Renowned economist and investment advisor Peter Schiff recently appeared on TraderTV to share his views on the recent failures of Silicon Valley Bank and Signature Bank, and how this indicates that the United States banking crisis is far from over. According to Schiff, the underlying reasons for these bank failures were the result of the U.S. Federal Reserve’s policy of low-interest rates, combined with the inherent moral hazards of government-insured banking.
Bank failures are just the beginning of a major financial crisis
Peter Schiff explained that these banks’ failures were just the beginning of a much worse financial crisis, which is yet to come. He further highlighted that nobody is marking the assets to market and that banks are pretending that their overpriced assets are worth more than their real value, which is leading to insolvency.
In the current U.S. banking system, government-insured banking enables banks to cover at least some of the losses that their depositors suffer. In the case of Silicon Valley Bank and Signature Bank, the losses were covered 100% by the government. This has made the FDIC insurance infinite, as the government gets its money from the Fed, which in turn, prints money. Peter Schiff warns that this will lead to inflation, which will ultimately wipe out the value of everyone’s bank accounts.
Moreover, Peter believes that this is not just a banking crisis, but a major financial crisis, which is worse than the 2008 crisis. He argues that people are not willing to call it a financial crisis because they do not want to evoke memories of the 2008 crisis, but this is not helping the situation. Peter confidently said that this is a debt crisis, and banks are failing because of bad debt.
The expert argues that if interest rates had not been kept low for so long, these failures would not have happened. He also suggests that interest rates need to go up to prevent further failures and a bigger crisis.