Hovering Between Interest Rate Rises and Inflation, the Global Economy Is Doomed to Disaster

After the Silicon Valley Bank crisis, the U.S. Treasury and the Federal Reserve began to bail out. The two departments and the Federal Deposit Insurance Corporation (FDIC) will join forces to provide $25 billion in emergency loan support. To provide liquidity to U.S. depository institutions, the Federal Reserve Bank will use its securities as collateral, allowing every eligible individual to withdraw cash. Taxpayers will not have to bear any losses associated with Silicon Valley Bank. In a joint statement on March 12th by the U.S. Treasury Department, the Federal Reserve, and the FDIC, they announced that the Signature Bank in New York would be closed. Similar to Silicon Valley Bank depositors, Signature Bank depositors can also withdraw their deposits, with liquidity provided by the Federal Reserve. Some netizens commented that this is the sacrifice of shareholders and bondholders, and the shareholders’ losses are severe. However, as a bank, shareholders’ capital contribution is insignificant and is basically negligible relative to the bank’s total assets.The most important thing for any economy is to ensure stable cash flow, and in other words, to ensure sufficient liquidity. In 90% of the world’s bankruptcies – individuals, businesses, or governments – they are not insolvent but do not have the cash to pay their current debts. This is also commonly referred to as cash flow breakage.

The Fed’s action of pumping money into banks that have lost liquidity is essentially printing money and pushing more liquidity into society. This is no different from the relief money that Western governments gave to people during the pandemic. However, injecting base money into society is the most lethal tool in increasing inflation, and eventually will cause economic and social disasters. Regardless of whether interest rates are raised or cut, an economic catastrophe is ultimately inevitable.