ALAN GREENSPAN, the 18-year US Federal Reserve Chairman, was onboard a commercial flight from Geneva, Switzerland back to the USA on September 11, 2001.
His security aide brought him discreetly to the plane’s pilot and was told terrorists had struck the Twin Towers in New York and the Pentagon and they were instructed by authorities to fly back to Switzerland and not land in any place in the US.
In his book “The Age of Turbulence,” Greenspan narrated how nervously he conjured up images of the world economy as an aftermath of the 9-11 attacks. He imagined people cowering in fear and refusing to leave their homes, banks closed, world trade and commerce grinding to a halt and the global financial system possibly hacked as to make international financial intercourse a “no man’s land”.
Greenspan’s greatest fears were laid to rest—a week after—as the world, momentarily stunned, issued a tough strike-back notice against terrorists and vowed to restart the world economy so as not to reward the terrorists of their main aim: to terrorize the world into economic paralysis.
Nineteen years after (2020), the “doomsday scenario” that earlier spooked Greenspan happened without the benefit of a single shot fired from a gun. No, there were no bearded fanatics in robes involved but just a tiny virus called Covid-19 that brought the whole world almost to its knees.
As of October 29, World Health Statistics recorded 246 million people infected in over 220 countries with almost five million dead from the deadly virus. People were locked down in homes, cowering in fear and only allowed to walk out with face masks and shields. The world economy almost ground to a painful halt- engineering, perhaps, the worst recessionary conditions since after World War II.
According to global Statista, the 2019 global gross domestic product (GDP) at $82.55 trillion dropped by $3.945 trillion to only $78.42 Trillion in 2020. Global GDP per capita figures show a horrifying plunge from 2019’s $18,381 to only a puny $10,925 or a debilitating drop of 40 percent. Financial losses were estimated as four times that experienced during the 2009 financial crisis.
The International Labor Organization published job losses equivalent to 255 million full-time jobs worldwide with an estimated loss of job output worth $3 trillion.
The earlier estimated 2021 global GDP forecasted growth rate of 5.8 percent appears “iffy” now, what with the world described by the Wall Street Journal as still suffering from “worldwide supply chain snarls, an accelerating inflation and the bad impact of a Delta variant.”
Global research data has shown that “fear is a far more dominant force than euphoria.” Thus, when the virus struck, the drop in economic activities was very sharp but the economic recovery, employment rejuvenation and commodity markets” will be at a slower pace than their precipitous falls.
Economic “slowdowns” are never found in mere GDP numbers. As it never was when the 2009 dot-com failure and the 1987 Asian Financial Crisis shook the world to its senses. Thus, most econometric models will miss their forecasts.
In a later interview, Greenspan declared that deflations of bubbles always happen when one least expects them. Most of the players are caught in what the former Fed Reserve chair named “irrational exuberance.”
As a final note, Greenspan said that the solutions to a crisis may sometimes presage another problem. He cited, for example, that keeping the interest rate below 2 percent after the dot-com carnage may have precipitated the growth and eventual bursting of the real estate bubble.
Enough of Economics as a dismal science of boom and busts?
With worldwide current interest rates kept at their low levels today, what industries will again be too enthused as to expand too much (in the recovery period) to a point of becoming another dangerous specific bubble in the near future?
As it is now the whole world has already been shell-shocked enough by the Covid-19 attack.
Zoilo “Bingo” P. Dejaresco, a former banker, is a financial consultant, media practitioner and book author. He is a Life Member and Media member of the Financial Executives Institute of the Philippines (Finex). His views here, however, are personal and do not necessarily reflect those of Finex and the BusinessMirror. He could be reached via email@example.com.