What does Silicon Valley Bank’s collapse mean for the financial system?
An unexpected side effect of continued employment gains is that the employees expect to be paid...  A series of bank failures puts payroll in doubt, and could quickly lock up the system with extreme inflation and a liquidity crisis.<p>More money will be created to bail out the banks which will cause more inflation and more inflation will mean higher rates to fight it, which could freeze credit more and draw down savings and so on, all of which leads to more job losses and liquidity problems. It&#x27;s numerous things in a feedback loop and if the bank runs and failures continue to spread then it&#x27;s going to put serious strain on a system that never fully recovered from 2008.<p>The reverse repo rates are kind of fascinating when you look at what happened around 2007 and where it is today.<p>Maybe SVB is an outlier and can be contained but another hidden issue is how much Fintech has worked its way into normal finance. There are many online only banks and companies like Chime and Cash app which could broaden a crash.<p>I really believe we are about to experience a financial crisis worse than anyone alive has experienced. It will be unique as well in that so many of these factors have never happened before or all simultaneously.<p>This also doesn&#x27;t consider global reserve currency changes and ways for the world to conduct trade without the U.S. financial system being involved. All of this provided liquidity in the past, the safe haven effect and so on.<p>Or maybe a few banks will get bailed out and it will be no worse than the savings and loan crisis. The next few months should get interesting.<p>Oh and if that&#x27;s not enough, there is the potential for Ukraine to do poorly in the summer and a potential conflict with China on the horizon. The U.S. could be in a two front war with near peer competitors at a debt to GDP ratio higher than at its highest point during WW2.<p>Quantitative easing kicked the bucket down the road but it seems to have been a band aid only making the disease worse in the long run.