Coronavirus and financial crisis: A Virus is not a bubble

The comparison of the financial crisis, with the Virus does not fit. If you have been biologistic, is a different disease for an analogy. at the end of Februa

Coronavirus and financial crisis: A Virus is not a bubble

The comparison of the financial crisis, with the Virus does not fit. If you have been biologistic, is a different disease for an analogy.

at the end of February in Seoul: an employee of a disinfection company to fight against the Virus photo: Kim Hong-Ji/reuters

For the Coronavirus is not a superlative to drastically: He is not only considered as a trigger of a "pandemic", but is also frequently compared with the 2008 financial crisis. The US Central Bank, the Fed seems to confirm this point of view now: On Tuesday, the Bank lowered its key interest rates by 0.5 percentage points, and at a meeting that was not intended actually. Ad-hoc measures were adopted by the U.S. monetary authorities most recently in 2008, the global financial quake curb.

At first glance, it seems indeed obvious, to compare the Coronavirus of the financial crisis – because the two together is the panic. Worldwide are now cancelled big events, flights cancelled and factories closed, to prevent the Virus spreading further. Also in the financial crisis, many firms and banks had a fear of a "contagion risk".

The flow of money between banks came to a Standstill, and many companies stopped their orders to wait and see, would like to develop the financial crisis. Worldwide, it came to pass, in a sort of economic quarantine.

However, are so obvious the analogies: It is misleading to compare the Coronavirus with a financial crisis. The Virus will lead to significant economic losses, but only temporarily. Once the epidemic is under control, will the economy recover because it comes to catch-up effects. Example tourism: Panicked travelers cancel now your flights, but the desire for recovery remains. So you will be able to book new trips, and as soon as the Virus has dissipated. Some of the cancelled major events such as the Leipzig book fair, you can't reschedule, but this damage remains manageable.

financial crises are of a completely different Dimension. They resemble a cancer that grows for years in one body. Financial crises a system failure of capitalism. They come from the inside, not the outside like a Virus.

financial crises always arise when too many loans are granted. Usually the danger is not recognized at all, because these loans provide first for growth and prosperity. The financial crisis of 2008 was typical: In the USA, but also in the UK, Ireland, Spain, Iceland or Latvia, unrestrained mortgage were assigned and the construction industry boomed and house prices rose. All seemed rich. However, every financial bubble bursts at some point: The credit flows, house prices fall and millions of people are suddenly over-indebted. You have taken loans for which there is no value after the real estate market collapsed.

then the banks collapse because loans are not paid back. The state must step in and provide these institutions with billions to support, in order to prevent that the crisis is eating more due to the economy. Many people believe that with these bailouts, the financial crisis is over. Nice.

Even in the financial crisis, many banks were afraid of the risk of contagion

In the case of a cancer, those aberrations are often particularly tricky, which initially appear as benign. So it is with financial crises. The Central Problem there, of all places, where the virtue of pattern seems to prevail: It is the builders, the over-indebted, but not entirely bankrupt, and the save is now adamant to repay their loans. If millions of citizens forego consumption, then demand is missing and the economy crumbles. The burden of the past destroys the future.

financial crises, weaknesses in an economy for years to come; the Eurozone has experienced this as well as the USA. The Coronavirus, this is not to be expected. So no false panic.

Date Of Update: 05 March 2020, 17:00

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