LETTER: Biden’s inflation triggers problems with banks
President Joe Biden caused inflation by dumping trillions of dollars into an economy that was recovering thanks to vaccines from Donald Trump’s Operation Warp Speed.
As a result of the inflation, the Fed has been raising interest rates. So Treasury bonds now sell with a much higher interest rate than two years ago. Banks have their reserves in safe Treasuries that they bought when the earned interest was near zero.
When banks need money to pay depositors for withdrawals, they have to sell their Treasury bonds. But the bonds they bought are worth way less than new bonds with higher interest rates. Thus nobody wants them, and they have to sell their old bonds at a loss. Banks can’t afford the loss and go under. This would not have happened if inflation had not skyrocketed under Mr. Biden.
Be aware that all banks have most of their reserves in low interest bonds, and more closures can result if depositors want to withdraw their money.