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      Forget Trump’s tariffs, the president’s bond market threat is worse | Heather Stewart

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      When Donald Trump gave an in-flight press conference en route to the Super Bowl last week, it generated a flurry of news, from the fresh threat of steel tariffs to the declaration of “Gulf of America Day”.Much less remarked upon was a throwaway comment about the US’s financial obligations, which underlined the fact that tariffs are far from the only way in which Trump is jeopardising economic stability.“We’re even looking at Treasuries,” the president told reporters. “There could be a problem … It could be that a lot of those things don’t count. In other words, that some of that stuff that we’re finding is very fraudulent, therefore maybe we have less debt than we thought.”The suggestion was that opening up the US Treasury’s data to Elon Musk’s “department of government efficiency” team had identified a money-saving wheeze: why not walk away from some of America’s debt obligations – a “selective default”, as economists call it.Like so many of the serially erratic president’s pronouncements, this one had to be “walked back”, as the Americans call it. Kevin Hassett, his economic adviser, stressed the next day that Trump was referring to other payments that the US Treasury had been making, not its $36tn (£28.6tn) in debt obligations. Hassett suggested the Treasury “had been “sending money out without flagging what it was for”.Yet just entertain for a moment the idea that a US administration might decide it could unilaterally default on even a small portion of its debts. The result would be catastrophic. Because of the dollar’s status as the world’s reserve currency, the yield on US Treasuries – US government bonds – is perhaps the most important benchmark in global financial markets.If investors suddenly began demanding a higher yield – in effect the interest rate – as insurance against the risk they would not get their money back, the effects would ripple through the trillions of dollars of other assets worldwide priced with reference to supposedly super-safe Treasuries.Hassett made clear this is absolutely not an outcome the saner elements of Trump’s administration were aiming for. Indeed, the treasury secretary, Scott Bessent, has said the president wants to bring down the yield on 10-year US government borrowing costs.Yet as a result of Musk’s crazed takeover of the financial plumbing of the state, the US is already welching on its obligations – moral and financial – all over the world.Every day seems to bring fresh examples: health clinics in the developing world being closed because of the dismantling of USAid; researchers whose projects funded by the National Institutes of Health have been put on hold.Officials from the city administration in New York have even claimed the government in effect dipped into the city’s bank account to claw back $80m in federal grants that had already been made.This fast-track austerity is ostensibly aimed at improving the government’s balance sheet – putting the US through “the private equity wringer”, as Wired’s Brian Barrett put it last week.But the Musk/Trump takeover simultaneously risks shattering confidence in US institutions, in a way that is liable to have long-lasting and unpredictable consequences.Five former treasury secretaries warned in an extraordinary New York Times editorial last week of the risks of letting Musk loose on the nation’s financial system.“Any hint of the selective suspension of congressionally authorised payments will be a breach of trust and ultimately, a form of default. And our credibility, once lost, will prove difficult to regain,” they said.Musk has faced legal action and is targeting arms of government with which he has a particular beef, meaning the chances of anything that looks like a formal default remain low.View image in fullscreenBut the whole performance – as exemplified by a rambling Oval Office briefing involving Trump, Musk and his son X (who has the same name as the social media platform formerly known as Twitter) – screams “political risk”, as analysts would call it if it was happening elsewhere in the world.It would not be surprising if efforts to spur the development of alternative global reserve currencies and payments structures – such as those proposed by nations in the global south – are given added impetus by the shenanigans in Washington.The sheer insularity of the Trump administration’s approach was illustrated on Friday when Bessent – supposedly one of the more sensible figures in the administration – said: “The US has a strong dollar policy, but because we have a strong dollar policy it doesn’t mean that other countries get to have a weak currency policy.”In the short term, the most immediate impact of Trump’s plans on the global economy is likely to be via his long-trailed tariffs plan, which will throw sand in the wheels of the international trading system.All of this is likely to dampen growth, and if trade analysts are right that Trump’s latest idea of “reciprocity”, based on each country’s existing tariff and VAT rates, is the opening bid in a negotiation, it may be weeks or even months before any clarity emerges.Given this corrosive uncertainty, markets have so far been remarkably quiescent in the face of Trump’s wayward trade policy, and appear to be relatively unconcerned about Musk’s slash-and-burn mission, for now.They have been putting their faith in the mighty US consumer, and the economy’s powerful and innovative tech sector, to feed the narrative of US “exceptionalism”.But every week of the Trump/Musk show in Washington surely increases the threat of a structural shift in how investors view the US economy – which would ultimately be felt around the world. 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      Trump to announce 25% aluminum and steel tariffs as China’s levies against US come into effect

