discusses how the failure of SVB Financial is a consequence of something much bigger - and how we might be facing the start, rather than the end, of a broader cycle of delinquency, default and bankruptcy. US authorities have announced the full backstopping of depositors at Silicon Valley Bank , while also implementing a new system-wide lending programme to ensure that banks can meet requests to withdraw deposits.
Policymakers have been willing to"pivot" or add stimulus at any sign of a wobble, seeking to minimise economic and market volatility. Such action has increased confidence and deeply embedded this false equilibrium in the decision-making processes of many households, corporations and even governments.
By their nature, false equilibria cannot last forever. The doubling down of easy money during and post the pandemic ultimately created inflation, which broke the condition required to maintain the false equilibrium. Beyond this, we see material imbalance in household leverage and housing markets in several countries around the world beginning to consolidate. We also see evidence of zombie companies.
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