Bank weakness is how our economy cools off

Not polycrisis, but stabilization.

"KumAJET Hanami Party" by JoshBerglund19, CC BY 2.0.

Sometimes I wish I had been born in Argentina, where macroeconomic commentators are national celebrities. Then I remember that the price for that would be having to live with Argentina’s incredible macroeconomic volatility, with periodic massive inflations, debt defaults, and deep recessions. Instead, I’m happy to live in the United States of America, where policy is often far from wise, but at least our economy is pretty stable.

“Our economy is pretty stable” might seem like a weird thing to say two weeks after a pair of semi-major bank failures, a government rescue for the banking system, and two years of rapid inflation. Reading all those headlines, it can be tempting to descend into “polycrisis” thinking — the idea that our economy is beset by an unprecedented blizzard of mutually reinforcing threats.

Maybe it’s because I’ve been here in Japan for two weeks, watching the beautiful cherry blossoms and sipping tea in peaceful cafes, but I’m feeling fairly sanguine here. Yes, I do agree with the “polycrisis” people that the global economy and financial system are undergoing some major shifts (which I plan to write about a lot). But although no two macroeconomic eras look precisely the same, the threats facing our economy don’t seem unprecedented in scope.

I say this not just because the threats don’t look particularly big, but because they partially cancel each other out. The essence of “polycrisis” thinking is that our problems support and reinforce each other, making it hard to fight any one of them individually. But in a stable system, the emergence of one problem makes another one easier to solve.

The clearest example of this is how the weakness in our banking system will make our inflation problem less acute.

Bank weakness will reduce inflationary pressure