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      Donald Trump has said he will announce new 25% tariffs on all steel and aluminum imports into the US on Monday that would affect “everybody’, including its largest trading partners Canada and Mexico, in another major escalation of his trade policy overhaul.Trump’s pre-announcement came as China’s retaliatory tariffs, announced last week, came into effect. The measures target $14bn worth of products with a 15% tariff on coal and LNG, and 10% on crude oil, farm equipment and some vehicles.The US president, speaking to reporters on Air Force One on Sunday, also said he would announce reciprocal tariffs – raising US tariff rates to match those of trading partners – on Tuesday or Wednesday, which would take effect “almost immediately”. “And very simply, it’s, if they charge us, we charge them,” Trump said of the reciprocal tariff plan.The move on steel and aluminum brought a swift reaction from Doug Ford, the premier of the Canadian province of Ontario, who accused the US president of “shifting goalposts and constant chaos” that would put the economy at risk.Monday’s tariffs would come on top of existing metals duties.The largest sources of US steel imports are Canada, Brazil and Mexico, followed by South Korea and Vietnam, according to government and American Iron and Steel Institute data.By a large margin, Canada is the largest supplier of primary aluminum metal to the US, accounting for 79% of total imports in the first 11 months of 2024. Mexico is a major supplier of aluminum scrap and aluminum alloy.During his first term, Trump imposed tariffs of 25% on steel and 10% on aluminum, but later granted several trading partners duty-free quotas, including Canada, Mexico and Brazil.Joe Biden extended these quotas to Britain, Japan and the European Union, and US steel mill capacity utilization has dropped in recent years. White House spokesperson Karoline Leavitt said that the new tariffs would come on top of the existing duties on steel and aluminum.Trump’s rollout of tariffs has been widely criticised and prompted volatile market reactions and fear of more to come. Beijing has lodged a complaint with the World Trade Organisation, but otherwise has been muted in its response. The tariffs imposed by Trump are far below the level he had threatened during the election campaign, and analysts have said China was prepared for them.Beijing’s actions – which also include investigations into several US companies including Google – were seen by analysts as measured and allowing room for negotiation.Amid wider pushback against Trump’s economic heavy-handedness, French President Emmanuel Macron warned in an interview broadcast on Sunday that he was willing to go “head-to-head” on tariffs with the US president. “I already did so, and I will did (sic) it again.”Macron told CNN that the EU should not be a “top priority” for the US, saying: “Is the European Union your first problem? No, I don’t think so. Your first problem is China, so you should focus on the first problem.”Macron said tariffs would harm European economies but also the US, given the level of economic ties. “It means if you put tariffs on a lot of sectors, it will increase the costs and create inflation in the US. Is it what your people want? I’m not so sure,” he said.He said the EU must be ready to react to US actions, but stressed that the 27-nation bloc should mainly “act for ourselves”. “This is why, for me, the top priority of Europe is competitiveness agenda, is defence and security agenda, is AI ambition, and let’s go fast for ourselves.“If in the meanwhile, we have [a] tariff issue, we will discuss them and we will fix it.”Trump has long complained about the EU’s 10% tariffs on auto imports being much higher than the US car rate of 2.5%. He frequently states that Europe “won’t take our cars” but ships millions west across the Atlantic every year.The European Commission said on Monday it would react to protect EU interests, but said it would not respond until it had detailed or written clarification of the measures. “The EU sees no justification for the imposition of tariffs on its exports. We will react to protect the interests of European businesses, workers and consumers from unjustified measures,” the commission said in a statement.Trump has also flagged tariffs against Taiwan’s semiconductor industry – which he has repeatedly and without evidence accused of stealing US business. Taiwan now appears to be scrambling to prevent that happening. This week senior economic officials will fly to the US to meet their counterparts. Taiwan’s government and state-run petroleum company are also reportedly taking steps to buy more US gas and oil to reduce Taiwan’s trade surplus – a key factor cited by Trump in enacting tariffs.Reuters contributed to this article. More

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      The forgotten faces of Christmas in China | Letter

