Confidence in rescue.

"The last few decades of easy money created markets so large - nearing five times larger than the world economy - and so deeply intertwined, that the failure of even a midsize bank risks global contagion," wrote Ruchir Sharma. "More than low interest rates, however, the easy money era was shaped by an increasingly automatic state reflex to rescue everyone from pain," so that "The rescues have led to a massive mis-allocation of capital and a surge in the number of zombie firms," as a result of which, "In the US, total factor productivity growth fell to just 0.5% after 2008, down from around 2% between 1870 and the early 1970s." Sharma is writing about the bank rescue underway in the US. About 3 weeks back Silicon Valley Bank collapsed into receivership after panicked depositors started withdrawing their money leading to a run on the bank. ET. Two crypto banks, Silvergate and Signature Bank shut down, quickly followed by, "as well as vowing to protect depositors' cash, the Fed announced an emergency lending program to give cash-squeezed banks easier terms on short-term loans." ET.  The reason for the recent crisis is that, "The US economy has had low inflation since the early 1980s. In fact, retail inflation between February 2012 and December 2020 had never crossed 3%," wrote Vivek Kaul. In fact, inflation first rose above the US Federal Reserve target of 2% in March 2021, and kept on rising to a high of 9.1% in June 2022. usinflationcalculator.com. At first, everyone believed that the rise in inflation would be transient but, when it kept on rising, the Fed increased its Funds rate by 25 basis points in March 2022, followed by 50 basis points in May and then by 75 basis points four times before beginning to slow down its hikes. Forbes. It increased its interest rate by 25 basis points earlier this month to 4.75%-5%, despite the collapse of banks. BBC. The problem was that, "As of December 2020, commercial banks in the US had around $3 trillion invested in treasury bonds and agency securities," wrote Kaul. "Now interest rates and bond prices are inversely proportional. So, if interest rates go up bond prices fall." "As of December 2022, the unrealized losses of these investments were at $620 billion." As a result, "gold prices have been on fire. Between 9 March and 24 March, they rose by 8.2% to Rs 59,545 per 10 grams." A crisis had been predicted by Mohamed A El-Erian in October 2022. "The faster the rate hike cycle. the greater the risk of financial accidents with nasty spillovers." He felt "The weakest links are in leverage." But, it was investments in long-dated US Treasuries, considered to be the safest, with short-term deposits that felled the banks. And yet, "Consumer confidence inched up in March after two straight monthly declines, even as persistent inflation, bank collapses and anxiety over a possible recession weighed on American households." ET. Americans have confidence in their authorities. Do Indians?