Thread by @cesifoti

This may be the beginning of the next economic crisis.

During the last 72 hours:
-Oil Prices went down 20%
-FTSE (UK), DAX (Germany) down 7%
-S&P Futures down 5%
-Russian Rubble Devaluates 10% overnight

Here, a few things worth remembering: (1/N)

1. Economies are flow, not stock. GDP is not a measure of how much an economy has, but how much value it produced within a time window. It is a flawed measure, but it is not flawed in the idea that we should measure economic activity through flow. Why does this matter?

Coronavirus limits flow. It doesn't change our infrastructure, or the knowledge inside people's heads, but it affects the interactions and transactions that are the essence of economic activity. A crisis of mobility and interactions is an attack to the heart of the economy.

2. Economic crisis tend to have two different "causes." The long term events that build the critical state, and the triggering events. The depth of the crisis will depend on how critical the state of the economy is. The timing, on the triggering event.

The analogy is that of building a house of cards. Does it collapse because it is too tall (critical state)? Or because someone bumped into the table (trigger)? It is both (or neither). This excellent talk by Didier Sornette explains it well ted.com/talks/didier_s…

3. Once the trigger happens, people will adapt their behavior. They will become more cautious about starting new deals, or making new purchases. They will work to protect what they have, changing their mindset to that of a second mover. They'll wait to see what others do.

All in all, it feels like the end of an era. An era that started with the 2008 financial crisis & the election of Obama, and that is ending with a global pandemic & with democracy in the hands of social media. Whether we like it or not, crises are the ticks of our modern clock.