We Study Billionaires: Calling a Super Bubble: The Crisis Is Bigger Than Banks
Markets have moved higher in recent weeks, shaking off some fears from the second and third largest bank failures in U.S. history. While that looks good on the surface, there’s trouble under the water.
However, debt remains high, and interest rates to pay for that debt continue to rise. And confidence has been shaken in the banking system. That includes depositors looking to move money elsewhere and banks looking to lend to other banks or customers.
The bank failures have led some to see a repeat of a 2008-style meltdown, focused on the banking sector. Part of the rapid response by policymakers in the past few weeks has been to avoid such an outcome.
However, the issue is much bigger than the banks themselves. It’s a result of high debt, across the entire economy, and the costs of financing that debt. Looking at the history of financial bubbles, there’s always a long upward move, followed by a belief that nothing will get worse.
From there, it’s a long drop. And at the top, overconfidence leads to an increase in debt. That’s true in the U.S. economy, and in other nations and periods, such as Japan in 1989. With or without the Fed raising interest rates further, it’s clear that the market has broken, and there will be further dangers ahead.