


The way to avoid an epidemic of bank failures similar to that of Silicon Valley Bank is to reduce the inflationary and anti-growth pressures that lawmakers effectively have put on the Federal Reserve Board.
Yes, inflation in the end is always a monetary phenomenon, but fiscal and regulatory policies can significantly affect the supply and velocity of money. The fiscal policies under former President Donald Trump were awful , and both the fiscal and regulatory policies under President Joe Biden have been so stunningly terrible as to beggar belief. Combined with the Fed’s several years of insanely “easy money” proclivities , they created an inflationary monster that is hard to tame without high interest rates.
SVB COLLAPSE: FED’S PLANS FOR RATE HIKES FALL BY THE WAYSIDEOnce interest rates rise above a certain point, however, banks that had depositors who were reveling in easy money suddenly find themselves in a bind when higher interest rates hit both the banks and their depositors. That, in a nutshell, is what appears to have happened to SVB.
Without some help from wiser fiscal and regulatory policy, the Fed governors find themselves in a bind. If they don’t keep interest rates high, or raise them even higher, inflation will continue at levels that eat holes in family budgets. On the other hand, if they do keep interest rates high, financial institutions such as SVB will fail, while families with credit card debt, which means most families in the United States, could see the debt, when compounded by higher rates, spiral beyond control. Either way, the threats of defaults or contagious financial panic grow.
The antidotes to the current problems, and the deterrent to future ones, are the same as they always have been: The federal government should spend less, regulate less, stop hobbling energy production, and rein in, even if not entirely eliminate, subsidies for trendy technologies that aren’t economically viable.
The oversimplified but still essentially accurate reality is this: If Congress and Biden spend less, it effectively means the Treasury needs to create less money. If it creates fewer devalued dollars, the Fed feels less pressure to keep interest rates high just to tame inflation. Meanwhile, if lawmakers and bureaucrats regulate with a lighter hand while still keeping essential safeguards in place, businesses and people can use money more efficiently and move it faster, thus creating economic growth without needing more fiat money created by the Treasury. Growth without monetary inflation is far better than growth that is part of an inflationary spiral.
Finally, U.S. residents live in an economic system powered by human-developed energy. And we live in a nation with some of the best environmental safeguards on Earth. Energy produced here pollutes less than the same energy produced in most other places. If we produce more energy domestically, the higher supply keeps prices lower and thus cuts inflationary pressure. If we restrict domestic production, prices rise, while energy is produced more in places that more badly pollute the planet.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINERAlas, the Biden administration and the formerly Democratic Congress spent two years extravagantly violating all the simple wisdom above. Biden and the Democratic Senate seem inclined to keep doing more of the illogical same. And that keeps the Federal Reserve Board, which screwed things up for years, in a worse bind than it already is.
The SVB collapse is a very loud warning siren. If Biden further monkeys with moral hazard by bailing out SVB without an accompanying change in course on spending, regulation, and energy, the economy could implode.