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Paul Craig Roberts: US financial system not safe
The issue of the US banking system is still capturing the headlines. The recent collapse of Silicon Valley Bank and Signature Bank caused doubts about the resilience of the US financial organizations. On the one hand, the situation is obvious as the California financial regulator took possession of Silicon Valley Bank, citing inadequate liquidity and insolvency. On the other hand, this action sparked panic among investors all around the country.
It is unsound to invest funds in the banking system that may founder amid problems in one not very big bank. A system is considered to be strong when invested funds remain safe despite the fact that the regulator has revoked licenses from more than 100 banks in a year. That is why such a sharp reaction to the shutdown of two banks surprised everyone. Depositors from across the country rushed to withdraw funds, while holders of banks’ shares launched a massive sell-off. The panic mounted to such a magnitude that US President Joe Biden had to deliver a speech to calm down citizens. In this light, the US banking system does not look stable.
Former US Assistant Treasury Secretary Paul Craig Roberts said that the US banking system was not safe. He also added that the five largest US banks might lose more than two global GDPs. Paul Craig Roberts supposes that organizations will have to get rid of assets on the balance sheet, which will be followed by the depreciation of securities. The only way to solve the issue is to cut the key interest rate. The economist also thinks that the Fed will have to stop monetary policy tightening as it is undermining balance sheets in the financial sector, thus causing a widespread collapse. Roberts added that there were trillions of secondary financial instruments that were affected by the changes in the key rate.
Published 22 March 2023
© InstaFintech Group
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© InstaFintech Group
