Could this be a worse economic shock than the global financial crisis? “In many ways it’s far worse than 2008,” said Joseph E. Stiglitz, the Nobel laureate economist. My analysis nytimes.com/2020/03/13/bus…
2/ the point @JosephEStiglitz is making: Last crisis, toolkit was proven. "2008 was a show that we had seen before. We know about financial crises. We knew that it was just money, and that one way or the other the government would step in and save the bankers from their folly.”
@JosephEStiglitz 3/ But this time, the threat is the virus. “This is a shock arising out of the real economy, out of the real world, out of biology, not out of financial shenanigans or complexities,” said @AdamPosen “We are much less well suited to deal with this.”
@JosephEStiglitz @AdamPosen 4/ This time is not just a demand shock but a supply shock, too. Monetary policy ill-suited. And monetary policy out of bullets. Fiscal is so far mostly just talk (UK excepted). Markets want confidence that authorities will use tools. But the tools either ill-suited or neglected.
@JosephEStiglitz @AdamPosen 5/ Fundamentally, the threat to world economy is the spread of the virus. The only way to contain is to further tighten the clamps on the economy through social distancing. Investors see this clearly. And they see the terrifying leadership void at the helm of major economies
@JosephEStiglitz @AdamPosen 6/ Conventional wisdom says this is economic shock, no threat of financial crisis: banks stronger, leverage smaller. @anatadmati says that’s nonsense. Banks putting liabilities off balance sheets. Leverage in corporate sector is alarming. (Hit that earlier:nytimes.com/2020/03/11/bus…
@JosephEStiglitz @AdamPosen @anatadmati 7/ As @JosephEStiglitz puts it: “Large economic shocks have a proclivity to turn into financial shocks. There is every reason to believe that things will get much worse.”
