Silicon Valley Bank died of Covid.
Alright, it’s a little more complicated than that, but Covid lockdowns followed by massive government stimulus were a critical – and massively under-acknowledged – factor in propelling the bank’s demise.
At the heart of the crisis is the gigantic pile of low-interest debt that was issued during the height of the pandemic.
While private-sector pandemic-era debt like corporate bonds also soared, US government debt like Treasury bonds piled up.
In a nutshell, during the pandemic the government issued enormous amounts of extremely low interest government debt — about $4.2 trillion of it.
But now interest rates, including on government debt, are higher than they have been in 15 years and investors are dumping their old low-interest debt.
As they dump, the resale price of the old debt goes down.
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