![]() ![]() Collapse: The initial drops in the stock exchanges of major countries (up to one-fourth of their valuation) have been analogous between both crises. 2016) and of the Trade War, again between the United States and China (up to 3).Ĭhart 1: World Pandemic Uncertainty Index ( Marc Rzepczynski ) and Global Economic Policy Index 2008), of the European Sovereign Crisis in 2011 (similar), of the Brexit Referendum (228 in June 2016) and US elections (235 in Nov. The latter stands at 348, above the previous spikes: those of the GFC (202 in Oct. The World Pandemic Uncertainty Index, built by the International Monetary Fund (IMF), and the Index of Global Economic Policy Uncertainty (GEPU, computed at PPP exchange rates) now are at their highest (see Chart 1). ![]() The COVID-19 crisis freezes a large chunk of merchant activities in half of the world. The result was a freezing of international financial relationships and a spike in uncertainty, including on the economic policies to tackle this unprecedented situation. The latter toxic risk was hidden and transferred via apparently sound securitized assets and financial vehicles so that nobody knew where and how significant the risk was. In a nutshell, subprime loans were granted to Americans with “Neither Income Nor Jobs & Assets” (NINJA) until 2007. ![]() This applies both to the new non-visible coronavirus and to the ‘‘subprime’’ virus. It is a risk that cannot easily be traced so that its probability of occurrence and its impact can hardly be predicted. To put it simply and following Frank Knight (1921), “uncertainty” can be defined as a non-quantifiable risk. Uncertainty: Both crises share uncertainty as a key factor once they emerged in one of the two leading economies (the United States in 2008 and China end of 2019) and spread globally. Some major economic similarities and differences as of end-April 2020 are summarized hereafter, while many aspects go beyond this analysis, whether psychological, political, social, or basically…human. It is tempting to compare two crises: the current one generated by the novel coronavirus disease (COVID-19), and the “Global Financial Crisis” (GFC). Without a laboratory at hand, economists have to draw lessons from past experience. Editor’s note: This piece is an updated and extended version of a piece originally published on April 8, 2020. ![]()
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