The current "synchrony" of the markets would produce a fatal scenario, according to economists

Leer en español: ¿Será la próxima recesión económica global peor que en 2008?

More than a decade ago, the so-called 'junk mortgages' of the United States gave rise to an economic recession that spread throughout the world, leading many companies to bankruptcy, causing huge drops in the stock market and leaving millions of people unemployed.

Since then, and still feeling the effects of the 2008 real estate recession, dozens of analysts are trying to identify when and why the next economic recession will unleash. For some the subject is impossible to determine with accuracy. Others believe that the next bubble responsible for global economic chaos will originate in the stock market or cryptocurrencies; this due to the popularization of the investment method, which once reached the lowest ranges of the economic pyramid (average people), would unleash an inevitable collapse.

There are even those who share the theory that the economic crisis has already begun and did it exactly on January 1, 2018 with the implementation of the Basel III agreements. The agreement represents a reform of banking regulation between the countries of Europe and America, which replace the internal models to assess the risks, by those stipulated in the agreement.

A dangerous "synchrony"

While the exact moment of the global economic downturn is difficult to determine, the vast majority of financial specialists and investors agree that the next crisis could be one of the most devastating in history. This is due to the "synchrony" currently handled by global economies, which in their attempt to grant sustainability and growth have generated a dangerous state of dependence between markets that would cause a domino effect if a company or bank were to fall.

The economist and researcher at the University of Middlesex in London, Lorenzo Ductor, explained to the BBC what this phenomenon would mean and why it becomes a global threat.

"We have already experienced the main risk of a unified financial structure with the crisis of 2008. Today large companies, banks and financial institutions are highly interconnected and the shocks that affect a company or a bank can trigger severe instability and until the collapse of an entire economy", said Ductor for the British media.

The expert indicates that due to the "macroeconomic spread of volatility", it is easier for the negative impacts of a local crisis to expand to the markets of other countries almost immediately, thus causing chaotic reversals of the economy that hurt companies and industries of any kind and, consequently, to almost all inhabitants.

However, Ductor's analysis managed to identify, through a system of measurements that detected a significant increase in the synchronization of economic cycles, that a future economic recession could be more serious than in 2008 but at the same time more temporary.

"I think it could be worse than the 2008 crisis in the short term, because there would be more factors to spread the recession from one country to another, but I also have the impression that thanks to certain measures that were taken in 2014, such as capitalization of the banks, it would take us less years to recover", says Ductor, adding that the solution to avoid this scenario lies in the effectiveness at the moment of "designing optimal policies that amplify the positive effects of trade liberalization and, at the same time, prevent negative effects of highly interrelated markets".

Latin American Post | Krishna Jaramillo

Translated from "¿Será la próxima recesión económica global peor que en 2008?"