The past week will be heralded as one of the worst weeks ever for stock markets around the world. In total, about $6,200bn (R56,000,000,000,000 – about 30 times SA’s GDP!) was wiped off the value of the world’s stock markets as panic and distressed selling were the order of the day.
The credit crisis began in earnest in March with the collapse of Bear Stearns, but until middle September equity markets stood up relatively well. Since then the major markets collapsed fiercely and from its highs last year markets have retracted already more than 40%.
The severity of the 2008 credit crisis is compared with the financial crisis and economic collapse of the 1930s (Great Depression). Back then the S&P 500 lost about 85% of its value within 15 months. Will we experience similar equity losses in today’s crisis? Unlikely, because governments all over the world have reacted quickly to avoid an economic disaster and are standing united to ensure the normal functionality of the financial system, but obviously at a great cost to tax payers.
Philip Stephens, columnist for Financial Times, however reckons that this crisis is unique in two aspects, and thus making it difficult for governments to deal with the crisis: First, the ferocity of the crisis and second, the geography. In the recent past financial crises used to start in Latin America, Asia or Russia – typically developing or emerging economies, and not developed economies. Back then the developed economies used to prescribe to such countries/regions how to transform their economies – market liberalisation, better fiscal control, etc. – as a precondition for financial support from the IMF. This time around the crisis started on Wall Street preceded by the slump in the US housing market. Emerging economies have been the victim, rather than the culprits.
After the Asian currency and credit crisis of 1997-98, Asian countries accumulated foreign currency reserves to defend themselves against future crisis. Today those reserves are worth $4,000bn which basically financed the reckless credit explosion in the USA and Europe. One commentator made the following remark: “America drowned itself in Asian liquidity.”
Today the West’s moral authority has been largely eroded and they cannot expect emerging economies to listen to their lectures about how to run their economies anymore. Yet, the west still assumes political and economical leadership in talks how to redesign the global financial system. To quote Stephens in his recent article – “Crisis marks out new geopolitical order”, FT.com, October, 9 – “... the west can no longer assume the global order will be remade in its own image. For more than two centuries, the US and Europe have exercised an effortless economic, political and cultural hegemony. That era is ending.”
The credit crisis began in earnest in March with the collapse of Bear Stearns, but until middle September equity markets stood up relatively well. Since then the major markets collapsed fiercely and from its highs last year markets have retracted already more than 40%.
The severity of the 2008 credit crisis is compared with the financial crisis and economic collapse of the 1930s (Great Depression). Back then the S&P 500 lost about 85% of its value within 15 months. Will we experience similar equity losses in today’s crisis? Unlikely, because governments all over the world have reacted quickly to avoid an economic disaster and are standing united to ensure the normal functionality of the financial system, but obviously at a great cost to tax payers.
Philip Stephens, columnist for Financial Times, however reckons that this crisis is unique in two aspects, and thus making it difficult for governments to deal with the crisis: First, the ferocity of the crisis and second, the geography. In the recent past financial crises used to start in Latin America, Asia or Russia – typically developing or emerging economies, and not developed economies. Back then the developed economies used to prescribe to such countries/regions how to transform their economies – market liberalisation, better fiscal control, etc. – as a precondition for financial support from the IMF. This time around the crisis started on Wall Street preceded by the slump in the US housing market. Emerging economies have been the victim, rather than the culprits.
After the Asian currency and credit crisis of 1997-98, Asian countries accumulated foreign currency reserves to defend themselves against future crisis. Today those reserves are worth $4,000bn which basically financed the reckless credit explosion in the USA and Europe. One commentator made the following remark: “America drowned itself in Asian liquidity.”
Today the West’s moral authority has been largely eroded and they cannot expect emerging economies to listen to their lectures about how to run their economies anymore. Yet, the west still assumes political and economical leadership in talks how to redesign the global financial system. To quote Stephens in his recent article – “Crisis marks out new geopolitical order”, FT.com, October, 9 – “... the west can no longer assume the global order will be remade in its own image. For more than two centuries, the US and Europe have exercised an effortless economic, political and cultural hegemony. That era is ending.”
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