COVID-19 | Coronavirus

“The fall of the stock markets is a problem for the whole economy”

On the New York Stock Exchange, Monday March 16.
On the New York Stock Exchange, Monday March 16. SPENCER PLATT / AFP

Losses & profits. This is characteristic of major crises. They borrow from their predecessors, but are not like them. Market operators are pulling their hair out at this unprecedented combination of an economy that has been cut short by a virus. It was not the bursting of the Internet bubble in 2000 or the financial meltdown of 2008. The remedies then no longer work. As it was twelve years ago, central banks poured in hundreds of billions of dollars in cash, and the Federal Reserve (Fed) cut interest rates to zero. But nothing worked. Worse, the haste of the Fed, which did not wait for its monthly meeting on Wednesday March 18 to act, was interpreted as a sign of restlessness. As a result, the markets have plunged like never before.

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By falling by almost 13%, the Dow Jones index joined its sad record of the crisis of 1987. And Europe had, in the morning, followed the same fatal slope, with decreases of almost 10% for the ACC 40 French, the German DAX or the British FTSE. Investors understand that not all money from the European Central Bank will take off more planes from British Airways, Air France-KLM or Lufthansa. All companies which, without the assistance of their states, could, within two months, find themselves bankrupt, since their turnover has evaporated in the blink of an eye. And they are not the only ones crying. The big American banks, penalized by this sudden drop in American rates and a disappeared consumption, saw their stock prices tumble by almost 20%.

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Vanity fairs

This decapilotade is a problem for the whole economy. Retirement money in Anglo-Saxon countries, that of life insurance in France, is closely dependent on the health of the stock market. When it coughs, the whole economy catches a cold.

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According to calculations by Natixis bank, a 10% drop in stock market prices causes American growth, very dependent on the markets, to lose 0.7 point of gross domestic product (GDP) and 0.3 point to European. This means that a 30% market drop, as seen since the start of the year, can cost Europe one point of growth. Added to the breakdown of the real economy, this means the return of the recession in a world where the States will be weakened by the massive interventions which they undertake today to avoid, “cost that costs”, the bankruptcy of their fabric economic.

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