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      Reading “made in China” on his toys for the first time, my young Chinese nephew asked me innocently whether Santa was Chinese. Oddly, like Santa’s elves, toy assembly workers in China remain remote and faceless to most of us in the west. In Britain, most Asian migrants work backstage, too, kept in kitchens or workshops, taking the first and last train, earning low wages and hidden from our eyes. In many countries this Christmas, instead of being acknowledged for alleviating our cost of living crisis, those foreign workers will be vilified for stealing our jobs and threatened with tariffs whose consequences economists are still not certain about.It is always easier to blame people who remain invisible and voiceless. Although our world has never been so interconnected, and hence our nations so reliant on each other’s labour, Chinese society remains poorly understood. In the west, Chinese people remain enigmatic, the ever-silent and under-represented minority. When scrutinised, it is often with a political lens as well, maybe showing some cognitive bias.The question today should be how much value the free movement of products and people has brought to our nations and how to ensure that it keeps doing so in the future. As evidenced by world history, curiosity and interest towards foreign societies has often been an engine of progress. Christmas is a time to reach out and be thankful to one another: it is hoped that this spirit will continue to animate our politicians and societies in this coming year.Hugo WongAuthor of America’s Lost Chinese; London More

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      Ireland prices corporation tax loss from Trump policies at €10bn

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      Ireland’s prime minister has said the country could lose €10bn (£8.35bn) in corporate tax if just three US multinationals were repatriated to America under a hostile Donald Trump administration.His remarks come just days after Trump nominated the Wall Street investor Howard Lutnick to lead the Department of Commerce with direct responsibility for trade.While Trump has already warned he would impose tariffs on EU imports, Lutnick has singled out Ireland for criticism saying “it is nonsense that Ireland of all places runs a trade surplus at our expense”.Simon Harris said if he was returned as taoiseach in Friday’s general election, he would immediately seek engagement with Trump. He has also proposed an early EU-US trade summit to avert damage in trade ties with the overall European trade bloc.“If three US companies left Ireland it could cost us €10bn [£8.5bn] in corporation tax,” Harris said on Monday while canvassing in Dundrum, Dublin.“I’m not pre-empting it, I’m not saying that’s going to happen, I’m not predicting it, but that is the level of risk that our economy is exposed to,” he said.Ten multinationals account for 60% of Ireland’s corporate tax receipts, with Microsoft, which books some global as well as EU revenues through Ireland, thought to be the single biggest contributor.Ireland’s goods trade surplus with the US is now a record €35bn with Irish goods exports up by 8% in the first eight months of 2024, boosted by the pharmaceutical and chemical sectors.Goods exported to the US totalled €45.5bn between January and August, according to the government’s Central Statistics Office, compared with imports of €11bn for the same period.Harris said he had no reason to believe that Trump was not “serious about pursuing the policies that he has campaigned on”, which includes repatriating jobs and profits that he believes should be homegrown.skip past newsletter promotionafter newsletter promotionHe also referenced the Wall Street Journal article on what it said was the “US tax system blows a windfall into Ireland” fuelling savings into not just one but two sovereign wealth funds, including a €14bn windfall in back tax from Apple on the foot of a European court of justice ruling.“The Wall Street Journal front page gives an indication here” that Trump is intent on action, said Harris.However, he said Ireland would be prepared and would cope just as it did with “Brexit, Covid [and the] cost of living crisis”. More

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      Joe Biden signals he has no interest in signing US-UK trade agreement

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      Ministers have given up on signing a trade agreement with the US before the next election, after the Biden administration signalled it had no interest in agreeing one.British officials had been hoping to agree a “foundational trade partnership” before both countries head to the polls in the next 12 months, having already decided not to pursue a full-blown free trade agreement.However, sources briefed on the talks say they are no longer taking place, thanks to reluctance among senior Democrats to open US markets to more foreign-made goods. The story was first revealed by Politico.A British government spokesperson said: “The UK and US are rapidly expanding cooperation on a range of vital economic and trade issues building on the Atlantic declaration announced earlier this year.” Multiple sources, however, confirmed the foundational trade partnership was no longer on the table.Vote Leave campaigners said giving the UK the freedom to sign bilateral trade agreements with other countries would be one of the biggest benefits of Brexit, with a US trade deal often held up as the biggest prize of all.Talks over a free trade agreement stalled early on, however, thanks in part to resistance from Democratic members of Congress and concerns in the UK about opening up UK markets to chlorine-washed chicken and hormone-injected beef.Earlier this year, the Guardian saw documents outlining how Washington and London could instead coordinate over a partnership covering digital trade, labour protections and agriculture. The deal would not have included lower barriers for service companies, meaning it fell short of a fully fledged free trade deal, but could have paved the way for one in the future.skip past newsletter promotionafter newsletter promotionSources say the deal was always likely to prove difficult to finalise, in part because the US still wanted greater access for their agricultural products. The prime minister, Rishi Sunak, said at a food security summit earlier this year that he would not allow either chlorine-washed chicken or hormone-injected beef into the UK.It also became clear in recent weeks that the Biden administration had no interest in signing any kind of a deal before the election, given how Donald Trump had weaponised international trade agreements during his first run for president.A spokesperson for Ron Wyden, the Democratic chair of the Senate finance committee, told Politico: “It is Senator Wyden’s view that the United States and United Kingdom should not make announcements until a deal that benefits Americans is achievable.” More

