2020-05-13 11:14 #0 by: Evelina

Shockwave

Adam Tooze on the pandemic’s consequences for the world economy

”In​ March, as Europe and the US began to apprehend the scale of the Covid-19 pandemic, investors panicked. Financial markets plunged. The rout was so severe that on several occasions in the second and third week of March, normal market functioning was in question. The prices of US Treasuries, the ultimate safe asset for investors all over the world, swung wildly as fund managers, scrambling for cash, sold everything they could sell. In the foreign exchange market, through which more than $6 trillion normally swirl every day, the traffic was all one way: out of every currency in the world, into dollars. No market can function for long like that. Sterling plunged. Even gold was sold off. This was not a banking crisis like the one in 2008, but, had it not been for the spectacular intervention carried out by the US Federal Reserve, the Bank of England and the European Central Bank, we would now be facing not only the ravages of Covid-19 and the disastrous social and economic consequences of the lockdown, but a financial heart attack as well. Instead, we are experiencing a shockwave of credit contraction. Production and employment have shrunk dramatically. Huge programmes of government spending have been set in motion, not to create new jobs but to sustain the economy on life-support. The challenge isn’t merely technical. This is a global crisis, which affects virtually every community on the planet.”

https://www.lrb.co.uk/the-paper/v42/n08/adam-tooze/shockwave