There won't be any catastrophic direct damage to the US enonomy. The main impact hits its customers. The FDIC has jumped in, but they will only cover $250,000 per customer.
All this happened because of higher interest rates. If you wonder why we let the Ukrainian war happen, it's because we want to send money away from the US. The US Dollar is a mover, it loses its value when it sits in one place. The money Biden has sent to Ukraine is being used to buy supplies and weapons, mostly from European countries, and this in turn, makes Europe has to rely on US more. But sending money to Ukraine alone isn't enough to completely neutralize inflation rate. So we have to increase our own interest rates to get more money moving.
SVB has a major flaw in its business model. All banks invest your money to make money. The problem is where they invest it. SVB invested in some of its own customers, which are startup companies. These companies love low interest rates, but higher interest rates hurt them. So when they need more money to do business, they have to withdraw from SVB. SVB have to sell their stocks, mostly in startup companies, to pay them. When a company's stock is being sold at higher rate than its stock selling rate, it's value drops, less people want to invest in it. This creates a domino effect that brought VSB down.
VSB collapse may scare other banks and they will change how they invest, but I don't think it's a very big problem for the overall economy. However, I feel bad for people who have more than $250,000 deposited in VSB and haven't been able to withdraw in time.
11-Mar-2023 13:48:38
