Banking institution failures, financial market upheavals, and ongoing uncertainty have put the globe in a position akin to that of 2008 or 1929. Based on the US Fed's pace in rising interest rates prior to the 2008 global financial crisis and today, it may be anticipated that this time it will occur "till" 2025 or 2026. "The big attraction is just ahead," writes Markéta ichtaová for ParlamentnListy.cz.
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| Czech economist Markéta Šichtařová |
Was last Sunday's announcement that Credit Suisse, Switzerland's second-largest bank, founded in 1856, will be taken over by its bigger competitor UBS as part of a state-backed bailout of the bank?
-It is not for nothing that some banks are referred to as "too big to fail." Some banks simply do not fail because they are taken over by other banks as soon as issues arise. After all, we learned it through IPB. So it came as no surprise. In theory, such banks may be easily detected. They are also known as "systemic" banks, and the CNB defines them as having a balance sheet that surpasses 10% of total assets in the banking industry.
The Fed accompanied the announcement of a 25-basis-point rate rise by proclaiming that the US financial sector is robust and resilient. Were the collapses of Silicon Valley Bank (SVB) and Signature trivial and unique events that said nothing about the soundness of the US banking system?
-Absolutely not. If you believed the other day that you hadn't heard anything about banks and their failures, and therefore the financial crisis was resolved, many financiers disagree. I'll take the example of Luke Ellis, CEO of the Man Group investment fund, who openly expressed his opinions at a Bloomberg news agency conference centered on the world of finance, which rapidly propagated the perspective of this key financial player throughout the world. And with that, the quiet was broken once more. Luke Ellis believes that smaller and regional banks in the United States, as well as smaller banks in the United Kingdom, are vulnerable.
He didn't mention the banks in the Eurozone, but that might be because he is from the Anglo-Saxon world. Yet, I believe that European banks, particularly smaller and regional banks, are as susceptible for two reasons. First, the migration of interest rates into negative territory, their subsequent rise, and the pace of inflation, which is what is causing and will exacerbate the bank's issues, are more dramatic in the Eurozone than in the United States. Second, it appears that European state authorities are less receptive and understanding of the nature of the present difficulties.
According to many analysts, the failure of banking institutions, upheavals in financial markets, and persistent uncertainty, including currently around Deutsche Bank, enhance the risk of a so-called Minsky moment, i.e. an economic collapse. This economic term was coined a few years ago by academician Hyman Minsky, who described in his works the factors that might lead to the collapse of the entire system. Is economic collapse merely a theoretical possibility, or is it truly imminent? Wasn't the scenario in 2008 more dangerous?
-It's a situation akin to 2008 or 1929. The truth is, central banks basically have a choice: either battle inflation or tighten the rope over the banks' necks. To assist the banks while accepting inflation. It is now abundantly evident what the central bankers have decided. Their key message appears to be that they have opted to minimize the banks' troubles. Observers appear to conclude that these were rare incidents that would not occur again.
All of the world's central banks have already realized that global inflation will remain high for a long time. All of them have opted to battle inflation for the time being, despite the fact that banks are losing deposits and that rising interest rates are making it even more difficult for borrowers to repay banks. The extent to which this may harm banks will be determined in the coming quarters. The time lag between a rise in interest rates and a true financial crisis is considerable.
The US Federal Reserve began raising interest rates from 1% in 2004 and increased them to 5.25% in 2006. Yet, the resulting global financial catastrophe did not occur until 2008. The Fed has now started hiking interest rates from 0% in 2022 to 5.25% in 2023. As a result, the rate of their expansion was faster, and the absolute value of their growth was greater than before the last financial crisis. And if it was delayed as much as the last time, it would not arrive until "till" 2025 or 2026. In other words, the big event is still ahead of us.
After becoming Minister of Finance, Zbynk Stanjura has been chastised for his lack of experience. His new deputy will be Marek Mora, who sat on the CNB's banking board from 2017 to February of this year and has been deputy governor of the central bank for the previous four years. What may this fairly tense transition bring to the department's administration, especially given the roles held by the incoming minister's colleague at the CNB?
-Of course, I have no clue how much Mark Mora's knowledge will eventually improve the Treasury's operations, considering how large the office is; but, his expertise is particularly strong in monetary and political concerns. Therefore, it's an excellent decision in my opinion, and I'm almost sorry he left the CNB since it suited him. Yet, one swallow does not produce a spring, and one deputy does not constitute a Ministry of Finance...
Petr Pavel, the Czech Republic's president for less than three weeks, is the most active president the country has ever had. He advises all parties and the administration of Petr Fiala that it would be required to be more tough towards protest organizers, because they continuously hide behind freedom of expression, but their comments frequently border on incitement to violence and the destruction of the system. Is it time to show the subversives a hard hand and offer people peace of mind to work, to use pre-89 terminology?
-What is the jargon of the 1980s? So, what is it in it that reminds me so much of today's jargon...? With his communist background, the next president comes as no surprise. I would not expect a communist to value freedom of expression - or freedom in general. But, the President should reread the Constitution to define his authority. The President is not a government advisory body. Preventing people from assembling and expressing themselves is the most effective method to incite genuine violence. This is the point at which the papyka of unhappiness begins to pressurize and can truly erupt with the violence of a dissatisfied populace.
According to a similar document, the rector of the University of Economics, Petr Dvoák, has ordered the head of the academic senate of the Faculty of Economics of the University of Economics to call an emergency meeting to consider the firing of the faculty's dean, Miroslav evk. You undoubtedly keep up with developments at your alma college, especially student demonstrations. What are your thoughts about him?
-I have no idea what transpired at the rally, which Miroslav evk attended, but something else is significant. If there was no violation of the law, which would be in the hands of the police, the school or any other employer has no authority to remark on its employee's political opinions. The question is whether or not the law was breached. And if he was, let the cops handle it. Let the employer to remain silent if he isn't.
Source: ParlamentnListy.cz.