Capitalism has been gone a long time ago with the end of the gold standard (to the fiat standard), the development of the banking fractional reserve system, the creation of the Fed, and the institution of the income tax.
The banking crisis we have been witnessing now, triggered by the debacle of the SVB, is not a crisis of capitalism but rather an unintended consequence of state interventionism. So, stop blaming capitalism.
Steep economic cycles are created by monetary interventions, as theorized by the Austrian School of Economics. In free markets based on sound money, sound banking and market determined interest rates, cycles’ amplitudes and lengths are damped by naturally developed opposite market forces.
We have been living in a bubble of “everything everywhere all at once” due to reckless fiat printing to finance government deficits together with unnatural zero interest rates to put a lid on government debts. Of course, markets responded to these monetary bacchanalia incentives.
After this preamble, let’s consider the impacts of the recent SVB implosion in the Silicon Valley VC ecosystem.
No doubt SVB played a foundational and fundamental role for the development of Silicon Valley’s VC. But, due to the way the world’s financial system is currently structured, SVB (as every other bank) was an unsound bank, built on fractional reserves, with no segregation between time and demand deposits and with divergent duration mismatches.
So, can Silicon Valley keep on walking without SVB?
Most SVB’s deposits are now in other banks and soon another bank (or perhaps a phoenix reborn from ashes) will occupy SVB’s role for startups and VCs. After all, Silicon Valley has forever lived on creative destruction.
Looking forward, US VC funds now have $300B of dry powder (plus corporate VC, plus non-traditional investors such as sovereign funds) ready to invest, from $200B in 2020. Moreover, US VC fund raising reached a new high record in 2022 with $163B, 70% of the world’s VC capital raised (Pitchbook). The Silicon Valley technology cogs will keep turning, and humanity will keep moving forward.
AI was created and it has been developed in Silicon Valley. AI impacts in our lives will be revolutionary and not evolutionary — Generative AI is just the first step; Artificial General Intelligence, or AGI (an AI system which is smart enough to make its own decisions without human input) is coming soon.
Silicon Valley is thus poised to experience a gold rush as never seen before.
Fabrica Ventures is proud to be inserted in this revolution.