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      The US debt ceiling crisis is more proof of Republicans’ cynicism and bad faith | Jill Filipovic

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      The shamelessness and recklessness of today’s Republican party seems to know no bounds. As the deadline for raising the debt ceiling or defaulting rapidly approaches, the party continues to hold the country hostage, telling Democrats: give us what we want – things we cannot get by going through normal democratic processes – or we will pitch the global economy off a cliff.Democrats in Congress are doing their best to get their Republican colleagues to behave rationally, but it’s notoriously difficult to negotiate with terrorists. The Republicans want major spending cuts, but they want to force those cuts through by threat instead of having to legislate normally. And the cuts they’re asking for are appalling: they include slashing funds to things like cancer research, rental assistance for the poor, support for schools with large numbers of low-income students, and pay for Americans in uniform. The Republican bill would end Biden’s attempt at student loan debt relief, repeal tax breaks for renewables and clean energy while increasing reliance on fossil fuels, raise already-onerous work requirements to receive food stamps and welfare benefits, and decrease the efficiency and abilities of the IRS.The Republican proposal would leave a great many Americans worse off – but it would be a boon for oil executives and wealthy tax avoiders.It’s also an unconscionable display of bad faith and manipulation. This is not the first time that Congress has needed to raise the debt ceiling, and the stakes are so high that, traditionally, it’s been a bipartisan effort, with Democrats and Republicans alike largely agreeing that it would be wildly irresponsible and disgustingly devious to use such a vulnerable moment to strong-arm the opposing party. The big exception came during the Tea Party takeover of the Republican party in 2011, when Republicans also used raising the debt ceiling to start a fight. Those Tea Party radicals seemed crazy then – but they had nothing on the absolutely unhinged lunatics of the Maga Republicans.In a sane Congress operating in a functional country, everyone in Congress would agree that the US cannot default, and would behave accordingly. But this is not a sane Congress operating in a functional country, and that’s 100% because of the far-right takeover of the Republican party.Today’s Republicans are a party of destruction. As much as they claim to want to make America great again, they seem much more intent on sowing division, fomenting chaos and embracing an ethos of nihilism. There is no school shooting brutal enough to make them reconsider America’s extreme gun laws; no pregnant woman who suffers enough to make them take a step back on criminalizing abortion; and virtually nothing their unelected leader Donald Trump can to do make them reject him – allowing a deadly attack on the Capitol, being deemed a sexual abuser by a New York jury, and undermining America’s tradition of free and fair elections have not been enough to end the Republican party’s love affair with Trump. As the party has not only embraced Trump but molded itself in his image, it has become all the more dangerous to the nation.It was clear on 6 January 2021 that a dangerous number of Republicans had gone off the deep end, and were willing to take America down with them. Even after a rightwing mob attacked the Capitol complex in an attempt to overthrow the results of the presidential election, 147 congressional Republicans stood behind them, and voted to overturn the election results. These 147 elected officials voted against American democracy that day; they showed that they were willing to override the will of American voters in order to install their man in office. This is nothing short of fascistic, and it was a sign of dangers to come.Now, that same party is pushing an unpopular agenda, but is filled with elected officials who either don’t care or are totally delusional ideologues. Which is how we wound up watching the days tick down until a default. Democrats, and clear-thinking people, understand just how disastrous this would be: it would likely mean a global economic crash, a downgraded credit rating for the United States, and huge financial repercussions, including significant job losses, for Americans – and for lots of people outside of our borders.Too many Republicans, unfortunately, seem to be fine with that, perhaps because they also seem to enjoy burning things down – and they seem bizarrely confident that they’ll be able to blame the fallout on Biden.They shouldn’t be so sure. It’s obvious what is happening here: Republicans want to get their way, and are willing to use any means to do so. The blame won’t fall on Biden for failing to adequately negotiate with the extremists willing to threaten global financial stability to get their much-wanted cuts to cancer research and help for the poor. Blame will fall on the people who deserve blame: the Republicans acting like cartoon supervillains.Hopefully it doesn’t come to that. Hopefully, Republicans come to their senses, allow the US to raise the debt ceiling without major concessions, and avoid torpedoing the world economy. But even if this immediate crisis is averted – a big if – the fact that we’re here in the first place signals just how dangerous Republicans have become. Many members of the Republican party have already made clear that they have no respect for American democracy, and no desire to maintain it. Now, even more members of the party are making clear that they have no respect for America’s role as a stabilizing global economic force.This isn’t playing hardball. It’s hostage-taking. And unless Republicans manage to pull their party back from the brink, it’s only going to be one more sad example of Republicans’ attempt to make America into an untrustworthy, undemocratic shambles.
      Jill Filipovic is the author of the The H-Spot: The Feminist Pursuit of Happiness More

