On Friday’s “PBS NewsHour,” New York Occasions columnist David Brooks acknowledged that the federal finances has the identical kind of reliance on low rates of interest that Silicon Valley Financial institution (SVB) had and that is particularly an issue since “inflation is here” for some time.
Brooks mentioned, “It seems to me, there are two immediate political things that are germane to politics and our wider national life. The first is, these — this bank informed its investment strategy in a low-interest rate environment, which is what we’ve had for 40 years, and which we no longer have. And so, a bank that invests a disproportionate amount of money in Treasuries is suddenly going to suffer, because they’re not going to keep up with inflation. And when you get from a low-interest mentality to a high-interest mentality, things begin to break. And the financial system is breaking. But the other thing that could break is the budget, that we’ve borrowed and borrowed and borrowed, assumed interest rates are low. They’re no longer going to be low. And inflation is here, at least for a good chunk of [a] while, it seems. And so, suddenly, your payments on the debt become massive on the federal level and that crowds out spending on all other things.”
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