The icing on the cake has been added to the current international scenario, the fall of several banks, some of them significant in the United States.
But nothing happens suddenly, rather it is a
natural consequence of adjustments forced
by political factors.
How do you understand what is happening today?
The answer, as always, is in history.
The crisis stemming from the pandemic generated
strong injections of money
into almost all economies.
Very logical, faced with something absolutely unpredictable and without precedent.
The end of the pandemic registered a
low production
that naturally led to
retractions in the supply
and that impacted the rise in prices (please
do not confuse with Argentina
, we are not part of the "normal" world today).
In this regard, the response of the FED, the central bank of the United States, was a
dizzying current of rate rises
to stop high inflation.
In a daring way, but supported by years of experience and study of the financial/banking industry, we have been maintaining that
this way of raising the rate was very abrupt,
to which are added
somewhat unfortunate statements
by the holder of the same,
Jerome Powell
, almost "threatening" with future rate increases.
Evolution of the United States reference interest rate.
Source First Capital Group
What is not particularly understood is the non-consideration of the cumulative effect of a high rate, or
"financial hangover"
, that this generates.
Let's take an example: if the rate were very low -as it was between 2009-2015 or during the pandemic- "banking" an investment, as was the case with a startup,
was "cheap"
and you could "wait" for that project will mature to be profitable.
By raising the rate, this cumulative effect of interest, which was going to be a certain amount after 10 years, reaches the same result in one, two or three years, at the most.
Therefore,
banks having to permanently revalue their portfolios
must "punish" their assets accordingly.
Bad numbers, surely, common to the industry, but whose effect will depend on the duration and type of financing they provide.
All of this was absolutely
predictable.
Continuing to raise the rate, almost violently, will undoubtedly generate a
pendulum effect with recessive characteristics.
It will be possible for inflation, but the question is at what cost.
The effect of the rise generates by itself an accumulation that will affect the results of almost the entire business world and families.
Every day that the rate remains "high" will be a more difficult day for what production, trade, employment means.
This could be assimilated to a treatment with vaccines, which act progressively over time.
No one has yet thought of giving the same vaccine every month to ensure a result.
In the end, the idea is to lower inflation, logically and predictably due to the "injection" and the consequences of the pandemic, without necessarily generating a major recession, and fewer "financial storms" like the ones we are experiencing these days. which, it is known when they begin to become evident, but
no one can be sure where they end.
* Miguel Ángel Arrigoni is Chairman & CEO and Cristian Traut is Manager of First Capital Group
look also
Inflation, interest rates and bank failure: the dilemma of the United States to move away the dark clouds of the economy
Banking crisis in the United States: Wall Street reels in the face of tremors in Europe
The closure of Silicon Valley Bank: Moody's downgrades US banking to negative after the bankruptcy of banks