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      Pacific trade deal is more useful to Joe Biden than it is to the UK’s economy

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      Tory MPs hailed the UK’s entry last week into the Indo-Pacific trading bloc as a major step on the road to re-establishing Britain as a pioneer of free trade.It was a coup for Rishi Sunak, said David Jones, the deputy chairman of the European Research Group of Tory Eurosceptics, who was excited to be aligned with “some of the most dynamic economies in the world”.Trade secretary Kemi Badenoch also used the word “dynamic” to describe the 11 members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). She pushed back against criticism that signing a trade deal with a loose collection of countries on the other side of the world would only add 0.08% to the UK’s gross national product, and then only after 10 years of membership. That figure was an estimate by civil servants 10 years ago, she said in an interview with the Daily Mail. The CPTPP is more important these days.And it might be, but not for the trade it facilitates. The significance lies in the geopolitical realignment it promotes and how such pacts could harm future Labour governments.The CPTPP was signed on 8 March 2018. Australia, Brunei, Canada, Japan, Mexico, New Zealand and Singapore were the first to form a bloc before being joined in the five years that followed by Vietnam, Peru, Malaysia and Chile.Former president Barack Obama hoped the US would also be a founder member before coming up against a Republican Congress that disagreed. Later, Donald Trump abandoned the deal altogether.Obama wanted to throw a friendly arm around Pacific countries threatened by China’s increasingly aggressive attitude to its neighbours – or, looked at another way, maintain open markets for US goods and services across south-east Asia in opposition to Xi Jinping’s Belt and Road investment initiative. Joe Biden, despite having control of Congress, refused to consider reopening talks about US membership, paving the way for China to apply in 2021.Thankfully for Biden, Britain’s application preceeded Beijing’s by six months, putting the UK ahead in the queue; quickly it became apparent that Britain’s role could be to help block China’s entry to the CPTPP without the US ever needing to join. For the Americans, the potential loss of trade was a side issue.Brexit was never considered by Washington to be a positive development, but there was a silver lining once it became clear the UK could be deployed more flexibly in a fight with China – a confrontation that Brussels has so far backed away from.The Aukus defence pact between Australia, the UK and US is another example of this anti-China coalition – and of Sunak’s efforts to win back Washington’s approval.The move also plays to a domestic agenda. In the same way that Margaret Thatcher’s sale of state assets – from council housing to essential utilities – denied Labour the means to directly influence the economy without spending hundreds of billions of pounds renationalising those assets, so global trade deals undermine Labour’s promise to use the state to uphold workers’ rights and environmental protections.Secret courts form the foundation stone of most trade deals and allow big corporations to sue governments when laws and regulations change and deny them profits.Badenoch’s civil servants say they are comfortable with the investor-state dispute settlement (ISDS) tribunal system because the UK government has never lost a case.However, a government that wanted to push ahead at a faster pace with environmental protections, carbon taxes, or enhanced worker’s rights might find themselves on the wrong end of a court judgment.The TUC’s general secretary, Paul Nowak, was quickly out of the blocks to voice these fears when the deal was announced on Friday. That is why the EU parliament has forced Brussels to ban ISDS clauses from future trade deals.Sunak, on the other hand, appears comfortable with the prospect of CPTPP countries beginning to dictate how the UK considers basic rights – and how this could become the price of easier trade, and more importantly, foreign policy. More

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      Why did the $212bn tech-lender Silicon Valley bank abruptly collapse?

