Yeah, I don't know anyone saying "it's just SVB since 2000". They're saying SVB is the first major bank in a long time (and hopefully not a harbinger of things to come).
I'm actually curious if SVB failed because it had so many highly connected "big" customers.
A panic moves a lot faster if each person is pulling 8+ figures from the bank, and you have a lot more incentive to panic if you have more than the 6 figures of FDIC insured balance in the bank. There's also a measurable difference in hearing crazy Jim down at the pub pulled his $400 out of the local credit union because he heard the fed was raising rates and hearing from the VC on your startup's board that three guys -- guys you know and think are cooler than you -- have pulled their next year of runway from SVB because they're worried for vague handwaving macroeconomics reasons that sound plausibly impressive to you.
It sure is, and I hope congress and the Fed learns their lesson this time, seeing as some of the same people who worked in previous economic failures are still around, I doubt it.
Not the poster you asked. But, a lesson we continue to ignore is that there are other options to tame inflation besides raising interest rates. The problem is the option isn’t politically expedient so Congress just raises its hands in mock exasperation and says well, it’s the Fed’s mandate to manage inflation.
Congress are cowards and won’t do what should be done - raise taxes. That is likely the fastest least painful long term solution to quickly climbing inflation
I say likely solution because at this point economies are so complex I’m not certain there are solutions without any butterfly effect consequences
Unfortunately, the current tax structure disproportionately affects not-as-wealthy people/companies. So raising taxes would probably be a very unfair move to most people.
My fantasy would be for the government to abolish taxes altogether and just print the money they need, then use whatever mechanisms they have to take enough money out of the market to keep inflation in check.
That way we wouldn't have to pay taxes and the government could just get whatever money they need when they need it. I mean, they already do, so why make people jump through hoops and threaten them with jail for not paying taxes properly, if they could just do without taxes in the first place?
It kinda feels like the whole system is a scam to keep control over the population.
> then use whatever mechanisms they have to take enough money out of the market to keep inflation in check.
What mechanisms would these be, if not taxes?
The other main contemporary mechanism is raising interest rates, which only works on money that has been previously loaned out at a lower rate, and thus isn't a long term sustainable mechanism for recapture.
That doesn't address inflation. The point is that money needs to be taken out of the system. That used to be done by high tax rates on high incomes, and the estate tax. Both have basically been neutered.
But all things considered, 5% is not really a high interest rate. People are just acting as if it's unreasonable because they'd become accustomed to ZIRP. Personally I hope rates stay above several percent for the foreseeable future, for climate/resource reasons.
>Personally I hope rates stay above several percent for the foreseeable future, for climate/resource reasons.
I don't know what this has to do with climate or resource reasons. Cutting down the rain forest, polluting the planet with CO2 and sitting on interest payments are optimal in that scenario. Ultimately positive interest rates encourage corruption and short term thinking because earning money today ,no matter the cost, is better than earning money in the future.
Meanwhile with lower interest rates the future isn't discounted anymore and it is worth it to invest in emission reductions.
I know nothing about economics. Can you help me understand how raising taxes helps deal with inflation? Is the idea that the federal government "deletes" some of the money it receives through taxes, like the opposite of printing more money which cheapens the existing supply?
Yes, on the face of it. The issue with what appears to be the same old game is that those who absconded with the wealth pillaged through funny money, are not going to be the ones getting punished to “fix things”. This opens up a whole different set of cascading consequences because now on top of the moral hazard we had, we’ve gone well beyond that because the perpetrators have learned there are not only no consequences, but that you will be rewarded for your evils.
Combined with other factors too numerous to really go into here, we are seeing the emergence of essentially an aristocracy in the USA and Europe, consisting of, as the earlier aristocracy, of the pillagers of their own people and the people of the rest of the world.
You have stated Modern Monetary Theory precisely. Yes that is the new modern argument - government prints money, spends it on hospitals etc thus putting it in circulation and deletes it by taxation.
One HN comment == ten years of economic debate. :-)
Yeah it's crazy bc everyone's talking like it's just the rise in rates that's to blame for the asset/deposit mismatch, but really it was the 0% interest rates that came before that really did it. It was during that time that SVB had a lot of extra deposits, but no short term way to back it, since short term t-bills were paying practically 0% interest.
In my opinion the Fed should be more decisive and data-dependent. In 2021 the Fed stubbornly stuck to an "inflation is transitory" narrative that meant they did not start raising rates all of 2021 when most people could see the excess and the mania of a bubble. Rates should have started to be raised since the summer of 2021, they could've done a slow and steady pace.
Instead, once things got super hot inflation-wise, then they flip flop and start a very rapid pace of rate hikes, unsurprisingly something broke and here we are once more talking about bailouts, about more QE. We're frenetically going from rapid tightening of financial conditions, to potentially, rapid loosening of said conditions. The Fed is supposed to raise rates in two weeks, I'm not sure if they will change their mind given what just transpired this last week.
I agree inflation must be tamed, I criticize the Fed's inability, or unwillingness, to start addressing it at least a year earlier. From my cynical perspective, keeping rates super low is a fucking party to the stock market and lots of powerful people want to keep the party going and they closed their ears to the inflation alarms. Now we're facing the possibility of another crisis (we'll see how things play out next week) and we know that the proposed solution will be to lower rates and accommodative policy that actually contributes to inflation. It's a shit show I'm tired of seeing repeat.
Those are simply common correlate effects. Inflation is really rather simple, it is inflation of the money supply, i.e., printing more Monopoly money for oneself, knockoff purses, using chemicals to create fake honey, it’s what counterfeiters do … whether it’s some North Koreans or the federal government … its fraud, criminal, illegal, immoral, evil, and a clear indicator of illegitimacy of this or any government that does what this fake government has done.
> It sure is, and I hope congress and the Fed learns their lesson this time, seeing as some of the same people who worked in previous economic failures are still around, I doubt it.
Don't bet on it. One of the big changes after the 2008 crisis was the passage of Dodd-Frank, which was then repealed in large part in 2018.
Some of the repealed provisions in Dodd-Frank would likely have mitigated or even prevented this bank run, due to the capital and liquidity testing requirements.
A panic moves a lot faster if each person is pulling 8+ figures from the bank, and you have a lot more incentive to panic if you have more than the 6 figures of FDIC insured balance in the bank. There's also a measurable difference in hearing crazy Jim down at the pub pulled his $400 out of the local credit union because he heard the fed was raising rates and hearing from the VC on your startup's board that three guys -- guys you know and think are cooler than you -- have pulled their next year of runway from SVB because they're worried for vague handwaving macroeconomics reasons that sound plausibly impressive to you.