Why the World Economy has a Terrifying August 2007 Resemblance
WORLD — “History repeats itself” is a quote that echoes throughout human civilization. The idea that, at some point, we are bound to repeat the same mistakes and experience the dreaded unfortunate events in the past has plagued many scholars and experts in constructing theoretical and practical systems that could help us steer from those dire situations. However, despite our best efforts, we are not living in a perfectly logical world where we can instantly adopt and adjust all necessary aspects to ensure we never have to experience it for the second time.
This is particularly the case with our economic system. For example, the 2007–2008 global financial crisis had been anointed as the most severe economic downturn since the Great Depression in 1929. Hence, systems and reforms have been set in place to prevent what caused such astronomical financial distress from happening again. However, despite collective best efforts across multiple economies around the world, it seems like the current economic environment can be likened to that of the grim beginning of a massive monetary collapse in August of 2007.
An Uncanny Resemblance or an Odd Coincidence?
According to Neil Irwin, a renowned author and chief economic correspondent of an international editorial company, Axios, what we are experiencing now seems like a remarkable resemblance to that of the beginning stage of what would eventually become a massive global financial crisis.
“August 2007 was, on the surface, a fine month for the US and global economy. Unemployment was low. The stock market had a few bumpy days, but nothing too dramatic.” However, he continued, “Many consider it to be the beginning of what we now call the global financial crisis. And there are some ominous parallels with what the world is experiencing right now.”
Irwin also expressed how some recent economic events seem to have an uncanny resemblance to what happened 15 years ago outside the US. “The currency and government bond prices are plunging — is the equivalent of when French bank BNP Paribas experienced funding problems due to mortgage losses.”
For the US, Irwin noted that the current position of the US economy which appears to be resilient is also a significant factor in complacency and overbearing confidence. “As it was then, the US economy remains strong, and the financial disruptions across the Atlantic seem remote. But in that episode, they were, in fact, early manifestations of profound adjustments that were only beginning and would eventually affect economies worldwide.”
Cracks in the System are Beginning to Show
Meanwhile, on Tuesday, 27th of September, Joseph Brusuelas, chief economist at RSM, noted that Dollar Funding Markets, though not as extreme, are now exhibiting some of the pressures it has gone through in the past economic crisis. He described the phenomenon as “characterized by insufficient aggregate demand and low inflation over the past two decades. [Hence], will now be characterized by insufficient aggregate supply, negative supply shocks, geopolitical tensions, and higher inflation.”
Therefore, he advocated a change in the approach of fiscal and monetary policies by the US to better adapt to this sudden change. “Fixed income markets are signaling a shift in perceptions of financial stability and raising a caution flag for investors,” he added. Thus, coupled with the remarkable resemblance to that of the outset of the 2007–2008 financial crisis, the world economy may very well be on the brink of a looming economic disaster.
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