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At the moment many businesses have been closed, the stock market has been on a free fall and millions of Americans have been laid off. The number of unemployed people has been skyrocketing and the whole economic set up has been interrupted. We have a health problem and an economic collapse at the same time and this makes this economic crisis very different to what we had during the 2008 global financial crisis. Here are some of the major differences between the current economic meltdown and the 2008 Great Recession.
During the 2008 financial crisis, the Federal Reserve had a 500 basis points margin to lower interest rates as a way of stimulating the economy and this enabled them to lower rates from 5 percent all the way to zero. However at the moment, the FED only had a margin of 160 points and they have already slashed the rates to zero. Traditionally, the Federal Reserve can lower or increase interest rates as a way of managing the economic cycle. Low interest rates means that it will be cheaper to borrow money and if people borrow money, spending increases and this result to an economic expansion. The opposite happens when the FED increases the interest rates.
Quantitative easing is not complicated as it sounds; it means printing money out of thin air and then pumping this money to the economy. This is a monetary policy which the FED initiates in circumstances where lowering interest rate is not enough to stimulate a declining economy. Usually, money is created if banks issue loans at various specified interest rates and this is the basis of the current debt driven monetary system that runs our economy. Debt is created once credit is issued but this system has its own shortcomings but it has been effective in protecting the economy from inflation because money is given out for specified purposes. This does not directly affect the price of various commodities, but when done excessively, it creates debt bubbles like the housing market bubble in 2008. These bubbles are very dangerous to the economy because if they are not managed well, they will always cause a financial crisis as it happened back in 2008.
Since the collapse of the Soviet Union, we now have another global power that is challenging the United States and China seems to be doing pretty well. China has already managed to control this health and they are already establishing diplomatic relationships by helping European countries solve the health problems. On top of this, president Xi Jinping was allowed to be the Chinese president for life. This is totalitarianism but it will help China in executing their long term strategies. China is gaining soft power at the expense of the collapsing American empire. However, Americans are waking up to this reality and this has forced president Trump to begin the trade war. The future of US-China relationship remains uncertain even during this period of tremendous health and economic challenges.
It is very clear that we are living in difficult economic times. We have a historic level of economic meltdown and experts are warning that the worst is yet to come. This is the biggest economic crisis in many years and it can only be compared with the great depression. In less than two months millions of Americans have lost their jobs and hundreds of companies have been forced to shut down their operation. The global health problem that we are all going through is making the economic meltdown more severe and this makes it totally different to the 2008 financial crisis. The US government should focus on solving this health problem because it is the only solution if the economy has to open up in the near future.
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