Hope springs eternal in the financial markets.

Despite a series of world financial sector crises over the past year, triggered by the world’s major central banks’ abrupt shift to monetary policy tightening, markets seem to have convinced themselves that First Republic Bank’s recent rescue will mark the end of the world financial crisis. This is perhaps yet another case of markets managing to miss the forest for the trees.

Over the past year, world financial market troubles have come not as single spies but in battalions. They have done so as the world’s central banks have shifted from a prolonged period of extraordinary monetary policy ease to one of aggressive monetary policy tightening. The central banks have done so in order to regain control over multi-decade inflation.

Instead of keeping interest rates at their zero lower bound and flooding the market with liquidity through massive quantitative easing, the Federal Reserve, the European Central Bank, and the Bank of England have all increased interest rates at the fastest pace in decades. They also have turned to a policy of withdrawing market liquidity by not rolling over a meaningful part of their large bond portfolios. This has come as a shock to borrowers who had become accustomed to a world of ultra-low interest rates.

Among the more notable casualties of the central banks’ newfound monetary policy religion have been around twenty Chinese property developers, including Evergrande . These companies have all defaulted on their debts in the wake of the bursting of the Chinese housing and credit market bubbles. A string of emerging market economies, including Argentina, Ghana, Russia, and Sri Lanka also have all defaulted with the World Bank warning of many more emerging market debt defaults to come. Meanwhile last summer, the Bank of England had to bail out the United Kingdom’s pension funds to the tune of some $80 billion after these funds suffered large losses on their interest rate derivative positions.

More recently, at home we have now had the successive failures of the Silicon Valley Bank, Signature Bank, and First Republic Bank sparked by the sudden withdrawal of large uninsured deposits. This occurred as depositors took fright at the large interest rate duration and real commercial property exposure of these US regional banks. Meanwhile, in Europe we have had the failure of UBS and deep market concerns about Deutsche Bank’s financial health.

Hyman Minsky, the late American credit cycle expert, would not have been surprised by the series of world financial sector accidents over the past year. After all, he taught that this is what happens when years of ultra-easy money, which spawned excessive financial sector complacency and poor lending practices, come to an end. Loans that might have made some sense in a very low interest rate environment make no sense once interest rates return to more normal levels and once the years of ultra-easy money come to an end.

According to the International Monetary Fund, the world has never before been as indebted as it is today. Equally troubling is the fact that a massive amount of money has been loaned to borrowers with poor creditworthiness at interest rates that do not nearly compensate for default risk. These borrowers include highly leveraged U.S. and European companies, a large number of emerging market economies, and highly indebted countries in the Eurozone’s periphery.

The combination of over-borrowing at previously unusually low interest rates makes the U.S. and world financial system particularly vulnerable at a time when interest rates have been raised at the fastest pace in the past 40 years and at a time when we could be on the cusp of an economic recession. This would seem to be all more so the case when we also have a rolling regional ban and real commercial property crisis and when U.S. and world financial markets could be shocked by a U.S. debt ceiling showdown this summer.

In 2008, the world’s major central banks were caught totally flat-footed by the Lehman bankruptcy and the Great Economic Recession that followed in its wake. With all the clues pointing in the direction of another likely major U.S. and world financial sector crisis, the world’s central banks will have no excuse for being as ill-prepared to deal with such a crisis as they were in 2008.

This article originally appeared in the AEIdeas blog and is reprinted with kind permission from the American Enterprise Institute.