How the Pandemic compares with the Global Financial Crisis of 2008

Read Time: 4 mins

We all are well aware that the coronavirus pandemic has led us to state wherein we are worried about our health, food, essentials, money, and even our jobs. In this time wherein we need each other's support, we also need to understand the numbers clearly rather than just insinuating. Also, we need to understand the chances of a recession alongside the size of the recession.

Spoiler Alert: Chances of recession within 12 months as per Bloomberg Economies = 100%.

Source: Bloomberg Business Week

I guess, now you'll be heeding to this blog even more carefully. So first let's see how big the Pandemic can be and as we have already seen how the GFC (shorted for Global Finacial Crisis) of 2008, how this one compares to that.
First, to understand what happened during GFC, I would like you to read this blog.

Now since we know what happened in the period 2007 to 2009 during the GFC. Let's focus on the coronavirus pandemic. As of now, what we know about the pandemic is the following:

• Its Epicenter is Wuhan
• The Virus is mutant and the second wave has also been reported in some places
• No Vaccine as of now
• Some particular medicines are helping but are not a cure.
• Govt. across the globe has implemented lockdown to certain extents thus forcing a lot of pay cuts and in some cases firing of employees by the organization since the company is not able to generate revenue.
• Huge sums of money being poured by governments to fight the pandemic
• Huge donations followed which without a doubt is a plus.

Since we aren't qualified to talk on the healthcare part so let's see the economic part follows. The pandemic has created a lot of trouble in terms of Personal as well as Corporate Finance. Although the individual losses might not seem much on a national level it something that definitely affects small business and the incubated ideas. In today's world, the Service sector contributes the most to any GDP across the world, whether it be the USA with 80% share or India at 55%. With the GDP banking so much on the service sector and the service sector declining because of the pandemic and the unidentified impacts of it on the daily life of each individual, the economy falloff is very well written and that too in the near future, we right now are standing on a very fragile diving board and the jump i.e. to be made is very high. 

Financial Jargon Alert: Stimulus Package

A stimulus package is a package of economic measures put together by a government to stimulate a floundering economy. The objective of a stimulus package is to reinvigorate the economy and prevent or reverse a recession by boosting employment and spending.

Here are a few deficit sums that should be taken into account to measure the impact of the pandemic on the global economy:

• The Stimulus Package of the US stands at $2.2 trillion
• In addition to the spending, a Treasury backstop of Federal Reserve programs, which as of now is not in place, could provide another $4 trillion in liquidity.
• India has already announced $22.6-billion stimulus package to fight the pandemic and is in talks to announce a second stimulus package worth $13 billion
• The UK announced a stimulus package of $66 billion
• The government has committed a further 330 billion pounds in loan guarantees. The Bank of England is also playing its part, cutting interest rates to a record-low 0.1% and adding 200 billion pounds to its asset-purchase program. 
• EU eyes at stimulus package of $590 billion
• Currently the Pandemic models at $2.7 trillion globally

How big are these numbers compared to that in 2008:

• The US stimulus package of $787 billion 
• Bill covering a variety of expenditures from rebates on taxes to business investment. $184.9 billion was to be spent in 2009, and $399.4 billion was to be spent in 2010 with the remainder of the bill's appropriations spread over the rest of the decade.
• The UK at $25 billion
• The European Union (including that of the UK) provided a stimulus package of $218 billion

This sum, which includes the subsequent 2 years that followed the GFC, stands at less than half of what we have already spent on COVID-19.

The total loss is what leads to a recession, although a lot of factors are included in the understanding of it to make it simple, Total Loss = Bubble/ hoax money + Stimulus Package (This is just for understanding and is no official formula)

• Total Loss of the Global Financial Crisis
• Bubble ($4 trillion) + Stimulus Package (approx $1.1 trillion) = $5.1 trillion
• Current Total Loss due to the Pandemic
• Since the business losses are not yet accounted for so we cannot predict that but we can clearly see that majority of the businesses are making losses. Remember, bigger the losses the bigger the stimulus packages
• Asia-Pacific stands at $620 billion of losses, so currently we stand at a total loss of around $3.3 trillion.

How is it different from that of 2008?

The International Monetary Fund has already declared that the world is undergoing a global recession. This recession, unlike the global financial crisis of 2008, is not a financial markets recession but a personal one, not a supply-side recession but demand destruction.

A key difference in the policy response during the global financial crisis and now is that policymakers today are deploying emergency relief packages preemptively to limit the economic damage. 

Closing comments: Perhaps we cannot escape the recession, the government has already started preparing the rescue plan for us.