If crises and catastrophes represent significant and epochal cuts, comparisons with similar events in the past are an understandable concern in order to be able to better manage future trouble spots.
If one compares the 2008 financial year and the first half of 2020, parallels can be identified that clearly show the recurrence of a crisis. But differences also become clear.
2008 financial and economic crisis
The 2008 financial year had its negative peak in the banking crash surrounding the insolvency of the investment bank Lehman Brothers. This was preceded by the “American Dream” of owning a home, which was intended to come true for as many Americans as possible. More than ever before, the banks had dollar signs in their eyes, because they earned good money on every loan they granted. The fact that easy credit was highly risky did not bother the banks. They could resell the loans, bundled with more lucrative products in securities. So the risk of being stuck with a “bad” loan lay with the buyer, i.e. the next bank.
Due to the increase in the prime rate of the US Federal Reserve, many borrowers got into extreme difficulties, which mostly ended with the sale of “their” property. As a direct consequence, many people in the USA lost their homes and their savings. The banks went away empty-handed, the US leading index Dow Jones slipped 4.4 percent (504 points) in one day.
The world was plunged overnight into an economic and financial crisis the like of which had not been seen since the Second World War. Central banks and governments have to rescue banks, and at the same time the price of gold explodes. On the first trading day after the Lehman insolvency, the price of gold rises by 3.3 percent in the London Fixing and is quoted at 775 USD/troz (31.103 grams). The gold price becomes historic on September 17, 2008, when it rises by 110 dollars or a whopping 14 percent. The world understands that the trust between the banks has also been used up.
2020 – A virus brings the global economy to its knees
The marketing year 2020 is under the influence of the novel coronavirus SARS-Covid-19, and it seems that global value chains based on proximity and efficiency are undergoing permanent change. Contact and curfews are the order of the day to prevent possible contagion. “Just in time” becomes “just in case”.
In addition to the countless global crises and geopolitical risks, the corona pandemic has left the entire globe in economic paralysis. A shutdown that is slowing down all industries. Shops close, planes stay on the ground, production lines stand still, schools, universities and daycare centers remain closed. Mother Earth is in a state of emergency. The medium and long-term consequences of the worldwide business interruptions are not yet foreseeable. Nor can they be quantified. Cautious forecasts resemble an economic apocalypse. The comparison with war economies hits the point exactly.
The Dax (German share index) falls below 9,000 points in mid-March. A minus of 5.6 percent within one day. States and governments are putting up rescue parachutes worth billions. Bond purchase programs are boosted, banks are granted emergency loans. Similar to the financial crisis of 2008, except that this crisis is now said to be the worst since the end of the Second World War, the extent of which will have an intergenerational impact, and will exceed the costs of everything that has been experienced (economic and natural disasters) in recent decades.
The price of gold is recovering
While the stock markets are volatile, the precious metal, after a temporary slump in March 2020, is once again the first to strike. Data from the London Bullion Market Association (LBMA) also show a rapid rise of 19 percent. Particularly in view of the situation at that time after 2008, the potential of the gold price seems to be unbroken. At the moment the gold price in US dollars is 1,733.92 USD (1,592.26 euros). Forecasts point to new cyclical highs. An experience from the Lehman crisis.
Born 1981 in Strasbourg, is a freelance journalist for various online media throughout Europe, focusing on finance, real estate and politics. He gathered his professional expertise as a consultant for global players and medium-sized companies. Fournier studied economics and german in Paris and Dresden. He currently lives in Saarland and has been a member of the Euro Leaders team since the beginning of 2019.