, in theory among the most closely monitored and tightly regulated pieces of the global financial system.“I was surprised where the problem came, but I wasn’t surprised there was a problem,” Kenneth Rogoff, a Harvard professor and leading scholar of financial crises, said in an interview. In an essay in early January, he warned of the risk of a “looming financial contagion” as governments and businesses struggled to adjust to an era of higher interest rates.
“Usually to have a more systemic financial crisis, you need more than one shoe to drop,” Rogoff said. “Think of higher real interest rates as one shoe, but you need another.”Still, he and other experts said it was alarming that such severe problems could go undetected so long at Silicon Valley Bank, the midsize California institution whose failure set in motion the latest turmoil.
The turmoil in the financial world comes just as the economic recovery, at least in the United States, seemed to be gaining momentum. Consumer spending, which fell in late 2022, rebounded early this year. The housing market, which slumped in 2022 as mortgage rates rose, had shown signs of stabilising.
Now, many of them are reversing course. Bryson said he now put the probability of a recession this year at about 65 per cent, up from about 55 per cent before the recent bank failures. Even Goldman Sachs, among the most optimistic forecasters on Wall Street in recent months, said on Thursday that the chances of a recession had risen 10 percentage points, to 35 per cent, as a result of the crisis and the resulting uncertainty.
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