This month, 3 US banks collapsed. The biggest among them, the Silicon Valley Bank is the 16th largest US bank with more than $200 billion in assets. The reason for the collapse was mainly the firm’s sale of government bonds at a huge loss to raise capital. SVB’s loss was due to the government’s decision to increase the interest rates in order to arrest the continuously increasing inflation which was hurting American consumers. Other US regional banks are in a similar situation as SVB and many of them will also reportedly close soon.
Looking into the US situation a little deeper, however, reveal that growing inflation, the increase in interest rates, and the collapse of some banks as a result, are just parts of the bigger problem.
The US has $31.4 Trillion in debts or $238,000 per US family. Last year, the US received $32.3 trillion in taxes but the government spent $43.9 Trillion, or a deficit of $1.3 trillion. To make up for the difference, it has to borrow to finance the debt ceiling which Congress actually authorizes.
Many refer to the US debt problem as a debt Ponzi scheme.
The US dollar is losing value since it lost its gold backup in 1971. Even without the gold backup of its currency, the US dollar was then very strong because it was the reserve currency of the world. Also, all global trading was paid through the US SWIFT system, and thereby all payments were in US dollars. Oil from the Middle East, particularly Saudi Arabia, became the backup of the US dollar called the petrodollar.
Now, the situation is different. While countries accumulated gold to back up their currencies, the US dollar remained a fiat currency. Saudi Arabia then distanced itself from the US and aligned with Russia and China, thus the end of the petrodollar.
When Russia invaded Ukraine last year, the US froze $300 Billion in Russian assets. The US and western nations then sanctioned Russia by prohibiting countries from buying Russian oil and gas. Russia responded to the sanctions by requiring that all transactions in Russian oil and gas will be in Rubles. So did China which imposed payments to be made in Chinese Yuan. The US and Europe were actually more hurt by their sanctions than Russia. Many citizens of many European countries are making protests due to high prices as a result of the sanctions. Meanwhile, Russia seemed unaffected when China bought all the Russian oil intended for Europe.
As a result of possible debt default, many countries holding US debts such as Japan and China are disposing of their holdings of said US debt, even at a loss. The Philippines holds $48.3 Billion in US debts. China used to hold the biggest US debt at $1.3 Trillion but already sold some. It now holds about $867 billion in US debts and continues to dispose of the debts. The US repurchases those debts with more debts like a vicious cycle.
US Treasury Secretary Yellen sounded the alarm and informed Congress of an impending financial meltdown if the US defaulted on its global debts. She said part of the solution is to talk to China and negotiate for it to hold on to the debt. Such a very awkward situation here.
Bottom line:
The financial problems will not be limited to the US. Switzerland’s second-largest bank, Credit Suisse, for example, is going on a nosedive. The global banking system and countries holding US debts will surely be likewise affected, the Philippines included.
How will the US remedy the situation? It will go to war with other countries to generate more income from its arms industry aside from capturing the gold and other wealth of the countries they conquer such as Libya, Iraq, Afghanistan, and Syria. The US has lately come up with a strategy to minimize its losses while maximizing its gains - use other countries for the purpose, like Ukraine.
Philippines, are you listening?
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Photo: Meh-rricuh haslas after the Lehman Brothers collapse in 2008. Guka Biden amefanya kasi buana. :D:D