Comparing the recent decline of US stocks with the situation in 2008, people have been surprised to find that the US stock volatility index has reached levels similar to that of the 2008 financial crisis. This raises questions about the impact of financial market fluctuations on the current global economic situation and whether we are at risk of repeating the mistakes of the past.
Economist Richard Posner categorizes economic crises into three types: accidental, government-induced, and bursting. While the COVID-19 pandemic continues to pose challenges, some experts argue that the current crisis is different from the 2008 bursting bubble crisis.
The bursting bubble crisis in 2008 was primarily caused by the collapse of major investment banks, leading to a breakdown in the capital chain. In response, the US government swiftly implemented extensive quantitative easing (QE) policies to inject sufficient funds into the market and ultimately alleviate the economic crisis. In contrast, the current volatility in international financial markets is largely driven by panic stemming from the pandemic.
Therefore, in the long run, if countries effectively control the spread of the virus, this crisis is unlikely to be as severe as the one experienced in 2008. Looking back in the future, we may reflect on the fact that a global economic crisis can also be triggered by a viral outbreak.
By addressing the underlying causes of the current crisis and implementing appropriate measures, it is possible to mitigate its impact and prevent a recurrence of the magnitude witnessed in 2008. While the volatility in financial markets is concerning, it is crucial to remain vigilant and take necessary actions to stabilize the global economy and promote sustainable recovery.