Speaker of the House Kevin McCarthy tweeted that “with slow growth and banks on the verge of crisis, this is not an economy that can afford trillions of dollars in new taxes.” In his tweet, the Speaker objects to what he calls “irresponsible” spending and tax increases proposed in President Biden‘s new budget.
But McCarthy is also — from a powerful position — fomenting a fear that Sec. Janet Yellen and the US Treasury Department are trying to squelch: Fear that the banking system is vulnerable. The job of alleviating fear, so crucial to a healthy functioning banking system, arguably becomes more difficult when the Speaker of the House writes that banks are on “the verge of crisis.”
President Biden says the answer to debt is raising taxes—without a single, sensible change to government spending.— Kevin McCarthy (@SpeakerMcCarthy) March 16, 2023
With slow growth and banks on the verge of crisis, this is not an economy that can afford trillions of dollars in new taxes.
Even the word “crisis” is historically loaded. Whatever the fallout from Silicon Valley Bank’s implosion has been so far, it has not reached crisis level. That word, in the fiscal sense, is reserved for the “financial crisis” of 2008, which cratered the economy and ushered in the phrase “too big to fail.”
It’s reasonable to ask: Is McCarthy merely firing political shots at Biden here, or is he warning the public that the banking system is near collapse?
McCarthy’s fellow Republican, Sen. Mitt Romney, said in the aftermath of the SVB meltdown that a major priority and reason for government action was to instill confidence and “prevent contagion.”
Silicon Valley Bank’s shareholders and executives lose it all, as they should. Depositors in good faith, however, should recover and have access to their deposits in order to meet their payrolls, pay their suppliers, and to prevent contagion.— Mitt Romney (@MittRomney) March 11, 2023
Romney tweeted that: “Silicon Valley Bank’s shareholders and executives lose it all, as they should. Depositors in good faith, however, should recover and have access to their deposits in order to meet their payrolls, pay their suppliers, and to prevent contagion.”
McCarthy’s words — “banks on the verge of crises” — do little to instill confidence or discourage contagion. “Verge of crisis” is hard to interpret as anything less than a cause for alarm, even panic, especially coming from a powerful political figure who presumably has insight and information that the general public does not yet have.
It should be hoped by all that McCarthy is using fear of an imminent “crisis” just to poke at Biden, rather than stoking this fear because he knows something about the frailty of banks that we don’t yet know.