be more. what are lawmakers and the administration doing to try to ensure that doesn t happen? this is almost an undercurrent of everything. the big news yesterday in washington was the federal reserve taking the steps it did to continue raising interest rates to combat inflation. that s led to more incertainty in the markets. an undercurrent for a lot of what is happening on the hill is uncertainty. when will we see a decrease in interest rates? the bank crises, one more thing to throw on the pile that s leading to the dangerous uncertainty around the debt ceiling that s keeping us from reaching a conclusion in time before we hit the limit. feels like a confluence of worries this summer. we talked a little in the last segment about tiktok and the corn certa concerns about it. we have defenders. progressive members of congress. there s not many but we re finding house members who were standing up to defend tiktok. a big issue to look at here, as we mentioned earlier, there s 155
institutions. now i won t deny that an institution capable of leaving $500 million in a single depository in a single bank has the wherewithal to do that, but in our financial system, do we really expect, do we want to make it the duty of depositors to do that kind of forensic accounting analysis on banks? we don t make people do analysis of airplanes when we board them. we rely on the faa, if it is certified, we get on them. and we do the same thing for drugs that get sold. if they are tested and approved, we rely on, it people aren t doing the forensics by themselves. we need to think to a great extent, to deposits and raise that limit but that is a policy decision that will take place. stay with us. when we come back i m going to ask lloyd blankfein whether these bank crises will tip the economy into a recession and if they do, what should the federal
economy down. it s highly likely, it seems to me, that these all these bank crises are going to do some version of that. so should the fed stop raising interest rates? you know, the market as we speak here, the market is projecting a 70% chance that the fed raises 25 basis points. i personally i personally think it would be okay to stop here. to your direct question about with respect to the current situation and the effect on the economy, it is a certainty that this will that this situation will cause will act in a way that s similar to a rate rise in some ways. banks will have to, because of the tension and the pressure and uncertainties, banks of husband their lending on the deposits they have. so already there will be less credit. less credit means less growth. so some of the mission of the
wherewithal to do that, but really, in our financial system do we really expect and do we want to make it the duty of the depositors to make that forensic accounting analysis on banks? we don t make people do analysis of airplanes when we board them. we rely on the faa. if it s certified we get on them. we do the same thing for drugs that get sold if they re tested and approved we rely on it. people are not doing those forensics by themselves. we might think of extending that to some extent, maybe to a great extent, to deposits and raise that limit, but that s a policy decision that will take place. stay with us. when we come back, i m going to ask lloyd blankfein whether these bank crises will tip the economy into a rescission and about if they do, what should the federal reserve do because it s been trying to raise interest rates all along.
Introduction
Unexpected shocks may tip countries with elevated fiscal vulnerabilities into default. The literature has emphasized the role of macroeconomic and financial shocks, such as a decline of commodity prices (Reinhart et al., 2016) or banking crises (Baltenau and Erce, 2018) in shaping sovereign risk. However, other types of shocks, such as political events or natural disasters, are equally important.
2 Extreme weather events appear especially salient in light of the key role played by natural disasters in recent sovereign default episodes (i.e. Grenada 2004, and Antigua y Barbuda 2004 and 2009), the climate crisis, and the recent emphasis on incorporating natural-disaster risk as a component of macroeconomic risk management. In particular, the increase in the frequency and intensity of natural disasters, has led several economists and policy makers to advocate in favor of adopting disaster clauses that allow for a temporary debt moratorium when countries are hit by catas