Is This Downturn A Repeat of 2008?
The comments below are an edited and abridged synopsis of an article Charles Hugh Smith
For those who track the stock market, the signs are ominous: The US was the last major market to notch gains this year, and in October it followed the rest of the global markets into a slide that has yet to end.
Key sectors such as oil, banking and utilities have crashed with alarming ferocity, reaching oversold levels last seen in 2008 as the global financial system was melting down.
This sends an unmistakable signal: The global economy is heading into a recession, and assets will not rise in a recessionary environment. So—better to sell risk assets like stocks now rather than later, and rotate the money into safe assets such as Treasury bonds.
Indicators of recession abound: auto sales, home sales and global trade are all slumping.
The sharp drop in equities is reminiscent of 2008. Indeed, the December decline is the worst in a decade. Or is this a different kind of recession?
If we are entering a recession, what can central banks and governments do to ease the financial pain and damage? We can be relatively confident that they will do something. But what actions can central banks/states take, and will those policies work, or will they make the recession worse?
A good place to start is to revisit the 2008 crisis and try to understand its sources and how central bank policies reversed what appeared to be a snowballing collapse of global finance—a meltdown that would have sent the global economy into a deep freeze, which is what Smith does in this article.
In conclusion, he writes that the looming recession is not a repeat of either the dot-com recession or the 2008 global financial meltdown and recession. This downturn shares traits with 3 different kinds of recession: the popping of asset bubbles, credit-currency mismatches and a panic move to de-risk, and a classic business-cycle recession of credit and demand exhaustion. This will complicate the analysis and response of central banks, companies, investors and households.