In September, Doug warned in these pages that the U.S. economy was on the brink of a crisis that would cause real pain for American households and businesses. Economists at the time posited that the Federal Reserve’s aggressive efforts to combat surging inflation, while necessary, portended an impending recession, or worse, a period of stagflation.
The consequences of these failures will take months to actualize, but in all likelihood, other banks will rein in lending, triggering a credit crunch and greater volatility in the stock market. Taken together with the continued fallout from the quickest pace of interest rate hikes since the 1980’s, the most likely result will be a recession.
Even before last week, Americans had little confidence in the stability of the economy. In February, 50% of Americans said they were worse off financially today compared to one year ago, per recent Gallup polling, the worst assessment since the Great Recession era in 2008 and 2009. This is not to say that we are doomed to relive the 2007-2009 crisis. In fact, the causes of the two recent bank failures are wholly different from those during the GFC. Back then, banks were crippled by bad loans and the housing bubble bursting. At the root of today’s problem is poor risk management by the banks and a Fed that is behaving aggressively to stem inflation.
There has been some backlash to this decision on both sides of the aisle – including from the far-right, which is averse to the idea of government bailouts, and from the far-left, which is invariably suspicious of collusion between big banks and the federal government. However, for every American with their money in a bank account, the only concern is the stability of the nation’s banking system.
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