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      The collapse of Silicon Valley Bank continues to reverberate, hitting bank stocks, revealing hidden stresses, knocking on to Credit Suisse, and setting off a political blame-game.Why the $212bn tech-lender abruptly collapsed, triggering the most significant financial crisis since 2008, has no single answer. Was it, as some argue, the result of Trump-era regulation rollbacks, risk mismanagement at the bank, sharp interest rate rises after a decade of ultra-low borrowing costs, or perhaps a combination of all three?Federal investigations have begun and lawsuits have been filed and no doubt new issues at the bank will emerge. But for now, here are the main reasons experts believed SVB failed.Trump rollbacksThe Vermont senator Bernie Sanders argues that the culprit was an “absurd” 2018 law, supported by Congress and signed by Donald Trump, that undid some of the credit requirements imposed under the Dodd-Frank banking legislation brought in after the 2008 banking crisis.Dodd-Frank required that banks with at least $50bn in assets – banks considered “systemically important” – undergo an annual Federal Reserve “stress test” and maintain certain levels of capital as well as plans for a living will if they failed.SVB’s chief executive, Greg Becker, argued before Congress in 2015 that the $50bn threshold (SVB held $40bn at the time) was unnecessary and his bank, like other “mid-sized” or regional banks, “does not present systemic risks”.Trump said the new bill went a “long way toward fixing” Dodd-Frank, which he called a “job-killer”. But the non-partisan Congressional Budget Office (CBO) warned before the bill passed that raising the threshold would “increase the likelihood that a large financial firm with assets of between $100bn and $250bn would fail.” Joe Biden says he wants Trump’s rollbacks reversed.SVB’s managementThe bank didn’t have a chief risk officer (CRO) for some of 2022, a situation that’s now being looked at by the Federal Reserve, according to reports. SVB’s previous CRO, Laura Izurieta, left the company in October but stopped performing the role in April. Another was appointed in December.Early SVB shareholder lawsuits are said to be looking at the key vacancy, especially as the board’s risk committee was meeting frequently before the bank collapsed.“It means perhaps management was hiding something or didn’t want to disclose something, or had disagreements over the risks it was taking,” said Reed Kathrein, a lawyer specializing in shareholder lawsuits, to Bloomberg.“This isn’t greed, necessarily, at the bank level,” said Danny Moses, an investor who predicted the 2008 financial crisis in the book and movie The Big Short. “It’s just bad risk management. It was complete and utter bad risk management on the part of SVB.”SVB and Signature, the second mid-size bank to fail last week, have also been accused of prioritizing social justice over financial management. The Republican House oversight committee chairman, James Comer, called SVB “one of the most woke banks”.The narrative fed into a larger conflict over ESG, or environmental, social and corporate governance-driven investing, that has become a target of conservatives.But the bank’s loans to community and environmental projects were not central to its collapse nor are its diversity, equity and inclusion (DEI) policies dissimilar to other banks. The argument also fails to take into account all the banks that existed in 2008, before DEI or “woke” became a part of corporate or political discourse.Nevertheless the Florida governor, Ron DeSantis, continued on that theme, telling Fox News, that SVB was “so concerned with DEI and politics and all kinds of stuff. I think that really diverted from them focusing on their core mission.”Inflation and interest ratesSVB had benefited from from more than a decade of “zero money” interest rates as billions poured into the bank via tech venture capital. Looking for some kind of a return, it put the money into long-term US treasury bonds. But when interest rates started sharply rising last year, and depositors demanded higher returns, the bank was forced to sell some of those bonds at a loss. When news of that hit social media, tech investors panicked, triggering a classic bank run. From there, it took 36 hours for the second-biggest bank failure in US history to materialize.Before the collapses, investors had been expecting the Federal Reserve to raise interest rates by a quarter or half a percentage point when the governors meet next week. Now central bankers are in a bind: continue raising rates to tame inflation still running at 6% and risk another break in the financial system, or continue tightening money supply.The treasury secretary, Janet Yellen, gave a hint on Thursday when she told the Senate finance committee that “more work needs to be done” on inflation.What happens next?Financial jitters eased on Thursday after Wall Street rode to the rescue and propped up First Republic, another mid-sized bank whose customers were fleeing. But the respite may be brief.Goldman Sachs has raised its prediction for a recession in the next year to 35%, partly as a result of lending drops by regional banks.In the meantime it seems clear that investigators are likely to uncover more problems at the banks as their inquiries continue. Those revelations may trigger more concerns from depositors and investors.On Thursday, the Republican house financial services chairman, Patrick McHenry, said people should hold off on assigning blame for the collapse of SVB and Signature while Congress and watchdogs investigate.“When people jump to these conclusions at this stage of the game – a week in on this really stressed moment for our banking system – it’s unhelpful and quite politically hackish,” McHenry told Bloomberg. More