have enough value in the bonds they are holding and the regulators come in to prevent a total meltdown. So the Fed seems to have jacked up interest rates so far and so fast that many perfectly good businesses will fail, for no fault of their own, because the deposits they hold in banks have disappeared. Which brings us to the question, will this happen in other banks? And since we don't know the answer to that, will Monday see total chaos in the banking system as business scramble to protect themselves? As for who's the blame for this, there are many candidates, from the politicians who pumped money into the economy and ran big deficits, to the Federal Reserve, who kept interest rates too low for too long, and now have the jack up interest rates to stop inflation. Too much easy money for too long, and now innocent people are getting hurt. |
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