How does a bank collapse in 48 hours? A timeline of the SVB fall

Silicon Valley Bank collapsed Friday morning and was overtaken by federal regulators after experiencing the largest bank failure since Washington Mutual in 2008. 

The Silicon Valley bank used to be the go to bank for U.S. technology startups and was among the top 20 American commercial banks with $209 billion in total assets at the end of last year, according to the FDIC. 

Their fall began with the Fed sharply raising interest rates over the last year to cool inflation as they effectively snapped the momentum of borrowing costs for tech stocks that were helping the bank. In addition, these rising rates destroyed the value of the long term bonds the bank had bought when interest rates were almost nothing. They were getting an average yield of 1.79% on their $21 billion portfolio when the current 10 year U.S. treasury yield average is about 3.9%. 

Customers began to pull out at the same time that the bank had announced they had been selling securities at a loss and would sell $2.25 billion in new shares. The stock started tanking on Thursday and by Friday, trading in SVB shares was stopped while regulators shut the bank down and placed it under the Federal Deposit Insurance Corporation.

The Fed does not see this becoming a common problem in the future as they claim any other banks that may experience this are too small to "affect the broader system." All insured depositors will have full access to their insured deposits by Monday morning, according to the FDIC and all uninsured depositors will receive an “advance dividend within the next week.”

https://www.cnn.com/2023/03/11/business/svb-bank-collapse-explainer-timeline/index.html

Federal Reserve Chair Jerome Powell warns inflation fight will be long and bumpy

At this moment in time, the United States citizens have faced an increased in prices across the country do from the increase of inflation in recent months. The Federal Reserve chairman, Jerome Powell, put out a warning saying that interests rates may have to increase as well to begin a shift on the current inflation rate. The FED has been moderating and trying to work to get the inflation back but Powell told the senators "Inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long way to go. Over the last year, the central bank has raised the interest rates eight times. to try and lower the inflation rate. This past January, business began to higher more and consumer spending increased as inflation was beginning to work its way down. After Powell made his comments, markets are concerned as rates were only supposed to increase by .25% but are now being estimated to be in the 5% range. 

Do you think by raising the interests rates to 5% will help balance inflation in the US economy?

Economic and Ethical Impacts of the "Uyghur Forced Labor Prevention Act" on Xinjiang's Economy

The Uyghur Forced Labor Prevention Act was unanimously passed in the U.S. Senate in December 2021. The act was a direct attack on China's economy in response to evidence that China was using forced labor practices in its autonomous Xinjiang region.

The act went further than most import restriction strategies and tariffs. Firstly, it outlawed imports from the entire Xinjiang region, being explicit in its language that this included anything "manufactured wholly or in part." Most tariff restrictions only include final goods, so this act went beyond the normal scope of protectionist policy. Secondly, it implemented a plan for U.S. importers to follow to ensure that imports were produced ethically, which ensures due diligence on the behalf of American companies. It also burdened the importer to prove that the good was not produced in Xinjiang, a process that can be complicated and time-consuming, discouraging free trade.

Admittedly, only about 0.01% of the U.S.'s total imports come from Xinjiang as goods, which might cause concern. Is the act actually fulfilling its purpose? However, when one considers that the Xinjiang region is a large producer of the world's raw materials (i.e., Xinjiang produces 1/5 of the world's cotton), the impact becomes much more noticeable.

U.S. supply chains are expected to take a hit due to this act, but only in certain sectors. For instance, renewable energy (i.e., solar panels) will be hit especially hard, but agriculture will not because the U.S. has already prepared in advance to reduce dependency in this area.

As for forced labor, the act's impacts are not as certain. It will reduce U.S. dependence on products created in China, forcing Chinese manufacturers to adopt better labor policies. However, Xinjiang exports mostly to Central Asia and Russia. If the U.S. is to actually follow through with this plan to reduce forced labor, it should rally the international community to adopt similar protectionist policies.

If the Uyghur Forced Labor Prevention Act teaches us anything, it should be that economics is not as cut and dry as "free trade or bust." This act reduced free trade but could potentially improve the human rights situation in Xinjiang. Furthermore, it could set a precedent for countries going forward that people's livelihoods are more important than output, and that's a good thing.

https://www.csis.org/analysis/uyghur-forced-labor-prevention-act-goes-effect