The Ongoing Banking Crisis: Why Fear May Be the Deciding Factor
For years, economists have been warning that a recession is imminent. The signs have been there: slowing GDP growth, rising interest rates, and a volatile stock market. Yet, despite all these warning signs, the economy has continued to chug along. That is, until now.
Investors are increasingly concerned that the banking crisis, which has been smoldering for years, is about to ignite. And it’s not hard to see why. Twelve major banks, including PacWest Bancorp, Western Alliance, and First Horizon, are down more than 17.5% in the past week alone. And these banks are down 55% on average this year.
So why the sudden panic? It all comes down to fear. First, fear that the banking crisis, fueled by soaring interest rates, is far from over. Fear that the banks are still a “hot mess” and that their problems are much deeper than anyone realized. Third, fear that the economy is teetering on the brink of another recession.
But here’s the thing: fear may be the final factor that triggers the recession. It’s not just a matter of investor sentiment. Fear can become a self-fulfilling prophecy, causing consumers and businesses to hold back on spending, which in turn leads to slower economic growth and, eventually, a recession.
And so, despite all the warnings, it may be fear that ultimately brings the economy crashing down. Investors, consumers, and businesses are anxiously waiting to see what happens next. Will the banking crisis continue to smolder, or will it ignite into a full-blown recession? Only time will tell.