Raghuram Rajan concerned about domino effect, and reckless capitalism in US

Raghuram Rajan, the former Reserve Bank of India Governor, has shared his concerns regarding the state of the global economy and the challenges it presently faces. According to Raghuram Rajan, despite already experiencing the collapse of three major banks, the world’s largest economy, the United States of America, is still set to face many more challenges. In particular, Rajan expressed alarm at the domino effect, riskless capitalism, simmering time bombs, and long-term issues.

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Raghuram Rajan concerned about reckless capitalism in the US: Key Points

During a recent podcast with DBS Bank’s Chief Economist, Taimur Baig, Rajan opined that it was somewhat predictable how the US authorities would handle the banking crisis.
The authorities were aware that the ensuing economic situation would be challenging and could lead to widespread panic. Also, the use of Quantitative Easing in response to the crisis has led to significant shifts in the economic scenario, varying vastly from the past.
Currently, banks are experiencing the fear of recession, and many small and big businesses are struggling to repay and service their loans.
Additionally, the Federal Reserve has increased interest rates by up to 4.5% from 2022, leading to bond yield increases and severe financial issues for the likes of Silicon Valley Bank and First Republic Bank.
Though Credit Suisse was facing huge financial troubles, US authorities secured the depositors’ money to mitigate the situation.

Concerningly, Rajan believes that the measures employed to save the banking system from collapse are promoting riskless capitalism and are not a sustainable solution.

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