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Causing Contagion


Bank runs are an indicator of excessive central banking tightening. After the COVID recession, the Biden administration unleashed the most severe inflation since the seventies. They sent $3 trillion worth of transfer payments at U.S. citizens. Credit expansion was not like the seventies inflation. Not the culprit—helicopter money and supply constraints were at fault. The Federal Reserve blundered by tightening credit conditions when credit wasn’t the problem.

This resulted in a whipsawing effect in the value of bank balances that eventually led to the downfall of Silicon Valley Bank, Signature Bank of New York and other banks. Aftershocks will include a continued squeeze on bank lending and tighter credit conditions for U.S. businesses. European and Japanese banks will be under stress as they have to transfer $13 trillion to $14 trillion in liabilities to the U.S. banks due to currency hedges on U.S. assets overseas.

Monetary tightening can be dangerous. Today’s inflation is due to expansive fiscal policy hitting supply constraints. The correct remedy is to stop pouring gasoline on the flames—as Biden proposes to do in his profligate $5 trillion budget—and to increase…

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