Innholdsfortegnelse
Lesson #1: Even crises that turn out to be small by historical standards feel at the time like the end of the world.
Lesson #2: Investors have to expect a financial crisis slightly more often than every three-and-a-half years.
Lesson #3: Every generation gets a ‘Big One’, i.e. a crisis that shapes their collective memory.
- What is the opposite of a crisis?
Lesson #4 is: Calm markets have historically tended to take quite some time before switching into crisis mode.
- The ingredients for disaster
Lesson #5: Capital-flow bonanzas, financial innovation, housing booms and financial liberalisation are the fundamental ingredients for financial crises.
- Doomsayers do not have a strong case right now
Assignments
Utdrag
Economics was originally not intended for predictive purposes, which is why when economists are queried about the next financial crisis, they turn to their historical financial records.
While some have already embarked on prognosticating the upcoming financial downturn, our focus lies in characterizing its historical essence and timeline.
We concur that forthcoming financial crises will transpire much like they have in the past. Nevertheless, we hold the belief that a crisis akin to the 2008 meltdown, or something even more severe, is improbable in the near future.
In the context of Queen Elisabeth II's inquiry, "Why did no one perceive it?" regarding the impending 2008 financial crisis, a sagacious economist at the Bank of England responded by likening financial crises to earthquakes and flu pandemics in terms of their unpredictability.
They materialize without precise foreknowledge. Certainly, seismologists have knowledge of active fault zones, and medical experts might be aware of the characteristics of upcoming virus strains.
However, whether a particular fault zone will experience a major quake or a specific virus strain will lead to a widespread outbreak remains enigmatic, even for specialists in these fields.
The same analogy applies to financial markets, as evidenced by the array of crises over the past nine decades (refer to chart).
In gauging the intensity and duration of each individual crisis, we utilized the price fluctuations within one of the world's primary financial arenas – the S&P 500.
The graphical representation referred to as the "fever curve" offers insights into the oscillations of prices or volatility.
The foremost financial catastrophe, originating in 1929, remains unparalleled, followed by a subsequent plunge into economic recession during the latter part of the 1930s.
Subsequently, no subsequent events have even remotely approached the gravity of those initial harrowing ordeals.
The subsequent three decades approximately saw additional instances of turmoil, albeit of significantly lesser magnitude.
Interestingly, the Cuban crisis of the early 1960s, when viewed through the lens of historical comparison, did not ascend to the level of an "Armageddon" scenario (it indeed did not even achieve the status of a "Big One"). Nevertheless, during that era, it cast a sensation of impending global catastrophe.
Lesson #1: Even crises that turn out to be small by historical standards feel at the time like the end of the world.
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