There’s no doubt the economic crisis that is the Great Recession shaped financial markets across the globe. Other factors such as globalization and Foreign Stock Indexes have played a part in affecting the US Economy- positively and negatively. The introduction of new trade platforms, like E-trading, have opened ajar a world of theories that are listed in the prompt. This research paper will analyze the theories, determine their relevance, and answer them.
What are reliable predictors of economic and financial crises?
This prompt is rather interesting because of its change over time. Some of the most reliable and accurate predictors of our time would be things like domestic market indexes, National GDP, Unemployment rate, and even foreign markets, as shown by the effects of the Great Recession. Investing has changed ever since the Great Recession, which shook the USA, partly because it was one of the first major recessions in about 80 years. According to Inc.com, widely known for their widespread rankings of the fastest growing private businesses, Market Cap and GDP. “The ‘a-ha!’ quality is that you can rationalize that the worth of a company should be somehow related to the output of an overall economy.” says writer Thomas Koulopoulos. This isn’t too hard to understand, something that Koulopoulos also mentions. It seems obvious why a company being successful has a direct output on the economy of a country; Not to say that recessions cannot have an output on businesses and sectors, but more so that the economic downturn of a company can drive markets down, something that has changed since the Great Recession, and something that we see happening all too often in our daily lives. It’s almost common to see low quarterly earnings from Apple drive the NASDAQ down, etc. An interesting point Mr. Koulopoulos brings up is that Warren Buffet singlehandedly popularized this indicator calling it the “best single measure of where valuations stand at any given moment.” Another relevant indicator is the VIX, a market index that tracks the volatility using S&P 500 index options. The VIX is important and popular because it’s reliable- over the past 30 years you can see accurate and valid spikes in the graph, quite obviously representing volatility. The higher the spike, the higher the volatility. During the recession of 2008/2009, the graph spiked, and right now it has remained relatively low, as it awaits another recession as devastating as that of the one in 2008. Although the article is too old to connect the VIX to the recession that occurred during the height of the Pandemic, the VIX did in fact spike, as markets were volatile.
As you can see, these two indicators are popular and reliable, and remain relevant in predicting the next time of financial crisis. Understanding these indicators can lead citizens and investors alike to further understand the economic stability of the USA.
Describe some achievements and pending issues in context of a global crisis.
According to subject.com, there are a few pending issues in the context of global economies such as the emerging new risks of sovereign debt crisis in European countries like Greece, and unemployment and job risk are declining in current economies, especially among the youth. These are labeled as some of many pending issues. The author, who has remained anonymous, writes positively “The major lesson learned from the 2008-2009 global financial crisis was to have a reconsideration of policies targeting economic growth mainly the change of formulation approach in conventional policy.” As an accomplishment, the author implies that global economies have “learned their lesson” for lack of a better term. The author brings up an interesting point that doesn’t just apply to economics- sometimes you have to make a mistake to prevent it, meaning that global economic catastrophes like the Great Depression and the Great Recession had to happen in order to streamline economic aid in times like these. These were some of the main factors that helped avert a second Great Depression. Both these achievements and pending issues are vital in order to improve the aid and response to economic distress.
Are we still in danger of economic and financial crises today?
The short answer is yes, and it seems clear to see why. As discussed in the introduction, so many outside factors can turn the state of the economy in modern times. A pristine example would be the Coronavirus Pandemic. The national shutdown spiraled the economy into a state like that of 2008. With proper response, the recession seems to be heading behind us. With so many factors like trade tensions, globalization, foreign government issues, it is wise to never let your guard down. The Guardian, one of the largest online news sources in the world, has an article about future financial crises, written by Nouriel Roubini. Among possible issues that can affect our economy negatively, she mentions China-USA tensions, the Federal Reserve interest rates, and more. So yes, it is very viable to assume there will be another recession, one of which we recently experienced with the Pandemic.
The three theories/prompts analyzed are crucial in understanding global markets and predicting future recessions or analyzing those of the past- thankfully humanity seems well-equipped to handle and get past a recession should the necessity present itself.
Global Financial Crisis. (2019, September 20). Retrieved from https://subjecto.com/global-financial-crisis-2/
Koulopoulos, T. (2018, September 30). These 3 Indicators May Be Projecting the Next Financial Collapse. Retrieved from https://www.inc.com/thomas-koulopoulos/these-three-indicators-may-be-projecting-next-financial-collapse.html
Roubini, N. (2019, June 14). The growing risk of a 2020 recession and crisis | Nouriel Roubini. Retrieved from https://www.theguardian.com/business/2019/jun/14/the-risk-of-a-2020-recession-and-crisis-is-growing
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