Washington Post: Latest US Economic Crisis Highlights Cost of Complacency

The last four U.S. presidents each faced serious economic crises that warranted extraordinary government intervention. Once rare, such dramatic rescues have become the norm.

In a Washington Post article, David J. Lynch writes that the view of some economists is that the authorities swift response to the collapse of Silicon Valley Bank revealed that the financial system was a brittle one addicted government support. He added that fresh economic dangers loom, including in the largely unregulated private markets that provide more than half of all U.S. consumer and business credit.

“Economic calamities in recent years have erupted in rapid succession. The SVB episode came three years after the pandemic sparked job losses and supply chain disruptions, which occurred little more than a decade after the 2008 financial crisis,” he wrote.

Lynch also maintained that there weren’t much similarities between the last three crises, whether 2008, the COVID-19 pandemic, or the collapse of Silicon Valley Bank.

He highlighted that years of ultralow interest rates preceded both the 2008 crash and the SVB affair, encouraging bankers to engage in riskier ventures. Likewise, in the years before the pandemic, a relatively placid geopolitical scene made the cost savings of ocean-spanning supply chains seem attractive. He also said that risks accumulated like kindling until an unexpected spark ignited a conflagration in both finance and manufacturing.

“In the United States, money became so readily available that long-term interest rates, adjusted for inflation, plunged below 1 percent in 2003 from more than 4 percent in the mid-1990s. Between 2000 and 2008, bank loans to clients in other countries roughly tripled to more than $30 trillion, growing twice as fast as the global economy, according to data from the Bank for International Settlements in Basel, Switzerland,” he added. (more)

Source: Qatar News Agency